sales tax

Article Dean Dorton

Repost from Avalara , Image from Santa Clarita Consultants

2018 was an exciting year for sales tax. 2019 promises to be the same.

Sales tax wonks will remember 2018 as the year the Supreme Court of the United States overruled the physical presence rule that for decades kept states from taxing remote sales. The court’s decision in South Dakota v. Wayfair, Inc. (June 21, 2018) allows states to require a remote seller with “economic and virtual contacts” in the state (economic nexus) to collect and remit sales tax, even if it has no physical presence in the state.

This is huge, and it will take months if not years for the full ramifications of the decision to play out.

Fallout from Wayfair

As of the end of 2018, more than 30 states and Washington, D.C. have adopted economic nexus policies, including two giants, California and Texas. Fallout from the Wayfair decision is sure to continue in 2019. Several states have already filed economic nexus legislation for consideration in 2019, including Arkansas, Missouri, and Virginia. Meanwhile, sales tax simplification measures are under consideration in Texas because the Lone Star State has more than 1,500 local taxing jurisdictions.

Although the Wayfair case was triggered by an economic nexus law, the decision doesn’t prevent states from pursuing remote sales tax revenue via different routes; all it does is put an end to the physical presence rule. Thus, states could pursue a variety of remote seller sales tax laws in 2019, including affiliate nexus, click-through nexus, or cookie or software nexus. Furthermore, more states will likely require marketplace facilitators to collect and remit sales tax on behalf of their third-party sellers. What will this mean for businesses that sell through multiple channels? There’s a good chance we’ll find out in 2019.

An act of Congress?

Will the rapid growth of economic nexus and other remote seller sales tax laws inspire Congress to take up the issue? Perhaps. It could never agree to expand state tax authority to remote sales, but it might come together to limit it. A handful of bills seeking to do just that has already been introduced.

There’s more to sales tax than remote sales

States’ newfound freedom to tax remote sales isn’t the only sales tax news making headlines. Expect to see the following in 2019:

  • More states apply economic nexus to other taxes. Texas is already looking at how economic nexus affects franchise tax. Expect other states to move in that direction.
  • More taxes on streaming services. As more people stream their entertainment, more states will look to tax those services.
  • More taxes on sins. Some states will change the way they tax products like alcohol and tobacco; others could start to tax newly legal products such as marijuana.
  • More product taxability changes. In 2019, more states may exempt certain products like tampons because they’re essential. Others may subject products like soda to a higher rate because they pose a health risk. And some states may exempt newish products and services simply because they’ve never been taxed before.
  • Rate changes: There are sure to be many.

There are many uncertainties in life, and with sales tax. But one thing is certain: 2019 will bring many sales tax changes.

Local to the Raleigh-Durham area? Join Dean Dorton and Avalara for a high-level overview on how cloud financial management technology eases compliance processes for both sales and use tax, along with revenue recognition and contract management.

When: March 26, 2019 from 8:30 AM – 11:00 AM

Where: Avalara Durham offices, 512 South Mangum Street #100, Durham NC 27701

Who: All finance professionals who play an important role in industries that are affected by compliance regulations- including sales and use tax, economic nexus, ASC 606, HIIPA, GAAP, revenue recognition, etc. CFOs, Controllers, Accountants, VPs, and Directors of Finance, Tax Specialists, etc.

Article Dean Dorton

Repost from Avalara

Economic nexus is here. Is your business prepared?

Before the Supreme Court of the United States issued its ruling in South Dakota v. Wayfair, Inc. (June 21. 2018), states could only tax sales by businesses with a physical presence in the state. Wayfair changed that long-standing rule. The court found the respondents’ “economic and virtual contacts” with South Dakota to be a sufficient basis for a tax collection obligation (nexus).

For economic nexus, a business establishes an obligation to collect and remit sales and use tax by its economic activity in a state. Generally, states look at the volume of sales or the number of transactions during a particular time frame, usually (but not always) the current or preceding calendar year. In South Dakota, the threshold is gross sales of $100,000, or 200 or more transactions in the state.

Already enforced in fourteen states, economic nexus will soon be in effect in 27 states, and counting. Businesses making sales into multiple states need to be on their toes, ready to register and commence collection activities as soon as nexus is triggered.

Unfortunately, determining when economic nexus has been established in a state is complicated by the fact that there’s little uniformity between jurisdictions. And once established, the process for getting things rolling (i.e., registering to do business) varies from state to state.

Economic nexus laws vary by state

While the thresholds in the majority of economic nexus states are $100,000 or 200 transactions, that’s not the case in all states: In Georgia, it’s $250,000 or 200 transactions, in Minnesota, it’s 10 or more sales totaling more than $100,000 or 100 retail sales, and so on.

Furthermore, the threshold in some states is based on tangible personal property only, while in others it includes services and in some, it includes electronically transferred property. The threshold is comprised of taxable and exempt sales in some states but only taxable sales in others. To top it off, some states simply haven’t said.

Once nexus has been established, businesses may need to act fast.

Economic nexus can be established overnight

Consider Illinois, where economic nexus went into effect on October 1, 2018. Remote sellers must ascertain at the end of each quarter whether they’ve met one of the state’s economic nexus thresholds during the preceding 12-month period. If they have, they’re required to register and commence tax collection and remittance at the start of the subsequent quarter — which could be the next day.

The Illinois Department of Revenue provides the following example: At the end of March 2019, a remote seller determines it made $200,000 in sales to Illinois purchasers for the preceding 12-month period. As a result, it’s required to register to collect and remit tax on sales to Illinois purchasers from April 1, 2019, through March 31, 2020. On March 31, 2020, the cycle starts again.

A seller with unexpectedly strong sales in Illinois at the end of a quarter could find itself with an unexpected obligation to collect and remit tax in a matter of days.

Learn More

Attend our Economic Nexus webinar to learn more, and download our complimentary whitepaper to learn more: What the South Dakota v. Wayfair Inc. Decision May Mean for Your Business: Understanding Economic Nexus.

WEBINAR: Thursday, January 31st @ 2 pm EST

Article Dean Dorton

On June 21, 2018, the U.S. Supreme Court ruled in favor of South Dakota in South Dakota vs. Wayfair, Inc., granting the state authority to impose sales tax obligations on out-of-state transactions.

Wayfair changed that long-standing rule. The court found the respondents’ “economic and virtual contacts” with South Dakota to be a sufficient basis for a tax collection obligation (nexus). For economic nexus, a business establishes an obligation to collect and remit sales and use tax by its economic activity in a state. Generally, states look at the volume of sales or the number of transactions during a particular time frame, usually (but not always) the current or preceding calendar year. In South Dakota, the threshold is gross sales of $100,000, or 200 or more transactions in the state.

Since the ruling, economic nexus laws have been adopted by several states which could create more challenges for remote sellers. We brought in our partners at Avalara to share:

  • What the ruling is and how it has affected future laws across other states
  • What you can do now to understand the impact on your business
  • How to automate the sales tax compliance process to help save you time and confusion

Date: January 31, 2019 at 2:00 PM EST

Duration: 45 minutes

Article Dean Dorton

As we reflect on the recent Kentucky sales tax changes, we do not see significant impacts targeted at the energy-related industries. However, the sales tax points raised below should help all companies, including those in the energy industry.

Prior to July 1, Kentucky taxed five services, including hotel stays and telephone service. Effective July 1, 12 new services are taxable:

Labor associated with the repair, installation, and maintenance of taxable tangible personal property

  • Extended warranties
  • Landscaping and lawn care
  • Janitorial
  • Small animal veterinarian
  • Industrial laundry
  • Dry cleaning and laundry
  • Linen supply
  • Pet grooming and boarding
  • Diet and weight-reducing
  • Tanning
  • Limousine, if a driver is provided

The primary questions arising from the extension of sales tax to these services have centered on installation and repair labor and what is called the pyramiding of the tax.

Electricians, HVAC contractors, plumbers, and others were among the most concerned taxpayers when the changes were initially announced. The Kentucky Department of Revenue quickly clarified that the extension of sales tax to installation and repair labor applied only to “tangible personal property,” and not improvements to real estate or fixtures in a building, which is the work done by contractors. For example, a heating and air conditioning unit becomes a permanent part of the residence, commercial, or industrial building in which it is installed. The HVAC unit is a fixture and therefore, neither installation nor repair of the unit is subject to sales tax.

The second issue relates to tax being charged on something on which tax has already been paid. An example occurs in the area of landscaping services. As the law is currently written, if a landscaper contracts with a tree removal service to remove a customer’s tree, the landscaper must pay sales tax to the tree removal company for removing the tree, and then, the customer also must pay the landscaper for the tree removal. Good tax policy dictates that the transaction between the tree removal service and the landscaper not be subject to tax and the tree removal only be taxed once when billed to the customer by the landscaper.

There has been talk that the General Assembly may pass a “fix” for this problem.

In addition to new services subject to tax, the General Assembly extended the types of admissions subject to sales tax. Previously, tickets for entrance to a display, program, sporting event, music concert, performance, play, show, movie, exhibit, fair, or other entertainment or amusement were taxable. Now, the sales tax is extended to include admission to campgrounds, bowling centers, skating rinks, swimming pools, tennis courts, golf courses and country clubs, and other events and activities.

The Department has established a website with questions and answers: www.taxanswers.ky.gov. Individuals and businesses can also submit their own questions through the website.

For more information, please contact your Dean Dorton advisor or Erica Horn at ehorn@deandorton.com.

Article Dean Dorton

In 2017, when it comes to sales tax, states are taking stances on everything from soda to streaming content, tobacco to tampons. The New Year will also bring renewed efforts by states to implement internet sales taxes and continue the legal battle to overturn existing legislation.

Here is a summary of 2017’s most newsworthy federal and state sales and use tax changes:

The great nexus debate

The push by states for online sales tax revenue will likely continue in 2017. Oklahoma created new reporting obligations for remote sellers starting in November of this year and Tennessee implemented a new economic nexus policy that takes effect on July 1, 2017. A new use tax notification requirement for remote sellers is also set to take effect on July 1, 2017 in Louisiana.

States are also busy challenging existing precedent. Attorneys general in 11 states called for the U.S. Supreme Court to overturn Quill Corp. v. North Dakota — the 1992 decision that established that states cannot impose a tax collection obligation on businesses lacking a substantial physical presence in the state.

And four pieces of online sales tax legislation continue to languish on Capitol Hill; three look to impose tax on remote sellers: The Marketplace Fairness Act, the Remote Transactions Parity Act, the Online Sales Simplification Act, and one, the No Regulation without Representation Act, aims to prevent it.

Product and services tax changes

Soda tax

Several states, cities and counties and the Navajo Nation impose higher taxes on sugary drinks like soda, which have “minimal-to-no-nutritional value food.” Philadelphia joins the ranks on January 1, followed by Boulder, Colorado, Oakland, California, and Cook County, Illinois on July 1.

‘Tampon tax’ exemptions

A number of states enacted so-called “tampon tax” exemptions in 2016. More are likely to follow suit starting with Illinois where the exemption for feminine hygiene products takes effect on January 1, 2017. Connecticut’s exemption doesn’t take effect until July 2018.

Streaming services

Streaming services such as those provided by Netflix, Hulu, and HBO Go will be subject to sales tax in Pasadena, California beginning January 1. Other cities in California may follow suit. Chicago, Illinois imposes a similar tax.

Tobacco, e-cigarettes and vaping

California is extending cigarette and tobacco taxes to e-cigarettes and similar vaping products starting January 1. The tax rate on tobacco products will also increase significantly once Proposition 56 takes effect in early 2017.

State sales and use tax rate changes

California’s sales and use tax rate will drop from 7.5% to 7.25% under Proposition 30 (which temporarily increased the rate by 0.25% through December 1, 2016). The state rate decrease also affects certain partial state tax exemptions.

New Jersey’s sales and use tax rate in New Jersey will decrease from 7% to 6.875% on January 1, 2017 to offset a recent gas tax hike. It will drop further in 2018.

North Carolina use tax will apply to businesses storing tangible personal property or digital property in the state for any period of time. This expansion of use tax is due to the enactment of Senate Bill 729.

Missouri sales and use tax will not be expanded to any currently exempt services in 2017. On November 8, voters approved prohibiting the expansion of sales tax to any services not taxed as of January 1, 2015. It will be interesting to see if Missouri legislators attempt to capture additional sales tax revenue another way.

Tax exemption changes

Ohio will once again exempt investment bullion from sales and use tax beginning January 1.

Maine is expanding the sales tax exemption for products used in certain commercial activities as of January 1. Additional information will soon be available from the Maine Revenue Services.

North Carolina will exempt certain service contracts sold by or on behalf of motor vehicle dealers, in addition to certain sales of food, prepared food, soft drinks, candy, and other items of tangible personal property at school sponsored events. Certain sales of repair, maintenance, and installation services that are part of a real property contract will also be exempt.

Georgia terminated a temporary exemption for tangible personal property used for or in the renovation or expansion of qualifying aquariums in Georgia effective January 1, 2017.

North Carolina will no longer exempt retail sales of tangible personal property, certain digital property, and taxable services by certain nonprofits from sales and use tax as of January 1. Purchases by a manufacturer of fuel or piped natural gas used solely for comfort heating will also no longer be exempt.

Local sales tax changes

Several states have announced local sales and use tax rate changes, effective January 1.

More details on all of these changes, including a state-by-state breakdown, can in Avalara’s newly released

2017 Sales Tax Changes report.

Automation can simplify sales tax

Understanding how these sales tax changes impact your business is important, but can also be overwhelming, especially if you are obligated to register, collect and report tax in several states. Automating sales and use tax compliance in your accounting system, ERP or ecommerce system can alleviate much of this strain. Avalara’s tax management software ensures accurate tax calculation (including current changes), proper management of tax exemptions and streamlines the remittance and filing process for sales tax returns in every U.S. jurisdiction.

Get a free copy of the 2017 Sales Tax Changes report.

Permission to reprint or repost given by Avalara. Some content was previously published at www.avalara.com/blog.

Article Dean Dorton

The break allowing taxpayers to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes was made “permanent” a little over a year ago. This break can be valuable to those residing in states with no or low income taxes or who purchase major items, such as a car or boat.

Your 2016 tax return

How do you determine whether you can save more by deducting sales tax on your 2016 return? Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax.

Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation).

2017 and beyond

If you’re considering making a large purchase in 2017, you shouldn’t necessarily count on the sales tax deduction being available on your 2017 return. When the PATH Act made the break “permanent” in late 2015, that just meant that there’s no scheduled expiration date for it. Congress could pass legislation to eliminate the break (or reduce its benefit) at any time.

Recent Republican proposals have included elimination of many itemized deductions, and the new President has proposed putting a cap on itemized deductions. Which proposals will make it into tax legislation in 2017 and when various provisions will be signed into law and go into effect is still uncertain.

Questions about the sales tax deduction or other breaks that might help you save taxes on your 2016 tax return? Or about the impact of possible tax law changes on your 2017 tax planning? Contact us — we can help you maximize your 2016 savings and effectively plan for 2017.