What Happened in October for State Sales and Use Taxes

There’s always something changing in the world of tax, especially sales tax. Here’s a review of some of the recent changes and updates.

‘Tis the season: Even as critics claim that Amazon’s recent earnings slump might signal the beginning of the end of the e-commerce boom, holiday e-commerce sales are expected to hit a record $207 billion in the U.S. in November and December, a 10% jump over last year.

Adobe Analytics reports that global holiday e-commerce sales will reach $910 billion, an 11% year-over-year increase. Cyber Week (Thanksgiving through Cyber Monday) is expected to reach $36 billion in online spending, a 5% jump over 2020. Cyber Monday itself is expected to see $11.3 billion in online sales.

As e-commerce continues to grow, it’s important to monitor your nexus footprint and ensure you aren’t meeting thresholds in new states. Holiday sales are often when thresholds are crossed.

ZIP it: The Streamlined Sales Tax Governing Board has requested input on changing the Streamlined Agreement’s rules on sourcing sales of digital goods when purchasers don’t provide certain address details.

Under the draft recommendation, if a seller doesn’t obtain a complete street address or 9-digit ZIP code, the seller should calculate and collect the tax at the highest combined state and local rates in the 5-digit ZIP code; sellers that only collect the 5-digit ZIP code may be held liable if the seller does not collect at the highest combined rate in the 5-digit code.  

State Updates

California Gov. Gavin Newsom has signed AB 1402, which amends California’s sales and use tax law to require marketplace facilitators to register, collect and remit certain fees on the retail sale of various items of tangible personal property sold in the state. Under current law, a marketplace facilitator that facilitates the retail sale of tangible personal property is treated as the retailer for purposes of collecting and remitting sales tax. The new law expands marketplace facilitators’ collection responsibility beyond sales and use tax to specifically require collection of the California tire fee; the covered electronic waste recycling fee; the lead-acid battery fee; and the lumber products assessment fee. The law takes effect on Jan. 1, 2022.

California also revised its publication regarding internet sales to add information about local sales taxes: The updated pub clarifies that online retailers are required to allocate sales among local jurisdictions, either directly or through a “countywide pool.” How internet transactions are allocated depends on several factors, detailed in the CDTFA’s guide on local and district taxes and includes whether sales are fulfilled from California storage locations and whether sales are fulfilled by a marketplace seller or facilitator. 

In Colorado, Denver is considering lowering its sales and use tax rate. Voters will soon decide whether to drop the city’s sales and use tax from 4.81% to 4.5% and cap it at the reduced rate. Supporters say the measure would help low-income residents, who are supposedly disproportionately impacted by higher sales taxes. Opponents say it will cripple the city’s finances. 

Illinois has issued several new informational bulletins and compliance alerts regarding the marketplace facilitator law that went into effect on Jan. 1. The state clarified that effective Aug. 27 marketplace facilitators no longer include any person licensed by the Department of Financial and Professional Regulation under the Illinois Auction License Act. “Internet auction listing services” are still considered marketplace facilitators.

Louisiana has pushed the referendum vote on recently passed legislation that would establish a centralized sales tax commission and ultimately break up the state’s current systems of collections. Delayed because of Hurricane Ida, the vote will now take place on Nov. 13. At stake is whether to move forward with streamlined electronic filing and remittance of sales and use taxes and, under a new commission, ultimately abolish the state’s Sales and Use Tax Commission for Remote Sellers and the Uniform Local Sales Tax Board.

Mississippi has proposed a rule expanding the state’s sales tax to cloud computing. The proposed amendments to the provisions regarding taxable computer equipment and services define “cloud computing” (SaaS, PaaS and IaaS) as “the delivery of computing resources, including software applications, development tools, storage, and servers over the Internet.” The rules go beyond a mere clarification of the state’s existing treatment of SaaS and instead change the state’s tax position on these services – deleting a provision in the current reg that software maintained on a server located outside the state and accessible for use only via the Internet is not taxable.” Left unclear was the reg’s effective date and whether the state will seek to apply it retroactively.

Ohio has eliminated its sales and use tax on employment services and employment placement services effective on Oct. 1.

Tennessee has posted a sales tax letter ruling that an online cloud-based platform’s charges to commercial freight transportation brokers and carriers were not subject to sales tax. The platform offers two cloud-based remote access services, one of which allows brokers to post hauling opportunities for carriers, in exchange for subscription fees. The second service uses the platform’s data to help brokers and carriers determine the fair market value of each route or hauling engagement, and subscribers may purchase this service on a subscription model or for a one-time fee. The state found that both services are nontaxable as either online advertising services or nontaxable data processing and information services. 

If you think your business may be impacted by sales tax developments, contact TaxConnex. TaxConnex provides services to become your outsourced sales tax department. Get in touch to learn more.