What’s new in sales tax?

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.

Midyear sales tax. The Tax Foundation released its “State and Local Sales Tax Rates, Midyear 2023” report of the 45 states (and the District of Columbia) that collect statewide sales taxes and the 38 states where local sales taxes are collected.

Among highlights:

• In some cases, local sales taxes exceed state rates.
• The five states with the highest average combined state and local sales tax rates are Tennessee (9.548%), Louisiana (9.547%), Arkansas (9.44%), Washington (9.4%) and Alabama (9.24%).
• California has the highest statewide sales tax rate, at 7.25%.
• The lowest non-zero state-level sales tax is in Colorado, which has a rate of 2.9%. Five states follow with 4% rates: Alabama, Georgia, Hawaii, New York and Wyoming.
• South Dakota cut its state sales tax rate from 4.5% to 4.2% effective July, the most recent statewide rate reduction since New Mexico trimmed its sales tax rate from 5.125% to 5% in July 2022. (Effective July 1, New Mexico’s state-level gross receipts tax rate also dropped from 5% to 4.875%.)

Tax breaks galore. In addition to back-to-school sales tax holidays coast to coast this time of year, several states have tweaked their sales tax in favor of consumers.

Alabama will lower its sales tax rate on food effective Sept. 1., from 4% to 3%. On Sept. 1, 2024, the rate will drop to 2% if the state’s Education Trust Fund meets a specified growth requirement (or if the fund meets the requirement in a future fiscal year).

Kansas no longer taxes delivery charges, as of July 1. This applies to delivery charges that are separately stated on the invoice, bill of sale or other documentation given to the purchaser and includes, but is not limited to, transportation, shipping, postage, handling, crating and packing.

Ohio’s sales tax exemptions set to take effect from Oct. 1 have been amended with new exemptions on various children’s products, including diapers, therapeutic or preventative creams and wipes, child-restraint devices or booster seats, cribs and strollers.

Texas will no longer collect sales tax on essential baby products like diapers and wipes, as well as menstrual products, starting Sept. 1.

Income we trust. New Jerseysigned budget legislation that changes the state’s corporate tax regulations. Among the provisions was adoption of the state’s economic nexus sales tax thresholds (200-plus transactions or receipts of more than $100,000) for income tax purposes. New Jersey becomes the latest state to apply rules for collecting sales tax revenue from out-of-state businesses for income tax purposes.

State updates

Alabama’s Court of Civil Appeals has held that retroactive application of the 2014 revisions to the “prepaid telephone calling card” provision of the Tax Code were unconstitutional as applied to a taxpayer, an authorized dealer for Boost Mobile.

The taxpayer sold Boost prepaid wireless-service plans to customers but did not collect and remit the sales tax on the transactions. The Department of Revenue assessed the taxpayer for the unpaid sales tax on the transaction and took the position that the transactions were subject to the sales tax under the “prepaid telephone calling card” provision of the Tax Code even though, as a Department employee conceded at trial, that type of prepaid wireless service did not exist when the provision was enacted.

While the assessment was being appealed, the legislature revised the Tax Code to require that the type of prepaid wireless service provided by Boost through the taxpayer would be subject to the sales tax. The taxpayer asserted that this retroactive application violated its due process rights. The trial court agreed, as did the Appeals Court later.

In qualified for the occasional sale exemption from Illinois sales and use tax. In this matter, the taxpayer inquired regarding the applicability of tax to its purchase of equipment from broker auctions.

The Department of Revenue noted that the purchase opportunity wasn’t publicly known, and that the transaction was brokered by a third party (broker) and involved direct, confidential negotiations between the taxpayer and the seller. Further, the final negotiated agreement for the purchase transaction was accomplished separate from the broker’s internet auction listing service. Therefore, the broker’s involvement in this matter was pursuant to its private sales services rather than as an auctioneer, the purchase of the seller’s business assets was exempt from tax.

The waived penalties on an out-of-state general contracting services provider for its failure to file sales tax and corporate income tax because the taxpayer established that the delinquency was due to its reliance on professional advice. The failure to file was based on the advice of a CPA employed by the taxpayer, who subsequently hired a new CPA firm and began correctly filing state returns for both sales tax and corporate income tax.

The enhanced its map of sales and use tax lookup rates. The Google-based map provides new features that give customers current tax rates and boundaries for addresses throughout the state.

New Mexico’s Taxation and Revenue Department recently updated FYI-206, which describes the gross receipts tax collection responsibilities for online marketplace providers and sellers. The updated guidance reflects the new reduced gross receipts tax rate used for out-of-state taxpayers, 4.875%. It also provides that marketplace providers may use Form TRD-31117, “Marketplace Provider Data Sharing Agreement,” to report marketplace sellers it facilities sales for and for paying gross receipts tax.

In declared subject to Texas sales and use tax on its sales of licensed software applications in Texas. The taxpayer didn’t collect or remit Texas sales or use tax on its sales from August 2015 through August 2019 and the state assessed tax for that time. The taxpayer argued that it was not required to remit tax prior to Oct. 1, 2018, because it lacked the requisite nexus with Texas. Evidence showed otherwise.

Texas sales tax revenue hit $3.99 billion in July, 2.7% more than in July 2022. Sales tax revenue for the three months ending in July 2023 was up 4.5% compared with the same period a year ago.

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.