Navigating sales tax compliance in complex organizations can be a challenge, influenced by various factors. Industries like telecommunications, hospitality, healthcare, manufacturing, and technology face unique complexities when it comes to sales and use tax compliance. In this blog we discuss some of the reasons why these particular industries can be a bit more challenging than others.
Telecommunications
Telecom is the most taxed and regulated industry across all states. In addition to telecom tax in some states, there could be separate communications services taxes, utility users taxes, 911 fees, and various state and federal regulatory compliance obligations. On top of that there are additional complexities surrounding how your services are delivered, the scope of how services are defined (is it software or telecom?) and all of these things continue to change and evolve on a state and even city level.
Hospitality
There are very discrete tax types that are imposed on hospitality. There are many different city level or district level taxes that apply to specific hospitality services, whether you’re a restaurant, hotel, bar etc.
Healthcare
There are so many different variables in the delivery of healthcare. Legislatures have always been sensitive to trying to recognize the things that are truly needed in the industry. As a result, you get a broad set of exemptions, things that are identified statutorily as being exempt but would otherwise be taxable. An example of this is prosthetics – they’re technically TPP (tangible personal property), however most states exempt because of need.
Manufacturing/processing/mining
This is another area of complexity primarily because these industries create jobs. The state government recognizes that if we give incentives for companies to move their manufacturing facilities here, or we look at how we’re going to regulate mining, it is beneficial for the economy. So there is a lot of special tax treatment that goes along with that.
There are many exemptions for manufacturing as well as for processing and mining activities. Many of these companies are operating in a different way than most, and the state affords them some degree of flexibility by allowing them to have what we refer to as direct pay permits (add link to what this is). But the more states you’re operating in, the more complex it becomes.
Technology
Software and technology companies have historically considered themselves fairly insulated from multistate sales and use taxes. Now that is not always the case.
Many states impose sales and use tax on a variety of services including Software-as-a-Service that could impact your business. Check out our SaaS guide as taxability rules continue to change due to states realizing the revenue they can gain from out-of-state sales tax collection. You could be further impacted in the months and years to come.
Multi-location Brick & Mortar Retailers
Typically, brick-and-mortar stores don’t need to worry about different sales tax rates since they’re in one location. However, challenges can be presented for brick-and-mortar businesses for situsing when there’s delivery involved. For example, if you’re selling to a customer who lives in another jurisdiction within the state, and that county tax is different than the store location, there need to be adjustments and you need to know what that tax rate is. In some states, if you’re delivering to that customer, you need to be charging the destination tax rate (the rate where that customer resides).
This can happen in an interstate fashion as well – if a customer asks you to ship the product across state lines, you need to be able to differentiate between whether or not that product is taxable where the sale took place, in addition to the destination state where the customer is taking possession. So, there can still be a decent bit of complexity.
Even more complexity is added when you have multiple brick and mortar locations. A number of states will require you to have a registration for each location, and while it may be consolidated on a specific return for sales tax purposes, you need to segregate your data between each of the locations.
All in all, there are challenges presented to all industries in an environment where you may have a sales tax obligation, however, these specific ones tend to have the most complexity. If you're interested in learning more about how to handle sales tax compliance for complex organizations, download our eBook.
TaxConnex experts specialize in the intricate world of sales tax for companies in various industries. Contact us today to learn how we can help you streamline your sales tax process and ensure compliance.