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.
Oh Joy, oh revenue!
State sales tax revenues and their local portions are reported up from Auburn, N.Y., to Colorado Springs, Colo., from Santa Barbara, Calif., to Mukilteo, Wash., defying predictions of the pandemic’s effect on government coffers – and delighting officials.
Northeast Tennessee was one of those areas with local sales tax revenues growing by 20% in the latest fiscal year and are up 15% in the first five months of fiscal 2022, with the biggest gains coming in the more rural counties. This strong rural growth is likely due to Tennessee becoming one of the last states to tax sales made through a marketplace with the state’s “Marketplace Facilitator Bill” in March 2020.
Many other states are finding more late-2021 sales tax revenue to funnel toward local governments.
Arkansas had an almost 20% gain in December, pushing state tax revenue 1.5% beyond budget estimates; Georgia’s sales and use tax collections totaled $1.37 billion, an increase of $243.4 million, or 21.6%, over last year’s total; Kansas sales tax revenue hit $224 million in December, $4 million over predictions; Pennsylvania collected $1.2 billion in sales taxes for December, $101.9 million ahead of estimates; Texas had state sales tax revenue of $3.56 billion in December, 24.4% more than in December 2020; and West Virginia saw consumer sales tax receipts $20.1 million above the monthly estimate and 18.1% ahead of the prior year.
Florida, a newcomer to economic nexus, collected $398.8 million more in general-revenue taxes than expected, “the vast majority” of a boost in November coming from sales taxes that were $294.8 million over projections.
Holly and jolly
According to a recent report from MasterCard, holiday retail sales in the U.S. climbed 8.5% year over year – and online sales rose 11% and contributed to 20.9% of overall retail sales, up from 20.6% in 2020 and 14.6% in 2019.
Americans spent $204.5 billion on e-commerce purchases during the holiday season, according to additional data from Adobe. Observers said inflation likely sparked some of the higher numbers.
Others noted that online shoppers encountered far more out-of-stock notices than in previous years.
Off to the marketplace
Three states made moves concerning marketplace facilitators, sellers and providers.
Michigan has provided sales and use tax nexus guidance applicable to marketplace facilitators and sellers. Among the points: The marketplace facilitator is the only party that may be held liable or audited for facilitated transactions unless it demonstrates that the seller provided incorrect information for the facilitator to collect the tax; and facilitators must register for use tax and file all required returns for facilitated and direct sales, though the marketplace seller need not register for sales or use tax or file returns if it only makes facilitated sales.
Minnesota has released updated guidance regarding the state’s requirement that out-of-state marketplace providers collect and remit Minnesota sales tax if they meet the nexus threshold. The guidance also includes, among other things, directions for how marketplace providers register to collect tax and their filing frequency.
Nevada has proposed draft regulations implementing sales and use tax collection requirements for marketplace sellers and facilitators without a physical presence in the state. According to the proposal, a marketplace seller meeting the state threshold but with no physical presence and making sales only through marketplace facilitators is not required to register for sales tax if the marketplace facilitators are all registered to collect and remit the tax. If the marketplace seller makes sales through an unregistered marketplace facilitator, the marketplace seller must register, collect, and remit tax on those sales.
Other State updates
An Alabama taxpayer that manufactures rockets requested a partial sales tax refund for tax paid on helium and nitrogen, claiming that the gasses used in their manufacturing should qualify as machines and therefore they would be subject to the reduced machine rate of 1.5% sales tax rate instead of the usual 4% sales tax rate. The court determined that the sales to the taxpayer of helium and nitrogen were used for “functional testing, leak testing, dew-point testing, and structural stabilization,” and therefore they are subject to Alabama’s 1.5% machine rate.
The Massachusetts Appellate Tax Board found that SaaS provider Akamai Technologies Inc. was a manufacturing corporation, rather than a service provider. Akamai, headquartered in Massachusetts, provided software-based cloud services allowing customers to manage the delivery of web and media content over the Internet. Observers say this decision may result in an increased Massachusetts apportionment factor for out-of-state sellers of remotely accessed prewritten software.
In a separate case, Massachusetts said that cookies and apps are not considered physical presence and that the state could not retroactively impose a use tax collection requirement on a California auto parts company (that has no physical presence in the state) based on the placement of “cookies” and “apps” on its Massachusetts customers’ computers.
Missouri has released a private letter ruling determining that a company’s private wireless network was not subject to Missouri sales tax. The company provides wireless services in Missouri, including voice, messaging, internet access and private network services. The private network services provide machine-to-machine data transmission, which is segregated from the public internet and not connected to the public switched telephone network.
New York determined that a multilevel marketing company was not subject to state sales tax on its subscription-based sales of eSuite services because these services didn’t qualify as taxable sales of pre-written computer software or information service.
Tennessee has repealed its drop shipment rule. If a Tennessee supplier sells to an out-of-state dealer personal property or taxable services for resale and drop ships the goods to the out-of-state dealer’s Tennessee customer, the Tennessee supplier may accept a resale certificate issued by another state or a fully completed SSUA exemption certificate.
Texas updated its guidance on remote sellers for corporate income, sales and use taxes, clarifying that remote sellers with total revenue of less than $500,000 in the preceding 12 calendar months are not required to obtain a tax permit or collect, report and remit state and local use tax. Local use tax is due at the location where the order is shipped or delivered when the order is not received or fulfilled from a Texas place of business.
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.