What's New in 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.

State Revenue Updates

Dire forecasts of states’ plunging sales tax revenue in the age of COVID continue to be proven wrong.

• Florida, which recently instituted economic nexus, is expected to beat pre-pandemic forecasts for general-revenue collections by about $1.2 billion for this fiscal year and $1.2 billion for next year – with online sales taxes making up a substantial portion of the take. 

• In New York, local sales tax collections were up 21% in July compared to the same period last year, marking the fourth consecutive month that collections exceeded 2020 results. The Empire State collected $1.6 billion in revenue from sales taxes in July, up $276 million from a year earlier. 

• Texas sales tax revenue totaled $3.39 billion in July, 13.5% more than in July 2020. Sales tax is the largest source of state funding for the state budget, 59% of all tax collections. 

State Updates

Alabama has ruled that IT services provided from out of state are not subject to sales tax. In the case in question, the foreign company provided an IT system remotely to an Alabama production plant. Although the company provided these services remotely, it would also provide additional services, such as hotline support and training handouts, and would have in-person representatives at the Alabama plant every six months. The ruling concluded that these additional services, where separately stated from any software, were non-taxable services rather than a transfer of computer software “akin to an optional software maintenance agreement.”

Alabama also issued guidance regarding compliance for marketplace facilitators in the state. A marketplace facilitator that facilitates retail sales of $250,000 or more into Alabama through its platform must register with the state and then either comply with the reporting requirements or collect and remit the SSUT flat rate of 8% on taxable retail sales made through the facilitator’s platform.

Alaska Gov. Mike Dunleavy said he’d support the first statewide sales tax if it’s approved by Juneau lawmakers as part of a plan to pay larger Alaska Permanent Funds dividends to residents. He is also no longer demanding that such a tax be first approved by voters, reports said. Proponents are studying many models for a sales tax, including seasonal sales tax and a year-round 2% sales tax.

Hawaii has made complex clarifications to the treatment and taxability of software sales under Hawaii’s general excise tax (GET). The sale of prewritten software is considered the sale of taxable tangible personal property regardless of whether the software is delivered via a tangible medium (e.g., disk) or transferred electronically. The state also treats the license to use prewritten software as the taxable sale of tangible personal property. Conversely, the sale (or license) of custom software as a service, is subject to the GET rate imposed on services. In both instances, if the sale of tangible personal property or services is made by a wholesaler to a licensed seller, the initial transaction may be eligible for the wholesaler tax rate of 0.5% rather than the 4% retailer rate. If the software is sold through a marketplace facilitator, the marketplace facilitator is deemed to be the retail seller subject to GET at the 4% retailer rate, while the marketplace seller is treated as making its sales as a wholesaler.

The Michigan Court of Appeals has handed down a ruling affirming a lower court decision that use tax is not due by a retailer on advertising materials shipped to Michigan customers by an out-of-state direct mail company.

New Jersey will discontinue waiving sales tax nexus for employees working in the state a result of the pandemic, effective Oct. 1. On or after that date, the pre-pandemic sales tax nexus standard will apply: An employee working from home will create sales tax nexus for an employer as working at a location in New Jersey is considered physical presence.

West Virginia’s small firearms sales tax exemption now does require an exemption certificate for the sale of qualifying small firearms and ammunition.

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.