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 sales tax updates.

Amazon is still liable. The Court of Appeals of South Carolina has affirmed a state Administrative Law Court (ALC) finding that the online retail giant remains liable for eight figures in unpaid sales tax on third-party sales from 2016, interest, and penalties.

After initial incentives from South Carolina for an Amazon investment in fulfillment centers 13 years ago, the company was to have begun collecting South Carolina sales tax in 2016. It did, but the South Carolina Department of Revenue later audited Amazon and found that it had failed to adequately tax sales by third-party merchants.

Auditors slapped Amazon with some $12.5 million in taxes, penalties and interest for the first three months of 2016. Amazon countered that the marketplace sellers were responsible and liable for the tax; the statute in effect in 2016 could “reasonably be read not to impose the obligation to collect and remit sales tax for third-party sales upon online marketplace facilitators such that the statute is ambiguous”; and imposing a sales tax obligation on it for third-party sales during the relevant period violates federal and state constitutional guarantees of fair notice and equal protection.

In September 2019, the South Carolina ALC found in favor of the state, though during those deliberations South Carolina did clarify sales tax obligations for marketplace facilitators.

“We find the ALC did not err in determining Amazon Services was engaged in the business of selling tangible personal property at retail and was therefore responsible for collecting and remitting sales tax on sales of tangible personal property owned by third parties occurring on the Marketplace,” the Appeals Court wrote in its determination earlier this year.

The ol’ one-two. The Tax Foundation’s lineup of this year’s state and local sales tax rates confirms that between the 45 states and the District of Columbia that collect statewide sales taxes and the 38 states that collect local sales taxes (which can rival or exceed state rates), the effect can be a double whammy for consumers.

The Foundation found that the five states with the highest average combined state and local sales tax rates are Louisiana (9.56%), Tennessee (9.55%), Arkansas (9.45%), Washington (9.38%) and Alabama (9.29%). The five states with the lowest average combined rates are (the still technically NOMAD state of) Alaska (1.82%) as well as Hawaii (4.5%), Wyoming (5.44%), Maine (5.5%) and Wisconsin (5.7%).

BOI oh boy. The much talked-about new Beneficial Ownership Information (BOI) requirement for millions of small companies under the U.S. Corporate Transparency Act (CTA) has hit a snag: A U.S. District judge in Alabama has declared the CTA unconstitutional, at least in the narrow context of the plaintiffs on the case on which he ruled. Though the U.S. Treasury says that small businesses uninvolved with the Alabama case proceed with the new CTA/BOI compliance, future court decisions may affect this. Stay tuned.

Elsewhere

The California Court of Appeal for the Third Appellate District has held that the purchase of “discounted” cell phones bundled with wireless services requires payment of sales tax based on the cell phone’s full price. The bundled transaction included the taxable sale of tangible personal property, as well as non-taxable sale of wireless services. The parties agreed that only the purchase of the cell phone was taxable (and the wireless services were nontaxable) but disagreed on how to measure the payment.

Maryland is fielding a proposal to reduce the state’s overall sales tax rate but expand the number of products to include such items as streaming services. If passed, the bill would reduce the state’s sales tax from 6% to 5% but expand the sales tax to currently exempt categories such as funeral services and dry cleaning as well. HB 1515 also seeks to alter the definitions of “taxable price” and “taxable service.”

The New York Tax Appeals Tribunal has affirmed an Administrative Law Judge’s ruling that there was no legal basis for a taxpayer to claim a credit for sales tax refunded at the end of a lease because the statute required that tax be paid at the beginning of the lease term. The taxpayer, a fleet management company, leases vehicles to businesses pursuant to a lease agreement that contains a terminal rental adjustment clause that adjusts the amount of rent due under the lease at the end of the lease based on the value of the vehicle at that time. New York law requires that sales tax be remitted on rent payments required by a vehicle lease at the beginning of the lease if the lease lasts more than one year, even if the rent due changes at the end of the lease, pursuant to the TRAC. The Tribunal said that there was no statutory provision allowing the taxpayer to claim a credit for sales tax that was refunded and that the Legislature’s subsequent amendment of the statute specifically allows sales tax refunds and credits for lease end adjustments on TRAC leases.

Oklahoma Gov. Kevin Stitt has signed a bill to eliminate the state’s 4.5% sales tax on groceries. Oklahoma was among 13 states that taxed groceries, and the measure is expected to reduce state revenue by $418 million a year, reportedly the largest single year tax cut in state history. It will likely become effective in August.

Texas sales tax revenue totaled $3.69 billion in February, 0.05% more than in February 2023. Remittances from the electronic shopping subsector continued to climb strongly, state officials said, as growth in online merchandising continued to outpace that of in-store sales. Total sales tax revenue for the three months ending in February 2024 was up 0.4% compared with the same period a year ago.

Utah has shelved a remote seller sales tax bill that would have reduced the transactions threshold this year. House Bill 17 was filed with “bills not passed” and the state’s 200-transactions economic nexus threshold remains in effect. Many states have been lowering their transaction thresholds in recent years due to tax developments, though, and more are expected to do so.

Virginia’s Senate has approved a proposal that would allow all the state’s localities to impose a local sales tax hike of up to 1%, with the revenue used only for the construction or renovation of schools once the tax is approved by voters.

Richmond lawmakers also amended the Governor’s budget bill to, if adopted, include all business-to-business digital services in the sales tax base and expand the sales and use tax to “digital personal property” and certain digital “taxable services” as of 2025.

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