Tricky items for sales tax

We’re fond of saying that nothing’s ever easy in sales tax. And here we’ll kick off our run toward Halloween with a look at one of the newest and trickiest areas of sales tax: electric vehicle chargers and charging.

This new line of business raises a few sales tax questions, chiefly regarding the electricity flowing into the vehicles.

Though states like Kentucky are considering or already have additional fees for owners of electric cars, most states are still fuzzy on whether the customer or the supplier pays the sales tax on the juice. (The chargers are tangible personal property [TPP], taxable in most states.)

Colorado offers an example of how a state might land on the question in its 2018 letter ruling on the applicability of sales tax to electric car charging stations. The station seller shipped the stations from outside Colorado to locations in the state and charged owners a network fee to allow them to, in turn, charge customers to use the stations to recharge electric cars. The company in question also sold owners a maintenance contract and, in some cases, owned the stations and charged car customers a fee to recharge their cars based on kilowatt usage or time.

The taxability in question was regarding the sale of the charging stations; the annual network fee charged to owners; and the maintenance contracts for the stations. Colorado’s letter spelled out that:

• The sale of electric charging stations incurred the state’s tax on sales of TPP at retail.
• The sale of services (such as network fees) is generally not subject to sales or use taxes. However, charges for services sold in connection with the sale of TPP are generally included in the purchase price if the service charge is not separately stated or the buyer is required to buy the service as part of its purchase of the property.
• A charge for maintenance contracts sold in connection with the rental or sale of taxable TPP is included in the calculation of sales tax of the rental or purchase of the goods, unless the maintenance charge is both separately stated, and the buyer has the option not to purchase the contract as part of its rental or purchase of the taxable goods

Unfortunately, this Colorado letter ruling was only focused on the sale and servicing of the charging stations, not the electricity “sold” to the end consumer.

Two years later, South Carolina concluded in a similar case that sales of electricity by utilities to a company for its vehicle-charging stations are wholesale sales not subject to South Carolina sales tax – but that sale of electricity to the company’s customers at its charging stations are retail sales subject to the state’s sales tax.

And before either Colorado or South Carolina tackled this taxability, New York was crystal clear on the question, in 2013: “The Tax Law imposes sales tax on the receipts from every sale of electricity and electric service of whatever nature.”

What’s ahead? Starting in Iowa next summer, electric fuel sold at a nonresidential location will become subject to an excise tax of 2.6 cents per kilowatt hour.

Expect this trend to increase as electric vehicles become more and more common.

Upcoming in our Tricky Series: clothes, software, groceries, baked goods and – of course for Halloween – candy. Stay tuned.

Sales tax is more complicated than ever, and everyone who says they’re simplifying sales tax is still leaving the hardest parts – and the liability – up to you. Rely on sales tax experts to maintain your compliance. Contact TaxConnex to learn what it means when sales tax is all on us.