What was new in December for 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.

Crystal ball time. Gary Bingel, partner-in-charge for state and local taxes in accounting firm EisnerAmper’s State and Local Tax National Tax Group, made several predictions for 2023 in sales and other taxes. Among them:

• Online sellers will challenge more states’ concept of nexus and warehouses – especially for storing inventory for marketplace facilitators such as Amazon, subject of a recent victory for sellers in Pennsylvania. A state court there found that having inventory at such a facility was insufficient to create nexus. Bingel points out that Pennsylvania has an economic nexus threshold of $100,000 and marketplace facilitator nexus provisions, so “the potential number of taxpayers and revenue lost by this decision may be relatively small.” Will the same hold true in other states?

• The sales tax arena will continue wrestling with the tax obligations of cryptocurrencies and non-fungible tokens.

• Taxpayers will struggle with the Multistate Tax Commission’s new interpretation of P.L. 86-272 and its application to internet activities.

An opinion from Upstate. Oneida, N.Y., like many localities nationwide, has seen sales tax revenue skyrocket. The city comptroller’s December report listed sales tax revenue at 17.58% over budget, and 6.82% over for 2021. “I absolutely think the sales tax increase is due to online sales,” the comptroller told news outlets – adding another observation. “The trend of purchases from brick and mortar to internet actually spreads the [sales] tax revenue more evenly to jurisdictions where the purchaser lives.”

10-finger discount. The Superior Court of New Jersey, Appellate Decision determined that a defendant in a theft case was charged too severely due to the inclusion of sales tax while determining retail value of shoplifted merchandise.

State updates

Arkansas determined that a business operator was properly assessed state compensating use tax on certain out-of-state purchases where the vendors didn’t charge the applicable sales taxes. The taxpayer had protested that the transactions didn’t represent out-of-state transactions for tax purposes because the vendors either had locations in Arkansas or had nexus in the state and that the vendors were responsible for the collection and remittance of the applicable taxes.

The Kentucky Supreme Court ruled to protect a manufacturing sales tax exemption after the state’s Chamber of Commerce and Association of Manufacturers filed an amicus brief supporting the taxpayer in the case, Century Aluminum. The case focused on a state law that exempts tangible personal property that qualifies as manufacturing materials and supplies – but items that qualify as “replacement, repair, or spare” parts are excluded from the exemption.

The Missouri Department of Revenue has published FAQs regarding the state’s new remote seller and marketplace facilitator use tax collection requirement. The FAQs also provide guidance for marketplace facilitators on how to register for Missouri use tax collection and how to report tax collected.

New York determined that an individual who was a member of an LLC was liable for the LLC’s outstanding state sales and use tax liabilities. The individual was listed as a member with a 45% ownership interest in the LLC, a restaurant. The individual argued that the business was opened “fictitiously” under his name and that the address appearing on the LLC’s application for sales tax vendor was not his. The Division of Tax Appeals found that the individual had the authority to sign checks and prepare tax returns on behalf of the LLC and that his primary duties were listed as tax manager or general manager.

Ohio updated its laws regarding bad debt deductions on sales tax returns to allow states to take a credit for tax remitted for a transaction made with a private label credit card that is in default. The resulting deduction keeps businesses from paying sales tax out of pocket on a transaction where they and their private label credit issuer did not receive the sales tax from the customer. Prior state law allowed bad debt deductions for transactions where store credit cards were used, but a recommendation asks to expand this to private label credit cards, which now constitute most store cards.

Washington determined that for business and occupation tax purposes, revenues generated by an out-of-state law firm were properly attributed to Washington because the customers received the benefit of these services at their corporate headquarters, but the state did side with the firm regarding a partial waiver. The Department of Revenue issued an assessment of service and other activities B&O tax, interest and penalties based on its determination that the taxpayer had substantial nexus with Washington. The law firm asserted that it didn’t have nexus with the state and requested a waiver of penalties and interest. The Administrative Review and Hearings Division (division) noted that the taxpayer’s receipts from its patent procurement services were properly apportioned to the location of each customer’s headquarters. It also determined that the taxpayer was entitled to a partial waiver of interest because it relied on the department’s erroneous written instructions.

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.