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.
So what has the pandemic done to states’ coffers? States themselves don’t seem to know yet, according to a recent survey co-sponsored by the Tax Policy Center. Most states were unable to fully assess the impact of the pandemic on their budgets – due in part due to shifting tax deadlines – but most states did wind up with higher revenues than they foresaw some 14 months ago.
Online sales dipped in May, yet sales tax revenues seem to remain robust thanks in part to online sales. (Many states still lack details on purchases made online or in person.)
Anecdotally, sales tax revenue for local governments in the state of New York state rose 49.2% in 2Q21 compared with the same period of 2020. Sales tax collections during this period also surpassed collections during the second quarter of 2019, before the pandemic.
Mississippi tax collections increased during the state budget year that ended June 30, driven in part by people shopping online. The state took in nearly 16% more in taxes than the year before, an increase of more than $924 million. Sales taxes paid on in-person purchases increased 4% over the previous year while use taxes paid for online purchases jumped 20%.
Other Sales Tax Updates:
Colorado’s governor has signed legislation adding “digital goods” to the statutory definition of “tangible personal property” subject to sales and use tax. Under HB 21-1312 (effective July 1), “tangible personal property” will include digital goods regardless of the method of delivery. “Digital goods” includes, but is not limited to, electronic download and internet streaming of video, music or eBooks.
The Illinois Department of Revenue has released an earlier letter ruling discussing the applicability of sales and compensating use taxes to various services a taxpayer offers to clients who have physical locations in Illinois. The letter clarifies that the taxability of agreements for the repair or maintenance of tangible personal property depends on whether charges for the agreements are included in the selling price of the tangible personal property. It adds that sales of “canned” computer software are generally taxable retail sales in Illinois and that software provided through a cloud-based delivery system is not subject to tax. Telecommunication retailers and cancellation fees are also discussed.
Minnesota Gov. Tim Walz has signed an omnibus tax bill that included new exemptions and considerations for businesses required to make June accelerated sales tax payments. Taxpayers with a sales and use tax liability of $250,000 or more over the previous fiscal year had to pay of 87.5% of their real or estimated June liability two business days before the end of that month. New provisions require the state to reduce this percentage each year based on the amount of excess tax collected by the state until the percentage hits zero. The act also exempts vendors of construction materials, including contractors, from the accelerated payment going forward, among other conditions. The new provisions took effect July 2.
Mississippi proposes to amend its regulation for photographers and film developers to specify that certain digital products would be subject to sales tax. Under the proposed regulation, photographs, pictures, videos, discs and other tangible personal property and “specified digital products” sold by photographers and videographers are taxable. The proposed amendments would be effective Oct. 1.
In New Mexico, most businesses will now pay destination-sourced Gross Receipts Taxes. The destination sourcing method was mandated by legislation adopted in 2019 and 2020, which also allowed the state to begin taxing internet-based sales by out-of-state businesses. Starting July 1, those businesses will pay both the statewide rate and local-option Gross Receipts Taxes.
The state has also updated FYI-206, describing the gross receipts tax collection responsibilities for online marketplace providers and marketplace sellers without physical presence in New Mexico. Those with at least $100,000 of taxable gross receipts in New Mexico in the previous calendar year have a tax collection obligation. Marketplace sellers that make taxable sales through marketplaces have gross receipts subject to tax even if the marketplace provider has the same taxable gross receipts. To offset the potential double-taxation, the marketplace seller is allowed a deduction for those receipts on which the marketplace provider pays the gross receipts tax.
Ohio has enacted H.B. 110 on June 30, 2021, which officially repeals the sales tax established by the state on employment services. The legislation goes into effect Oct. 1.
The Texas city of Round Rock has filed a suit against the state comptroller for a recent regulation that affects how local sales tax is allocated for online sales. The regulation is due to kick in on Oct. 1 and will source online sales to their destination. Local governments claim the rule will disrupt the sales tax revenues generated by businesses. Round Rock argues that the regulation’s definition of where a sale is consummated and “place of business” conflicts with Texas statutes and would significantly decrease its annual sales tax revenue.
Canada now requires that non-resident businesses begin collecting GST/HST (Goods and Services Tax/Harmonized Sales Tax) on sales of digital goods and sales made through digital platforms. The measures affect three groups of non-resident businesses – aka vendors and platform operators – making sales to Canadian customers, requiring each to register for and begin collecting GST/HST on sales made into Canada for taxable digital products and services, short-term accommodations and for storing a supply of taxable tangible personal property in Canada for the fulfillment of online sales to the country’s customers.
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.