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 updates so far this year.

Thumbs up, thumbs down. New sales taxes are progressing in some states but not all.

Alaska, one of the few states still without a statewide sale tax, is considering one as it tries to close a projected revenue shortfall of $450 million heading into the next fiscal year. A Republican lawmaker recently introduced a bill that would create a 2% state sales tax as one part of a larger plan to close a revenue gap partially created by falling oil prices.

News outlets noted that more than 100 municipalities and boroughs around the state already have a local sales tax of 1% to 7%; about half have also formed the Alaska Remote Seller Sales Tax Commission.

The 2% statewide sales tax proposed would be on top of any local taxes and would not exempt groceries, medicine or other items that have been exempted in previous sales tax bills. Gov. Mike Dunleavy has said he’d support an Alaska state sales tax.

In Minnesota, at least 31 cities and five counties are reportedly seeking permission this year from the state legislature to put sales tax requests before voters. “The local taxes are becoming an increasingly popular way for cities and counties to share the costs of capital projects and infrastructure improvements with out-of-town visitors,” news outlets said. Most of the proposals generally amount to a half-cent on top of the 6.875% sales tax that the state already collects.

But in Louisiana, voters in Livingston Parish have reportedly said no to a new one-cent sales tax that would have funded pay increases for local public school teachers and other school employees.

Idaho Gov. Kristi Noem has also signed a bill that would lower the overall state sales tax rate for four years, from 4.5% to 4.2%.

Heaviest and lightest. WalletHub has a new survey of states’ tax burdens. WalletHub compared the 50 states across the three tax types of state tax burdens — property taxes, individual income taxes and sales and excise taxes — as a share of total personal income in each state.

States with the most burdensome tax regime using those criteria are Hawaii, Washington, New Mexico, Nevada and Arkansas while  Alaska, Montana, Oregon, Delaware and New Hampshire are the least burdensome.

Pandemic effect. The online sales boom of the past three years remains strong but may be slowing. Wisconsin, for instance, reported that the share of the sales tax revenue made up from primarily online sales increased from 3.6% before the pandemic to 7.5% in 2022.

Texas state sales tax revenue totaled $3.57 billion in March, 5.9% more than in March 2022. The gain “resumed the recent trend of significant but slowing growth, with the gain compared with the previous year being the lowest since the end of pandemic restrictions two years ago,” the state announced. Total sales tax revenue for the three months ending in March was up 8.7% year-over-year.

State updates

Colorado lawmakers are considering a bill to help businesses comply with what many have called a burdensome retail delivery fee that kicked in last summer.  

The 27-cent fee applies to all deliveries containing at least one taxable item made by motor vehicle to a location in Colorado. Lawmakers look to simplify the requirement by exempting businesses – including retroactively to when the fee was first imposed – that have $500,000 or less of retail sales.

The Illinois Department of Revenue has issued a general information letter discussing applicability of sales and use tax to the sales of various digital goods by a digital goods distributor (taxpayer). Under the statute, a provider of software-as-a-service acts as a serviceman. If the provider transfers no tangible personal property to the customer, then the transaction generally would not be subject to retailers’ occupation tax, use tax, service occupation tax or service use tax; software provided through a cloud-based delivery system and accessed only remotely is also not subject to tax. If the provider transfers to the customer an API, applet, desktop agent or remote access agent so the customer to access the provider’s network and services, the customer is receiving computer software that is subject to tax.

North Carolina has determined that a taxpayer who purchased tangible personal property from out of state for production of asphalt (hundreds of thousands of tons of which it sold during the relative period) was subject to the 1% North Carolina privilege tax, which is lower than the sales or use tax. The question was whether the taxpayer was a “manufacturing industry or plant,” a term the statutory exemption did not define.

Ohio has determined that the president of a limited liability company was personally liable for the LLC’s outstanding Ohio sales and use tax liabilities because he failed to establish that the assessments were erroneous. Relevant to the original case, the individual had protested the assessments, citing: a purported lack of service of the underlying assessments on the LLC; that the assessments did not reflect amounts paid by the LLC; and that responsible party assessments were time-barred. The Tax Commissioner rejected these arguments, saying the individual was a responsible person for the LLC’s tax liabilities for the tax period because he was listed as the president and reported 100% ownership of the LLC on the federal Form K-1.

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.