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.

NOMAD news. Will “NOMAD” soon be just a NOD? The five-letter acronym stands for the states without a statewide sales tax – New Hampshire, Oregon, Montana, Alaska and Delaware – and two of those states might be leaving the group sooner than later.

Alaska has long been inching toward a widespread sales tax as communities band together to create sales tax obligations for online businesses in many of the state’s cities and towns. Alaska recently also joined the states dropping a transaction threshold to ignite economic nexus – a strange step for a NOMAD that ostensibly has no plans for a sales tax – effective Jan. 1.

In Montana, a recent report shows that the state could bring in as much as $1.3 billion-plus from a 4% sales tax in FY25. The motivation for such a report isn’t reported, but efforts to create a sales tax in Montana date back more than 50 years. State residents have always voted the effort down by a wide majority.

Who knew? A North Carolina-based online retailer has lodged a complaint in the state’s Business Court that their tax advisory firm failed to warn about sales tax filing obligations.

Vista Horticultural, operating as Eden Brothers, claims damages stemming from the tax firm Johnson Price Sprinkle PA allegedly failing to provide critical guidance about sales tax filing obligations after the U.S. Supreme Court’s landmark Wayfair decision more than six years ago. The complaint says that after the taxpayer received a notice from Arizona about potential sales tax obligations, they forwarded it to the tax advisory firm. The firm then billed the taxpayer for research into their sales tax obligations but never provided guidance.

The retailer hired an external CFO in 2021 who advised them that their large volume of online sales likely meant they had unpaid sales tax liabilities. The company was then referred by its tax advisors to an outside accountant who specialized in sales taxes, and the company applied for and was granted voluntary disclosure agreements to pay back taxes. The company ultimately paid $2 million in unpaid tax liabilities under various disclosures to 39 states, reports say.

The complaint requests relief under multiple claims, including breach of contract and violations of professional standards, professional negligence for failing to exercise reasonable care and breach of fiduciary duty, reports add.

Rate hike on the bayou. Louisiana’s legislature, working to the wire in special session, reportedly passed tax cuts on personal and corporate income tax and raised the state’s sales tax to 5%.

In 2030, the state sales tax will be reduced to 4.75%, reports said, adding that Louisiana’s current sales tax was 4%, along with a temporary 0.45% sales tax that had been set to expire next year. Original plans had been to apply sales tax on dozens of services. A new sales tax on digital goods and services also stood.

Louisiana has the highest combined state and average local sales tax in the country, according to the Tax Foundation, reports said.

G’day and good luck. For an outside take on the U.S. sales tax system, a recent feature in the Australian online publication Dynamic Business addresses some of the challenges that businesses from that nation face in entering the American market. After spotlighting need for sophisticated marketing and messaging, author Chris Calverley cuts to another big hurdle:

“Start gaining traction stateside and the term ‘economic nexus’ will quickly need to find its way into your working vocabulary,” he writes. “In the U.S., it’s used to refer to a seller’s liability to collect sales tax in a state once a set number of transactions, or a revenue threshold, is reached. It applies irrespective of whether you’re selling online from Australia or via an on-the-ground outlet.

“Trouble is, there are more than 13,000 sales and use tax jurisdictions in the U.S. alone, across 50 states, along with different laws for remote sellers in some states. Add to that the fact that many U.S. states require remote sellers to register for a sales tax permit before making sales into their jurisdiction, and there’s an additional fee that some states require sellers to apply to orders containing items of personal property that are delivered by vehicle – and you’ve got yourself a web of compliance complexity to untangle whilst growing your business.”

We feel your pain, mate.

Elsewhere

California has introduced several administrative changes to sales tax and fee laws managed by the state Department of Tax and Fee Administration. The bill allows CDTFA to electronically serve notices of determination and jeopardy determinations when certain conditions are met and revises the exemption on unremitted tax thresholds for penalties, among other changes.

Florida has issued guidance on the taxability of holiday decorations. Companies who provide services to install and remove holiday decorations must charge sales tax on the total charge if the company provides any tangible items such as clips, adhesives, nails, screws, extension cords or other items. Companies that provide services to install and remove holiday decorations but do not provide any tangible items are not required to charge sales tax on the service charge but must keep detailed records showing no transfer of tangible items, among other details.

Missouri has issued a letter ruling stating that the state’s manufacturing exemption for sales and use tax does not apply to a company that performs custom machining and laser services for parts and materials. These orders are subject to the needs of the customer and could not, as required by the exemption rules, be marketed to multiple buyers.

Nevada, starting Jan. 1, will exempt baby and adult diapers from sales tax, voters decided in the recent election. The measure passed by more than 68%, according to results cited from the Secretary of State.

Pennsylvania has released additional sales tax guidance on software, digital goods and related services. The guidance outlines the state’s positions on software-related topics and provides several examples of taxable and nontaxable transactions. The guidance also provides that most services, such as consulting, are taxable if sold in conjunction with the sale of software (or tangible personal property), among other points.

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.