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.

A break from holidays? This year, states reportedly will forgo a combined $1.6 billion in tax revenue on sales tax holidays that offer breaks on such goods as back-to-school or disaster-preparedness items. Virginia, to name one state, just voted to reinstate their holiday.

Critics, though, maintain that these holidays are gimmicks, “temporary moratoriums are costly, poorly targeted, and do little more than allow state leaders to score political points,” said the Institute on Taxation and Economic Policy.”

“Although state coffers may be unusually full, sales tax holidays remain the same as they always have been – ineffective and inefficient,” said The Tax Foundation.

“For most who shop during sales tax holidays, the exemptions simply provide a modest and unexpected benefit for doing something they would have done anyway.

“The other prevalent argument is that sales tax holidays are a way of giving tax relief. This, too, is overstated,” the Foundation added.

Added columnist Chris Powell in The Darien (Conn.) Times: “Next week’s installment of Connecticut’s annual suspension of sales taxes on clothing and shoes may be a reminder that government is very good at bribing people with their own money.”

Highs and lows: According to The Tax Foundation’s most recent analysis, the five states with the highest average combined state and local sales tax rates are Tennessee (9.548%), Louisiana (9.547%), Arkansas (9.44%), Washington (9.4%) and Alabama (9.24%). The five states with the lowest average combined rates are Alaska (1.81%), Hawaii (4.44%), Wisconsin (5.43%), Wyoming (5.44%) and Maine (5.5%).

Lows and highs: Among states reporting their tax take over the summer, Tennessee reported total revenues of $1.5 billion for August, $39.4 million less than estimated and $1.7 million lower than August 2022. Sales taxes were $25.4 million higher than estimated for August.

In New York, local sales tax collections grew 4% in August compared with the same month in 2022. Overall, local collections totaled $1.78 billion, up $67.9 million compared with the same time last year.

Texas announced that FY23 sales tax revenue was $46.58 billion, up 8.4% from FY22. State sales tax revenue totaled $3.98 billion in August, 5.7% more than in August 2022, with online retail seeing a double-digit bump.

State updates

California has added language to its Code of Regulations to clarify which businesses have responsibilities under their marketplace facilitator laws and to

include a detailed definition of a marketplace facilitator. The code also now clarifies that all sales including taxable and nontaxable sales and sales made on behalf of marketplace sellers should be factored into a facilitator’s calculation of their economic nexus obligations.

Georgia will require retailers to collect sales and use tax on in-state sales of digitally downloaded products beginning next Jan. 1. Tax will apply to specified digital products, other digital goods, and digital codes, including, books, magazines, newspapers, video games or electronic entertainment, music, artwork, photographs and video or audio greeting cards. Exclusions include when the end-user is out-of-state, the end-user won’t receive permanent use of the product and continued payments are required by the end-user.

Louisiana continues to face complaints from Arizona jewelry wholesaler Halstead Bead, who claims that the home-rule state’s sales tax system is unconstitutional due to its compliance burdens on out-of-state sellers. Most recently, the U.S. Court of Appeals for the Fifth Circuit affirmed in an unpublished opinion that the Tax Injunction Act precluded Halstead Bead from issuing a constitutional challenge to Louisiana’s sales tax system in federal court. In June, before the Court’s ruling, Halstead Bead sent notice to the Court that recently enacted Louisiana legislation requiring the implementation of a single remittance system for taxpayers “resolves Halstead’s complaint and ensures that Halstead is no longer subject to Louisiana’s unconstitutionally prolix tax system.”

Effective next Jan. 1, Louisiana will shift oversight of the state’s uniform local sales and use tax return and remittance system from the Louisiana Department of Revenue to the Louisiana Uniform Local Sales Tax Board.

Michigan has updated guidance on the sales and use taxation of computer software and digital goods, specifically whether software is “prewritten computer software.” As the state’s multiple-points-of-use exemption form is no longer used, a sale of prewritten computer software that’s sourced to Michigan is taxable based on the full sales price even if it might also be used outside the state.

New Mexico updated its description of the gross receipts tax collection responsibilities for online marketplace providers and sellers. The updated guidance reflects the new reduced gross receipts tax rate used for out-of-state taxpayers, 4.875%. It provides that marketplace providers may use Form TRD-31117 to report a list of marketplace sellers for which it facilities sales and paying gross receipts tax on those sales.

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.