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.

Ease off? A few states have taken steps to make life easier for those with sales tax obligations.

• Utah has become the latest in a growing number of states to drop a transaction threshold as a trigger of economic nexus. Economic nexus in Utah will include only gross revenue from sales to the state exceeding $100,000 a year effective July 1.
• Illinois will eliminate its 200-transactions economic nexus threshold effective Jan. 1 and will offer a remote retailer amnesty program August through October next year.
• Also this July 1, Colorado will lower its retail delivery fee from 29 cents to 28 cents, the money to go in part to infrastructure maintenance, as in other states with RDFs. (Critics are starting to counter that RDFs unfairly target delivery services and that traffic to brick-and-mortar stores contribute more to infrastructure wear.)
• Ohio has expanded its sales tax holiday this year to the entire first two weeks of August. Almost all tangible personal property priced at $500 or less is tax-free.

Hot areas for sales tax. Not all states are making life easy. Washington has added business activities to the definition of retail sales subject to sales tax effective Oct. 1. These services include IT; custom website development; investigation, security and armored cars; temporary staffing; advertising; live presentations; and sales of custom software and customization of prewritten software.

Minnesota is also considering taxing accounting, legal, brokerage and banking services to individuals.

Georgia has adopted a rule on digital products, goods and codes for sales and use tax purposes. The regulation includes the definition of terms, the imposition of sales and use tax on specified digital products and other digital goods, and digital codes and exemptions for certain digital products.

By the nBy By the numbers. Nationally, state tax revenue was 3.2% below its 15-year trend by the end of the fourth quarter of calendar 2024, after adjusting for inflation and smoothing for seasonal fluctuations, according to The Pew Charitable Trusts.

In 4Q24, corporate income taxes outperformed their 15-year growth trends and general sales taxes and personal income taxes fell short. General sales tax collections were 1.9%, or $2.2 billion, below their 15-year trend. Of the 45 states that impose sales taxes, 16 had collections that outperformed long-term trends, ranging from 5.1% above trend in Wyoming to 0.2% above in New York, Utah and Mississippi. General sales tax revenue underperformed its long-term trend in 29 states, ranging from 8.8% below trend in Nevada to 0.2% below in Connecticut.

Enjoy your stay. Louisiana lawmakers have approved a bill that classifies third parties who handle booking accommodations as “marketplace facilitators” for state and local sales and use tax purposes. If signed into law, the bill would take effect July 1, 2026.

Mississippi lawmakers have also passed Senate Bill 2805, which clarifies “hotel” to include entities facilitating, arranging or brokering transient guest transactions, including third-party entities. Third-party booking companies that qualify must collect state sales tax on the gross income of any hotel booking.

Elsewhere

Colorado has enhanced the capabilities of the state’s online search engine for sales and use tax license information. Under the new law, the state allows searches using a retailer’s name or federal taxpayer identification number, in addition to the sales and use tax license number. The change aims to improve the refund process for erroneous sales tax payments.

Iowa has increased sales and use tax breaks for data centers to include leased facilities. The new legislation also allows an eligible business that leases a data center to qualify for a sales and use tax exemption or refund related to purchases of backup power generation fuel, electricity, computers and equipment.

The New York State Court of Appeals has found an advertising research firm liable for $2.3 million in unpaid sales tax for information services provided to customers over three years. Dynamic Logic Inc. had erroneously treated one of its information services products as a professional consulting service exempt from the state’s sales tax despite its reliance on data collection and the sharing of that information and analysis with other clients.

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.