Sales Tax Highlights of August 2024

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.

Another RDFer? The state of Washington is inching toward instituting a retail delivery fee.

“Analysis reveals that a fee in Washington of 30 cents per order could generate between $45 and $112 million in revenues in 2026, growing to between $59 and $160 million by 2030,” reads a recent report by the Washington State Joint Transportation Committee.

Only Colorado and Minnesota have RDFs so far, though other states are discussing this potential new source of revenue (and using various names to describe one).

May the source be with them. Two states have changed their sourcing rules for the application of sales tax obligations.

In Illinois, effective next Jan. 1 an amended Retailers’ Occupation Tax Act provides that a retailer that makes retail sales of tangible personal property to Illinois customers from outside the state and is “engaged in the occupation of selling at retail in Illinois for the purposes of the Retailers’ Occupation Tax Act under specified conditions. It also provides that retailers with a place of business in the state and who makes retail sales of tangible personal property to Illinois customers from a location or locations outside of Illinois is engaged in the business of selling at the Illinois location to which the tangible personal property is shipped or delivered or at which possession is taken by the purchaser.

The amendment comes as PetMeds, an online retailer of pet supplies and medication, has argued to the Illinois Independent Tax Tribunal that the Illinois Leveling the Playing Field legislation burdens remote retailers and discriminates against interstate commerce.

Meanwhile, the Tennessee Works Tax Act kicked in on July 1 as the state adopted Streamlined Sales Tax sourcing rules for a retail sale of a product from outside of Tennessee into the state.

Among changes: Sales are sourced to the seller’s business location if the purchaser receives the product there; or if the purchaser or purchaser’s designee receives the product elsewhere, the sale is sourced to that location of receipt, which may be the location as indicated by delivery instructions known to the seller. If neither applies, the sale is sourced to the purchaser’s address in the seller’s business records or the address obtained during the sale, “provided using these addresses does not constitute bad faith.” If none of these apply, the sale is sourced to the address of the purchaser as obtained during the sale or payment address assuming no bad faith.

If none of the above apply, the sales are sourced to the ship-from location, digital good or electronically delivered software transmission point by the seller, or the service provided location, according to the Sales Tax Institute.

Destination sourcing is adopted for sales of services performed on tangible personal property and computer software. Even though the service is performed in Tennessee, if the serviced property or software is shipped or delivered by the seller to the purchaser outside of Tennessee, then the sale is no longer sourced to Tennessee but reported as an exempt interstate sale, among other changes.

Other points:

• Sales and services made through a marketplace facilitator’s marketplace are sourced to where the product is received by the purchaser.
• Sourcing for leased property follows destination sourcing. Generally, if the goods move outside of Tennessee during the lease period, the recurring periodic payments are considered exempt interstate sales.
• Origin sourcing remains intact for intrastate sales and leases.

Where the heart is. Two states are reportedly considering using higher sales tax to fund cuts in property taxes.

In a state that seems to be inching toward its own sales tax, Anchorage, Alaska, is reportedly eying a 3% sales tax that would reportedly exempt most groceries, gas, rent and medical expenses and would only apply to the first $1,000 of any expense. Two-thirds of the tax would help reduce property tax.

In Nebraska, news outlets said lawmakers are set to debate ending some 70 sales tax exemptions and increasing sin taxes to make up for property tax cuts. One state senator reportedly referenced a study supporting that “all taxes are regressive but that high property taxes are the most detrimental to economic growth.”

Elsewhere

In Maryland, a federal judge has reportedly dismissed a claim filed by the U.S. Chamber of Commerce and three trade associations arguing that the state’s digital advertising tax violates First Amendment rights to free speech. The judge found that language in the tax’s “pass-through prohibition,” which bars digital advertising companies from passing along the tax using a different term, does partially restrict the speech of companies but that the plaintiffs failed to prove that the measure was wholly restrictive and unconstitutional.

Missouri has new exemptions for streaming and satellite TV companies from local franchise fees, legislation that follows suits by state municipalities that sought more than $50 million in fees from companies like Netflix and Hulu, arguing they owed these fees for using public rights-of-way.

The new laws exclude video streaming services from local franchise taxes; one also includes tax exemptions for federal broadband expansion grants and electricity production. Under the new definitions, video programming accessed via commercial mobile services or the internet, including streaming content, is not considered a taxable video service.

One of the laws also introduces sales and use tax exemptions for various utilities, equipment, and materials used in generating or transmitting electricity. The exemption applies to electrical energy and gas (natural, artificial, or propane), water, coal and other energy sources. It also covers chemicals, machinery, equipment, parts, and materials used in the generation, transmission, distribution, sale or furnishing of electricity for light, heat or power. Conduits, ducts and other devices for containing or carrying conductors for electricity transmission are also exempt.

In New York, the one-time director of finance – and supposedly responsible party – of a NYC ice cream shop escaped liability for failing sales tax obligations by blaming a parent company.

For two months in late 2019 and for three months shortly afterward, the ice cream shop filed a New York sales tax return but did not remit the full amount of taxes stated as due. The shop filed for bankruptcy in March 2020. New York’s Division of Taxation identified Richard E. Saslaw as a responsible person for the sales tax obligations with check-signing authority, authority over business decisions and daily involvement in operating the business.

Saslaw countered that around January 2019 the shop’s parent corporation stopped approving all payments and instructed Saslaw to stop all auto payments and cutting checks. He further argued – successfully – that he prohibited from distributing checks or money or from paying any parties in any way, and that those functions were under the control of the board of directors and owners of the shop’s parent company.

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.