Given the complexity that already exists regarding sales tax, it’d be great if states were the only jurisdictions that levied them.
Local sales are becoming an increasing burden for online sellers as cities, counties and towns nationwide constantly tinker with their own sales taxes and other jurisdictions create new economic nexus rules.
Accurately collecting, reporting and remitting is a major, ever-changing challenge for online sellers.
Local Sales Taxes
Economic nexus is the threshold at which a seller incurs sales tax obligations; most states have set one in the four years since the Supreme Court’s Wayfair decision. Your localized tax obligations are usually determined by states’ economic nexus thresholds (which also change frequently).
In California, for instance, the local taxes are all reported on the state return. Other states such as Alabama, Colorado and Louisiana have home-rule jurisdictions where separate returns may need to be filed at the local level. Among states without a state-wide sales tax, Alaska is unique in that several of its communities are banding together to establish economic nexus rules, effectively creating a partial state sales tax.
A glance at the details of local taxes can be intimidating if you care at all about your sales tax compliance. Take the “Municipal Sales and Use Tax” page of West Virginia, which alone lists sales tax information for almost 100 cities and towns.
One of the states with an evolving local sales tax requirement is Alaska where 51 local jurisdictions have joined the Alaska Remote Seller Sales Tax Commission to administer the collection and remittance of local sales tax. Alaska is one of the states without a statewide sales tax, but the banding together of these local jurisdictions have created a headache for remote sellers. Alaska’s governor has also expressed willingness to institute a state-wide sales tax if the voters green light the idea. Stay tuned.
Not only do nexus rules and tax rates vary by local jurisdiction, but taxability rules can vary as well. Local jurisdictions’ control over sales tax can vary widely. For instance, the Colorado Department of Revenue, in addition to collecting state sales and use tax, collects sales tax on behalf of several cities, counties and special districts; most Colorado counties that impose a sales tax are state-collected.
Colorado cities with a home-rule charter and that have elected to administer their own local sales and use taxes, though, are “self-collected.” These jurisdictions have the right to establish their own regulations regarding those goods and services upon which to impose their local sales and use taxes. As an example, SaaS is not taxable at the state level in Colorado, but local jurisdictions including Denver do tax SaaS.
Some states’ locality-centric sales tax systems have growing infamy. Louisiana (with the highest combined sales tax rate in the nation) requires businesses to maintain sales tax reports, collect sales tax and remit across more than 60 individual parishes, the state’s equivalent to counties. The state also has a dizzying number of exemptions.
This has created such a complex system that Louisiana is actually being sued by an Arizona online retailer for the state’s sales tax “compliance nightmare.
Will more states allow local jurisdictions to administer their own sales tax programs? Recent examples include:
- Arizona counties and cities can charge an additional local sales tax and the state also has more than 500 special jurisdictionswith local sales taxes in addition to the state sales tax.
- South Carolina voters may approve a local option tax through county referendum. If approved, the tax typically becomes effective in that county on May 1 following the November election.
- In Illinois, some local jurisdictions can impose their own taxes to be combined with the state sales tax rate. Local tax rates are generally subject to change twice a year.
Clearly, sales tax isn’t getting any easier – especially considering that hundreds of new jurisdictions may continue to get involved.
Let TaxConnex manage the burden of keeping up with all the changes and challenges of your sales tax obligations. Contact us to learn what it means when sales tax compliance is all on us.