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.
B&O responsibility: A Washington State appellate court has found two sellers responsible for sales tax and business and occupation (B&O) tax on sales made through Amazon’s Fulfillment by Amazon (FBA) program.
The decision in the case, the latter of which is the consolidated S&F Corporation and Orthotic Shop Inc. v. Department of Revenue, dealt with tax periods prior to Washington’s implementation of marketplace rules requiring marketplace facilitators to collect and remit sales taxes, which kicked in four years ago.
The decision helps determine that use of a marketplace does not eliminate a merchant’s responsibility for B&O tax in Washington even if the marketplace facilitator collects and remits sales tax. Washington implemented economic nexus thresholds for B&O tax effective Jan. 1, 2020; merchants with a physical presence in the state and remote sellers with more than $100,000 in sales into Washington must report B&O tax as well as applicable sales taxes.
Use of Amazon’s FBA program may also create physical nexus in Washington, part of the stored-inventory question that has moved forward in many states (though not, notably, in Pennsylvania). The Washington court noted that the contract between the merchants and Amazon directly stated that use of Amazon fulfillment centers could create nexus.
If a retailer participates in Amazon’s FBA program and sells under the retailer’s name on Amazon, then retailer is responsible for the B&O tax on those sales at the retailing rate. Also, the retailer must make the election in the contract for Amazon to collect their sales tax. If they do not make this election, Amazon does not collect or remit the sales tax through this program.
No refund, stat!: The District of Columbia Court of Appeals has affirmed denial of George Washington University Hospital’s refund claim for nearly $1 million in sales tax collected from 2016 to 2019.
GWUH purchased prepared meals during the 2016 and 2019 tax periods with the intention of reselling them, an arrangement which would have exempted the purchasing hospital from paying sales tax – though under D.C. code the purchaser must provide the seller with a resale certificate at the time of purchase. GWUH did not follow the statue to claim the exemption for resale. The hospital later filed a claim for a refund with the Office of Tax and Revenue, which denied the claim. The D.C. Court of Appeals has affirmed that decision.
Rigid adherence to exemption-certificate rules will likely become more of a trend as other states continue to struggle with revenue generation.
Uneven ‘leveling’: PetMeds, a Delray Beach, Fla.-based online retailer of pet supplies and medication, has petitioned the Illinois Independent Tax Tribunal to challenge an audit assessment. According to the Sales Tax Institute, the 2023 assessment follows the state’s Leveling the Playing Field legislation, which PetMeds contends burdens remote retailers and discriminates against interstate commerce.
The legislation, which kicked in three years ago, requires remote sellers that have established economic nexus in Illinois and marketplace facilitators to submit State and Local retailer’s occupation tax as well. Out-of-state retailers with any physical presence in Illinois remained liable to collect the state level use tax only; in-state retailers remained subject to their location’s state and local Retailer’s Occupation Tax following the state’s origin sourcing rules.
In 2023, PetMed was hit with a large audit assessment, including for periods after Leveling the Playing Field came into effect. The company petitioned against the assessment, arguing that Leveling the Playing Field violates the U.S. Constitution Commerce Clause and discriminates against interstate commerce and generates an undue burden on retailers located out-of-state; violates the Illinois Constitution by discriminating against a class of taxpayer; and that the Illinois Department of Revenue violated the right to an efficient audit and proper explanation of alleged liabilities.
On the move: Sales tax is on the political front burner in a few states.
- Virginia’s Republican Gov. Glenn Youngkin has unveiled a tax reform plan that includes a 0.9 percentage point increase in the sales tax rate and the broadening of the sales tax base to include some “new economy” digital services, such as software application services, website hosting and design services, data storage services, digital downloads, streaming and other computer-related services. Most of Virginia has a 5.3% combined sales tax rate, though some regions have a 6%-7% combined rate.
- Missouri cities are conveying to state lawmakers that they oppose proposals to eliminate state and local sales taxes on food. The concept is billed as an inflation-fighting measure for shoppers. Local leaders say it would produce service cuts.
- A bill to raise the Nebraska sales tax one cent, to 6.5 cents, to help pay for cuts to the state’s property taxes is reportedly meeting opposition. Groups as diverse as business and lower-taxes organizations to advocates for children, seniors and low-income families are arguing against the proposal.
Elsewhere
Georgia’s Senate has passed a bill along party lines creating a tax holiday on guns, scopes, safes, trigger locks and ammunition, among other related items. The proposed holiday would last for five days beginning on the second Friday in October.
Iowa has revoked its sales and use tax exemption for purchases of computers and peripherals by insurance companies, financial institutions and commercial enterprises.
Pennsylvania’s Department of Revenue has released a bulletin regarding the sourcing of sales other than services and tangible personal property. The bulletin defines the key concepts and terms implementing the intangible sourcing rules effective for tax years beginning after 2022.
The Texas Comptroller of Public Accounts amended a regulation to determine the location where a sale is completed for local sales and use tax purposes. The regulation requires that the location of the order’s completion is the physical place where the initial order is received by the seller or a third party rather than where the order is later fulfilled; clarifies that an order is considered accepted when all essential purchaser information for order acceptance is acquired by the seller or their representative; and provides that a product’s shipping location must not be used in deciding the location where the order is received by the seller.
Washington’s Department of Revenue has issued amended regulations that take effect this Feb. 24 and that include extending the exemption expiration date for fruit and vegetable and dairy products businesses from July 1, 2025, to July 1, 2035, and provide explanations regarding the valuation of asphalt and aggregates used in road construction.
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.