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.

Your proposal is acceptable. Several recent sales tax proposals are moving through state legislatures:

• Florida is considering major changes to its sales tax. HB 7033 proposes a 0.75 percentage-point reduction to the state’s 6% general sales tax. The bill also includes a 0.75 percentage-point reduction to the sales tax businesses pay on commercial leases, plus several other sales tax cuts on such items as electricity, new mobile homes, coin-op amusement machines and some vending machines. The Florida Senate’s package (SB 7034) includes some five sales tax holidays, including a permanent sales tax exemption on clothing and shoes with a sales price of $75 or less.
• Minnesota Gov. Tim Walz has proposed decreasing the state sales tax rate from 6.875% to 6.8% while expanding the sales tax base to include accounting, legal, brokerage and banking services. The proposed changes could take effect this Oct. 1. Minnesota would be one of the few states, but a growing number, to tax professional services.
• Oregon lawmaker Tawna Sanchez has again proposed raising taxes on beer, wine and cider. The tax would start at 2% next year, climbing 2% every two years to stop at 8% by 2032.
• The Wisconsin Assembly Committee on Ways and Means has voted unanimously to advance a bill that would exempt gun safes from sales tax.
• The Alabama House has voted unanimously to advance a bill that would exempt eyeglasses and contact lenses from state sales tax. The bill now heads to the senate in Alabama, which is one of only six states that tax eyeglasses and contact lenses. The Alabama House also passed a bill to cut the sales tax on groceries from 3% to 2% starting Sept. 1.

A new leaf. Some communities along the Canadian border have told news outlets that their sales tax revenue has been down recently due to the lack of Canadian shoppers. Officials in Erie and Niagara counties in New York say that President Trump’s ongoing trade war with Canada has bitten into the number of shoppers from north of the border. Sales tax revenue in Niagara County declined an estimated 1% in January and February; receipts in Erie County reportedly dropped 7% through mid-February, translating into a $4.9 million reduction in revenue.

No free ride. Uber, aka Uber Technologies Inc., must pay $8.92 million in sales tax on rides in Georgia from 2012 to 2015. The Georgia Court of Appeals rejected Uber’s argument that the state should have collected that amount from drivers, not from the app. Uber had also argued in part that it is an online marketplace that does not furnish taxable transportation services.

The amount Uber must pay is reduced from some $22 million in penalties and unpaid sales tax originally assessed.

Elsewhere

California’s Bay Area saw increases in sales taxes after voters approved the district tax changes last November. The increases were a maximum of 1%, including in the communities of Cloverdale (with a new sales tax rate of 10%), Dixon (now 8.375%), Mill Valley (now 9.25%), Napa (now 8.75%), Rio Vista (now 9.125%) and San Ramon (now 9.75%).

Idaho will, effective July 1, exempt some sellers from collecting and remitting sales and use tax, specifically state residents whose total gross receipts do not exceed $5,000 in the current or previous calendar year. The exemption does not apply to partnerships, corporations or LLCs. Certain sales are also excluded, including motor vehicles, alcohol, tobacco and items purchased for resale. If a small seller surpasses the $5,000 limit, they must apply for a temporary seller’s permit within 30 days and begin collecting sales and use tax.

Illinois issued a general information letter discussing the taxation of fees charged by a credit card payment processing business for online transactions. These fees are part of the retailer’s costs of doing business and aren’t deductible from the gross receipts subject to tax. Retailers that use a credit card payment processing business to collect payments from their customers, minus a processing fee, must include those processing fees in their gross receipts in determining Illinois sales tax liability.

Texas has changed the application of sales and use tax to data processing services. Among other services, the new data processing service definition expands the previous regulatory definition of data processing services, which is the computerized entry, retrieval, search, compilation, manipulation or storage of data or information. The updated rule clarifies that services excluded from the definition of data processing are internet access service, transcription of medical dictation by a medical transcriptionist and certain digital advertising services such as display of a classified advertisement, banner advertisement and “vertical advertisement” or link on an internet website owned by another person.

The updated rule specifies that search engine optimization (SEO) services, social media marketing and lead generation are taxable data processing services, and, effective this Oct. 1, marketplace provider services will also be considered taxable data processing under certain conditions.

Utah will repeal its threshold of 200 transactions for a remote seller to establish economic nexus in the state. Effective July 1, sellers will only need $100,000 in annual sales to establish nexus. A growing number of states are eliminating transaction thresholds enacted after the 2018 Wayfair decision.

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.