SALES TAX AFTER THE SUPREME COURT WAYFAIR CASE

I want to thank Joseph F Bigane, III, CPA, MST for the following article on the resent supreme court rules on sales taxes.   Joe is one of the most knowledgeable person on this topic and he wrote this article for particularly for small businesses.

SALES TAX AFTER THE SUPREME COURT WAYFAIR CASE

On June 21, 2018 the world of collecting sales tax in jurisdictions all over the United States changed forever.  The US Supreme Court held that it was no longer required that a seller must have a physical presence in a jurisdiction in order for that state (or subdivision thereof) to impose an obligation on sellers to collect the jurisdiction’s sales tax.  The dust has not yet settled and many jurisdictions are still determining how and when they will impose this duty.  Further, different states have different taxes, which for this article will all be referred to as “sales tax.”  Finally, the rules of South Dakota, the state in the Wayfair case, established a floor of $100,000 or more than 199 transactions in the prior year as the minimum activity in the state in order for the duty to collect to be imposed.  Other states may have different minimums but it is anticipated that they will not be smaller.

Having to collect a State’s sales tax is referred to as having “nexus.”  This is not a new term.  Before the Wayfair decision, nexus was achieved by having some form of physical presence in the State.  Wayfair did not change that; it merely expanded it to include the concept of economic nexus – doing enough business in the state over the internet or by other, non-physical means to exceed a determined floor.  If the business had physical presence nexus before this decision then it has been exposed to the obligation to collect sales tax for a time period predating Wayfair.  Such a situation should be discussed with a professional that can help you “get squared away.”

Remote sellers who now have nexus in states outside their home states are going to have to consider the following issues:

  1. determine how much sales dollars was earned in each state in your last fiscal year and

your current fiscal year

  • sales are made to the location to which physical goods are shipped, not

to where they are billed

  • sales of services have special rules, but generally will be sourced to where

they are received or, if point of receipt unknown, where they are billed

  • revenue subject to sales tax will vary by state. It may or may not include:
  1. freight and shipping
  2. installation
  • training
  1. warranties
  2. determine if each state taxes your particular goods and/or services are the

goods/services that you sell exempt by state law

  • are the goods/services that you sell exempt to some or all of your buyers
  • if your buyers are exempt, you will need to obtain from them the appropriate

state exemption certificate

  1. do you sell by drop shipment
  • these sales will now be counted to determine if you exceed a state’s

floor and either tax or an exemption certificate will need to be collected

 

Unfortunately, the states do not at this time have a common set of laws stating what is and what is not taxable or exempt.  So, sales into one state may be taxed while sales into a different state may not.  Some states tax most services (SD, NM) while other states have a list of “enumerated services” which they tax.  Here, too, there may be wide differences in the definition of what a service does or does not entail.  If you sell or license software you will need to determine if the state considers it canned or custom or both.

 

While there is no fifty state determination at this point, nor is there any serious indication that the federal Congress will intervene to provide a national solution, there are many states which are setting up their rules to be applicable as of October 1, 2018 or January 1, 2019.  So, you do not have the luxury of putting this issue off.  Collecting sales tax is an administrative burden but the money is collected from your customer and does not come out of your bottom line.  If you fail to properly collect and remit taxes, and the state(s) ultimately find and audit you, then the money (tax, penalties and interest) will come out of your bottom line.

 

So now is the time to talk to your professionals and determine in what states you will have to register as a tax collector and how you will determine the amount of tax you will need to collect for each transaction.  While a certain number of states are members of the Streamlined Sales Tax Agreement and can provide a simplified method for registering and filing, it may still be necessary for you to invest in sales tax software to determine the correct amount to charge for each transaction.

 

WAC – Sage Webcast Series Avalara: Automating Sales Tax and Certificate Compliance

From the specialized tax research necessary to maintain rates and taxability, to shifting jurisdictional boundaries, to evolving payment and filing requirements to even resale certificate management, the apparent costs and complexities of sales and use tax compliance are easy to spot. However, cutting-edge technologies and superior processing logic help manage the most complicated tax issues, such as situs, nexus, tax tiers, tax holidays, exemption certificate management and product taxability rules.

Join us on 7/26/18 at 1 p.m. ET as we identify the dangers and explore and opportunity to improve processes and reduce tax compliance risk with sales tax automation. By attending this webinar you’ll learn how:

• Avalara enhances sales tax functionality
• Exemption certificates work and why they are important
• Easy it is to manage and report on tax with Avalara
• AvaTax product solution set works (demo)
Sign up here:

 

 

Sink or swim: A guide to surviving sales tax in 2017

Businesses may feel out of their depth as states look to test the waters on tax compliance in the coming year

Sales and use tax compliance can be a complex problem for many businesses. It almost feels like you need a bowie knife to cut through the regulatory red tape, although knowledge may be a better weapon in this case. So stay sharp with Avalara’s 2017 Sales Tax Survival Guide.

Published every year to help businesses better understand the challenges they are up against when it comes to complying with sales and use tax regulations in the U.S., Avalara’s latest Survival Guide is refreshed for 2017 with insight into what’s new and what’s changed at the state and federal level, common challenges around sales tax compliance, and tips for staying on top of your tax obligations.

States are testing the waters in 2017

States are facing budget deficits and they need revenue from taxes. Sales and use tax is one of the largest generators of this revenue, but collecting it has become more difficult as how Americans buy, sell and consume goods and services has evolved beyond what’s defined by state tax laws. For example, Congress has yet to act on outdated federal internet sales legislation; services now outpace goods in consumer spending but aren’t taxed with the same consistency; and digital delivery of software, books and other media and streaming services have states perplexed when it comes to setting standards for taxability.

This has led many states to get aggressive – hiring more auditors, expanding nexus definitions (a connection with a state that triggers an obligation to collect and remit sales tax to that state) to target out of state sellers, implementing use tax reporting policies, increasing state and local sales tax rates, and extending sales tax to more products and services.

Survival of the fittest

While not every aspect of managing transactional tax causes pain for every business, it’s pretty certain that at least some areas will pose a challenge given how quickly the rules changes.

The 2017 Sales Tax Survival Guide walks you through 10 critical compliance challenges, from determining nexus to managing exempt sales to understanding the implications of drop shipping on your business and dealing with audits and lawsuits. Each section is also buoyed with best practices for overcoming these challenges, and links to addition information should you need to go more in depth on a topic.

It’s a must-read reference for anyone who is responsible for tax compliance in their business. And it’s available for download here.

Shore up compliance

As helpful as it is, no guide is a replacement for good practices. The most valuable takeaway from the Survival Guide is a greater awareness of just how burdensome tax compliance can be on a business – large or small. Trying to keep up with ever-changing state tax rates and rules puts a strain on accounting and finance teams in terms of the research and due diligence required.

You can remove that burden with tax automation software like Avalara AvaTax. Much of the work that goes into proving sales and use tax compliance – calculating tax rates, verifying customer information, updating taxability rules, applying exemptions, remitting sales tax and even filing tax returns – can be handled easily and efficiently in your accounting system with little to no manual work required. It’s easy to set up and use, guaranteed accurate, and budget friendly. Avalara is a preferred provider of tax software for more than 500 ecommerce, shopping cart, ERP and accounting systems and used by more than 20,000 companies worldwide. Talk to your system or application provider about using AvaTax to manage transactional tax.

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Permission to reprint or repost given by Avalara. Content previously published at www.avalara.com/blog.

2017 sales tax changes take effect Jan. 1

Repost from Avalara

Sales tax doesn’t often make headlines, but soda taxes, marijuana sales, tampon exemptions, and online sales tax did in 2016. That trend is likely to continue in 2017. The New Year will bring new taxes, new exemptions, and renewed efforts by states to implement internet sales taxes. It will also bring plenty of the usual suspects, like sales and use tax rate changes.

Read on for some of 2017’s most newsworthy sales and use tax changes. You can also register for the webinar to learn more about these changes and get a copy of the 2017 Sales Tax Changes report.

 State sales and use tax

The state sales and use tax rate in California will drop from 7.5% to 7.25% under Proposition 30, which temporarily increased the rate by 0.25% through December 1, 2016. The state rate decrease also affects certain partial state tax exemptions.

To offset a recent gas tax hike, the state sales and use tax rate in New Jersey will decrease from 7% to 6.875% on January 1, 2017. It will drop further in 2018.

North Carolina use tax will apply to businesses storing tangible personal property or digital property in the state for any period of time. This expansion of use tax is due to the enactment of Senate Bill 729.

However, Missouri sales and use tax will not be expanded to any currently exempt services in 2017. On November 8, voters approved prohibiting the expansion of sales tax to any services not taxed as of January 1, 2015. It will be interesting to see if Missouri legislators attempt to capture additional sales tax revenue another way.

 Soda tax

Soda taxes are slowly sweeping the nation. The Navajo Nation decided in 2014 to imposed higher taxes on sugary drinks and “minimal-to-no-nutritional value food.” Special taxes on sweetened beverages took effect in Berkeley, California in January 2015 and in Vermont six months later.

On November 8, voters in four cities approved proposed soda taxes, and two days later, the Cook County Council did the same. Philadelphia’s soda tax takes effect on January 1, and similar taxes take effect in Boulder, Colorado, Oakland, California, and Cook County, Illinois on July 1, 2017.

Pundits predict more cities and states will soon follow suit, now that soda taxes have been successfully enacted in these areas. Certainly there is interest. Alabama Governor Robert J. Bentley has been calling for a tax on soft drinks for years and is likely to renew those efforts in 2017.

Tampons

A number of states enacted so-called “tampon tax” exemptions in 2016. The New York tampon tax exception took effect in September, while Connecticut’s won’t take effect until July 2018. The exemption for feminine hygiene products in Illinois takes effect on January 1. As with soda taxes, there’s a distinct possibility that other states will follow suit with tampon tax exemptions. Already, the District of Columbia Council is poised to exempt feminine hygiene products and diapers.

Netflix

Streaming services such as those provided by Neflix, Hulu, and HBO Go will be subject to sales tax in Pasadena, California, beginning January 1. Pasadena isn’t the first city to specifically tax these (they’ve been subject to tax in Chicago, Illinois since July 1, 2015) and it is unlikely to be the last: a number of other cities in California — including San Bernardino and Santa Monica — are being advised to collect tax on streaming services.  

Tobacco

As of January 1, California is extending cigarette and tobacco taxes to e-cigarettes and similar vaping products, “any component, part, or accessory of a tobacco product,” and “any product containing, made, or derived from nicotine” and intended for human consumption. In addition, California’s tax rate on tobacco products will increase significantly once Proposition 56, approved on November 8, takes effect in early 2017. 

Sales tax exemption changes

New exemptions

Ohio will once again exempt investment bullion from sales and use tax beginning January 1.

Maine is expanding the sales tax exemption for products used in certain commercial activities as of January 1. Additional information will soon be available from the Maine Revenue Services.

In North Carolina, certain service contracts sold by or on behalf of motor vehicle dealers will be exempt, as will certain sales of food, prepared food, soft drinks, candy, and other items of tangible personal property at school sponsored events. Additionally, certain sales of repair, maintenance, and installation services that are part of a real property contract will be exempt.

Repealed exemptions

A temporary exemption for tangible personal property used for or in the renovation or expansion of qualifying aquariums in Georgia terminates as of January 1, 2017.

In North Carolina, retail sales of tangible personal property, certain digital property, and taxable services by certain nonprofits will no longer be exempt from sales and use tax as of January 1, and nor will purchases by a manufacturer of fuel or piped natural gas used solely for comfort heating.

Finally, the Wyoming Joint Revenue Committee looks favorably upon eliminating the sales tax exemptions triggered by economic development incentives. It remains to be seen whether or not that will come to pass.

Local sales tax

The following states have announced local sales and use tax rate changes, effective January 1.

  • Arkansas
  • Florida
  • Illinois
  • Kansas
  • Minnesota
  • Nebraska (also boundary changes, which can impact rates)
  • Oklahoma
  • Utah
  • Washington
  • Wisconsin

More local rate changes for 2017 will soon be announced; on November 8, local sales and use tax rate increased were approved in several states, including California, Georgia, and Nevada.

Attend the 2017 Sales Tax Changes webinar on Dec. 15

To learn more about these changes and how they affect you, sign up for the 2017 Sales Tax Webinar on Dec. 15. Even if you can’t attend, register to receive the recording and a free copy of the 2017 Sales Tax Changes report.

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Election Day brings changes to sales taxes

Repost from Avalara

While the focus in the latest general election has been the presidential race, there were plenty of local ballot issues that will affect businesses in a very personal and immediate way. These include votes on sales taxes, several of which were passed in major metropolitan areas.

Businesses need to be aware of sales tax changes so that they are charging the right rate. But there may be other effects of sales tax changes on businesses, such as when a sales tax rate increase may encourage customers to purchase in lower-tax locales, for instance.

Here’s a rundown of some of the major sales tax ballots across the country and the results.

Sales tax restriction

Approved: Missouri Constitutional Amendment 4. This was probably the most far-reaching sales tax issue on the ballot in the U.S. While most sales tax ballot measures proposed sales tax increases, the Missouri measure will limit sales taxes, preventing the state from levying sales tax on any new service or transaction that was not subject to sales tax as of January 1, 2015.

The measure was put forward by the Missouri Association of Realtors as a way to protect real estate services from being taxed, but broadly prohibits any new sources of sales taxes.

The measure can be seen as a reaction to a trend in which states with stretched finances have increasingly sought new sources of revenue. In recent years, services have become much more of an economic engine, now making up approximately two-thirds of the current United States economy. In tandem with that growth, states have increasingly looked to services as a new base for sales taxes.

For businesses that provide services or sell goods that are not now subject to sales taxes in Missouri, the certainty that they will not have to deal with sales taxes in the future will probably be a source of relief.

However, the other side of the story is that limiting the sources of sales tax revenue could mean higher sales tax rates on eligible transactions, since the state is now restricted to those categories. Allowing new categories of transactions to be taxed would spread taxes over a larger number of transactions, meaning that the overall sales tax rate would not necessarily need to be as high. Restricting the sales tax base could also hamstring states’ abilities to reform their tax codes in order to stay competitive.

It remains to be seen whether other states will see similar proposals to limit sales taxes.

Sales tax increases

All the other sales tax ballot measures in the Nov. 8 election dealt with raising sales taxes in states and major metro areas.

California

A handful of big metro areas in California sought sales tax increases for transportation funding.

  • Approved: Measure M in Los Angeles County. This will raise the county’s base sales tax rate by 0.5% to 9.5% effective January 1, 2017, with local sales taxes going on top of the base rate. The tax rate hike will increase to 1% in 2039 and continue indefinitely. The increase will raise an estimated $860 million per year for the most ambitious transit expansion in Los Angeles County history, including expanded rail lines.

Currently, Los Angeles’ sales tax is the 13th highest of major cities in the United States; the new 9.5 percent sales tax means L.A. will tie with Oakland for eighth highest, according to the Tax Foundation.

  • Defeated: Measure B in Sacramento Countywould have raised the sales tax by 0.5% for 30 years, bringing the combined sales tax rate to 8.5 percent in Sacramento County and 9 percent in the City of Sacramento. The funds raised would have gone toward transit projects including a new expressway, a downtown Sacramento streetcar and a light rail extension to the airport. The measure was opposed by taxpayer activists who pointed to the Measure A sales tax already in effect that would have overlapped with Measure B for 20 years.
  • Defeated: Measure A in San Diego Countywould have raised the sales tax by 0.5% to 8.5% for 40 years in order to pay for new rapid bus lines and a trolley line, among other transit improvements. Local Republican and Democratic parties, environmental groups, labor unions and transit advocates opposed the measure for different reasons.

San Francisco

Defeated: Proposition K in San Francisco. San Francisco’s sales tax increase measure was unique in that the money raised would go to homeless services as well as transit improvements. This actually involved two different proposals: Proposition K, which would raise taxes in the city by 0.75% to a total of 9.25%, and Proposition J, which would require that $50 million per year from those sales tax funds go to homeless services and $101.6 million per year to be spent on transportation. 65% of voters rejected the sales tax increase. A “kill switch” provision for Prop J allows the mayor to nullify one or both funds by Jan. 1 if Prop K doesn’t pass.

Georgia

As in California, the sales tax ballot issues in Georgia centered on increasing sales taxes to fund transportation.

  • Approved: Fulton County transportation special purpose local option sales tax (TSPLOST)This measure will raise the sales tax by 0.75% for five years beginning April 1, 2017. The tax will raise up to $655 million over five years to widen and repair roads and bridges and add sidewalks in Fulton’s cities and the county’s unincorporated area.
  • Approved: Atlanta TSPLOST and MARTA sales tax. The Atlanta TSPLOST will raise sales taxes by 0.4% for five years, starting April 1, 2017, to fund improvements to the BeltLine, streets and sidewalks. Another measure will raise sales taxes by 0.5% to expand the MARTA transit system. The new increase would be on top of an existing 1 percent MARTA sales tax, which will decrease to 0.5% in 2047. Both the old and new MARTA taxes will expire in 2057.

With both the Atlanta transit and MARTA sales taxes approved, Atlanta’s sales tax will rise to 8.9 percent, increasing from tied for 51st highest of major U.S. cities to 14th highest, according to the Tax Foundation. By law, Atlanta can raise its local sales tax no higher than 9%.

North Carolina

Approved: Wake County public transit referendum. This ballot measure will raise the sales tax by 0.5% in order to fund a 10-year, $2.3 billion transit plan that will include a new rapid bus system and commuter rail between Raleigh and Durham. The increase will bring the total Wake County sales tax to 7.75% in the spring of 2017.

Oklahoma

Defeated: Oklahoma Question 779. This measure would have raised the statewide sales tax from 4.5% to 5.5% in order to raise an estimated $550 million for education, including teacher salary increases.

Combined with Oklahoma’s local sales taxes, the increase would have brought the average combined state and local sales tax in Oklahoma to 9.85%, the second highest in the U.S. after Louisiana, according to the Tax Foundation. Opponents questioned the effect the tax would have on the economy and whether funds would be distributed as promised.

Texas 

Approved: Arlington baseball stadium measure. This ballot measure will increase the local sales tax by 0.5% to raise $500 million in sales tax revenue to help build a new baseball stadium for the Texas Rangers. The hike will bring Arlington’s total sales tax rate to 8.5%, taking it from the 51st highest sales tax in the U.S. to the 21st highest, according to the Tax Foundation.

Virginia

Defeated: Fairfax County meals sales tax. In Fairfax County, a suburb of Washington. DC, with a population of around 1 million, the ballot included a proposed 4% sales tax increase on restaurant meals and prepared food. The increase would have brought the total sales tax on prepared food and beverages to 10%.

Opponents, including the Northern Virginia Chamber of Commerce, argued that the proposed tax was unfair to the restaurant industry and said the increase would be too much on the heels of a $100 million real estate tax increase earlier this year. 

Washington

Approved: Washington Proposition 1. This measure affecting King, Pierce, and Snohomish Counties will raise the sales tax by 0.5% to contribute to the ambitious Regional Measure Sound Transit 3 plan, which would expand the region’s light rail network, rapid bus transit and commuter rail. The increase, beginning Jan. 1, 2017, will come on top of an existing Sound Transit 0.9% sales tax and will raise Seattle’s total sales tax to 10.1%, the sixth highest of major cities in the country, according to the Tax Foundation. 

Stay up to date on sales tax rates and returns

Sales tax rates change all the time, not just in election years. And it can be easy to miss a change and charge the wrong sales tax rate—which can invite a visit from the state tax auditor. Avalara’s sales tax automation software can help. Avalara can also make sure you file sales tax returns correctly and on time. To learn more, download States and Dates: The one-stop guide to filing sales tax returns.

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If you’re a craft fair vendor, you probably need to collect sales tax

Repost from Avalara

From Seattle to Miami, craft shows, festivals, and fairs are ramping up for the holidays. As vendors prepare to sell everything from art and jewelry to housewares and beyond, many still have questions about how to handle sales tax at craft fairs. If you plan to sell at a craft fair, you may be wondering when to charge tax, which products get taxed, how to handle tax in different states. The truth is, if you plan to make sales at a craft fair, you likely have to collect sales tax. Do you have the info you need to do that in the right way? Read on for answers to some of the most frequently asked questions about taxing craft fair sales.

 Should I collect sales tax?

The answer to this question is often, yes. Most states require individuals and businesses that make taxable sales to register, collect, and remit state and local sales tax, even when the sales are temporary (e.g. craft fair sales).

However, there are a few exceptions to that rule. For example, no state sales tax permit is required in states without a general sales tax: Alaska, Delaware, New Hampshire, Montana and Oregon. Alaska and Montana still allow local tax, so make sure you check on local sales tax requirements in those states.

In Arizona, event promoters can run all vendor sales through their sales tax license. In those cases, even though the promoters will remit tax to the state, individual vendors still have to charge and collect the right amount of tax.

In a nutshell, tax requirements for short-term or temporary vendors vary from state to state. It’s important to get informed before setting up shop in any state or in a new location in your home state. Tax experts at state departments of revenue can be a great resource. Tax automation software can also help. It automatically calculates the proper amount of tax for each location and makes filing easy.

How do I handle sales tax if I sell in multiple states?

We know sales tax policies vary by state. So don’t assume that what works in one state will work in others.

In some states, such as Ohio, one license/sales tax permit allows a vendor to sell in multiple locations. Yet other states, such as California and New York, require a separate sales tax license or permit for each location within the state. Illinois requires vendors traveling to one or more events to register with the Department of Revenue as a “changing location” filer. In addition, vendors may also have to comply with specific city or county requirements.

Then there are the tricky home rule states, like Colorado, Illinois, Louisiana, and West Virginia. In these states, local jurisdictions, like cities and towns, can regulate sales and use tax themselves. Because of that, different cities in the same state can have different tax rules and rates. If you sell in a home rule municipality, you may have to obtain a special seller’s permit and remit the state portion of tax to the state and the local portion of tax to the city. Learn more about home rule here.

Once you register to do business in a state, you have to collect and remit the correct amount of state and applicable local sales tax on all taxable sales. State rates are constant statewide. However, the total rate you have to charge can vary by location because local rates often differ. For example, the combined sales tax rate is 10% in La Mirada, California but 7.5% in Ventura County, California. Furthermore, different locations in one city can have different rates — Denver, Colorado, has more than a dozen rates. To see combined rates for your locations, register for this free, interactive sales tax map.

What crafts or food items are taxable?

Most items sold at arts and craft fairs are taxable in most states with a sales tax; if you’ve collected tax on your products in six states, there’s a good chance you’ll have to collect it in the seventh state. However, there are sometimes surprising exceptions to that rule. For example, Rhode Island provides an exemption for sales of work by writers, composers and artists residing in and conducting business in the state. Most clothing is exempt in Massachusetts, but any individual item of clothing costing more than $175 is taxable on the amount over $175, and “apparel designed solely for athletic or protective use is taxable.” Clothing costing less than $110 per item is exempt from New York State sales tax, but only exempt from local sales tax in certain jurisdictions. To keep vendors on their toes, Connecticut periodically changes its tax policy on clothing. You get the picture.

The taxation of food can be even more complex. Prepared food, such as restaurant meals and concessions, is generally taxable. Fresh fruits and vegetables are generally exempt. But sometimes the taxability of certain foods depends on whether or not utensils are provided; sometimes it depends on the percentage of “prepared food” sold by the establishment; and sometimes it’s even more quirky. For example, in New York, a bagel sold uncut and cold is exempt but a bagel sold sliced and toasted is taxable. In California, “food products” are generally exempt but effervescent water, which many would consider a food product, is taxable. And when it comes to figuring out how candy is taxed, it’s often necessary to read the list of ingredients.

Sales tax rates for food can also be different than sales tax rates for other taxable goods and services in the state. For example, Missouri provides a reduced rate of state tax for all food that may be purchased with food stamps, which includes fresh produce, breads, dairy products and meats but does not include “food that will be eaten in the store;” several municipalities in Alaska exempt non-prepared foods during the long winter but tax them during the summer (when hungry tourists invade the state); and a growing number of states and cities are imposing a special tax on sodas and other sugary beverages.

Should sales tax be included in the price? Which states allow this and which don’t? Is it required to be marked if it is included?

Some states permit businesses to absorb the tax (pay it themselves instead of passing it on to the consumer). And some states allow businesses to include tax in the selling price, provided the policy is clearly visible to consumers. However, it is against the law to absorb tax or include it in the selling price in other states.

As always with sales tax, policies vary from state to state. For example, aside from a few “limited exceptions for sales of admissions or concession sales of prepared food,” sellers in Nebraska are “not permitted to advertise or imply in any way that the sales tax, or any part of the sales tax, will be assumed or absorbed by the seller or that the sales tax will not be added to the selling price.”  Yet it’s legal for Washington sellers to advertise the price as including sales tax, provided tax is separately stated on the invoice or receipt. The safest bet in many cases is to keep the sales tax separate.

What solutions are there?

Sales tax can be crazily complex, but don’t let that tax dissuade you from selling your wares at craft shows, flea markets, and holiday bazaars nationwide. Download Everything You Wanted to Know About Nexus to help you understand your obligations.

Having sales tax automated in your financial applications or billing systems can also remove any uncertainty you have about sales tax and make sure you are complying with the rules for collecting and remitting sales tax wherever you do business.

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What’s up with Amazon tax?

Repost from Avalara

Almost every internet retailer asks this question at some point: “Do I have to charge sales tax?”

Answering the online sales tax question is far more complex than it used to be. A good point of reference is Amazon. You may have a far different business than Amazon, but many states have made it the focal point of new sales tax laws. Those laws impact many remote sellers; even possibly you.

 Amazon tax in 2016

Amazon currently collects tax on sales shipped to 28 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia, and Wisconsin.

Many of these states have enacted click-through or affiliate nexus legislation that presumes an out-of-state seller has nexus (an obligation to collect sales tax) when certain conditions are met. These laws are designed to get the big players, like Amazon, to collect and remit sales tax. However, the laws apply to many other retail and ecommerce companies besides Amazon. For example, click-through nexus policies require out-of-state sellers to collect and remit sales tax when they compensate residents for sales made via links on their websites. Under affiliate nexus policies, other ties to in-state businesses may trigger a sales tax obligation.

Determining whether or not you have nexus in a given state can be tricky because state policies vary; for example, in California, click-through nexus is triggered if a business generates more than $10,000 in in-state sales during the preceding four quarterly periods, while in Connecticut, it’s triggered if a business generates more than $2,000 in the same time frame. It’s best to consult with a tax advisor before entering new markets or expanding online advertising, as a mere click on a website may trigger nexus in a new state.

Amazon doesn’t collect tax in the remaining 22 states, most of which don’t have click-through or affiliate nexus policies. However, Arkansas, LouisianaMaineMissouriRhode Island, and Vermont have all enacted remote sales tax laws — variations on a theme that all work to create a sales and use tax obligation for many out-of-state sellers, including Amazon. In order to avoid triggering nexus in these states, Amazon no longer permits residents to participate in its associates program.

But you may have to comply in these states. The Vermont Department of Taxes stresses that retailers with no physical presence in Vermont are presumed to have nexus for sales tax if they have agreements with residents to refer customers that resulted in sales in excess of $10,000 in the previous year.

Perhaps the most interesting recent news is that Amazon will be required to collect sales tax in Washington, D.C. beginning on October 1. The company doesn’t have a physical presence in the District, and the District has not enacted click-through or affiliate nexus. So what gives? Neither Amazon nor the District will comment. It could be a voluntary collection on Amazon’s part — it’s made such agreements in the past, usually in states where it plans a future physical presence. And indeed, The Washington Post reports that Amazon is looking for a good spot for a brick-and-mortar bookstore in the nation’s capital. If you do business in the capital, you will want to stay tuned to see what the law means for you.

 The future of online shopping: stores without walls

In the past year, Amazon has opened brick-and-mortar bookstores in Portland, Oregon, San Diego, California, and Seattle, Washington. It will soon have stores in the Boston and Chicago areas, and CEO Jeff Bezos told shareholders in May that there are plans to open more, though he provided no details.

Amazon isn’t alone. Savvy e-tailers from Birchbox to Warby Parker are opening traditional retail stores. Smaller internet businesses are also experimenting with pop-up stores.

If you’re thinking of taking your business to new channels, keep in mind it could impact your tax obligations. The more brick-and-mortar stores internet retailers open, the more places they give themselves a physical presence and an obligation to collect sales tax.

 State and federal efforts to change nexus policies

A handful of states are instituting economic nexus policies. This means that remote sellers may have to collect and remit sales tax in these states simply for making sales there. Economic nexus policies in Alabama and South Dakota have triggered lawsuits, and both states are prepared to argue their cases before the United States Supreme Court. If this happens, the Court could overturn Quill Corp. v. North Dakota, the 1992 decision responsible for the physical presence precedent still followed today.

Meanwhile, federal lawmakers are striving to find a solution that will satisfy states and businesses when it comes to laws governing sales tax and remote sales. Four pieces of legislation are currently kicking around Capitol Hill: the Marketplace Fairness Act, the Remote Transactions Parity Act, the Online Sales Simplification Act, and the No Regulation without Representation Act.

Knowing where you have nexus and staying up-to-date on changing policies is crucial. Even though state laws vary widely, keeping tabs on Internet giants, like Amazon, can be a good way to see which way the tax wind is blowing. For the latest and greatest, check out where are we with federal online sales tax legislation?

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Submitted by Avalara

Taxing Halloween treats and décor can be tricky

Repost from Avalara

Dealing with sales tax can be a ghoulish task, especially if you do business in multiple states. The rates and rules vary widely by state and it can be frighteningly difficult to know how to calculate and apply them correctly. Take Halloween, for example. Who doesn’t love to dress up in costume, carve pumpkins and indulge in seasonal sweets? But figuring out if and when to apply sales tax to these getups and goodies is far from a treat.

 Pumpkins  

There’s something magical about transforming garden-variety gourds into grinned jack-o’-lanterns. But be aware: not all pumpkins are created equal. In some states like New Jersey, Pennsylvania and Washington, taxability depends on if your pumpkin is tricked-out or treat-worthy. Pumpkins to be used for decoration (painted, varnished or carved) are taxed while pumpkins used for food (like pie) are tax-exempt. Massachusetts is a little more lenient; the decorating needs to have already happened to tax to apply. Pumpkins sold in their raw state are exempt, even if you carve or paint them after purchase. In Iowa, all pumpkins used to be taxed, but farmers complained, so now the state only applies sales tax to inedible gourds. In Alabama, to avoid tax, head to the pumpkin patch. Pumpkins are exempt only when sold by the person or corporation that planted, cultivated, and harvested them, and the seller must provide proof of origin for buyers to get the exemption.

 Costumes

Ozzie Instagram costumeSales tax holidays aren’t just for back to school supplies. In states like Georgia, you can snap up Halloween costumes for the whole family during this tax free period. But in Texas, the exemption applies only to kids’ costumes.  In Vermont, costumes are exempt but costume masks and other accessories aren’t. In Georgia, both costumes and masks are tax-exempt if sold as a set in Georgia, however, if sold separately, the mask is taxable but the costume apparel is exempt. Costumes are taxable in New York, but you can get around this rule by fashioning your costume out of everyday apparel, which is tax exempt, or travel across state lines to New Jersey where costumes are classified as clothing and therefore tax exempt.

International borders are trickier. Import taxes can really carve a chunk out of your costume budget in tariffs and duties. In the 1990s, the US Court of International Trade reclassified imported textile garments – including costumes – as “wearing apparel” (subject to duty) instead of “festive articles” (duty free), based on a lawsuit brought ironically by a costume company. The amount of the duty varies by article. For example, a multi-piece Santa suit has different tax rates charged on the trousers, jacket, beard, wig, shoes, gloves – even the sack – ranging from zero (tax free) up to as much as 32 percent.

 Candy

Handing out candy for Halloween? Don’t get tricked into paying more for those treats. Some states, including Washington, North Carolina, Illinois, Colorado and Connecticut have a lower sales tax rate for items classified as “food” based on having flour as an ingredient. This includes some candy items like Kit Kat and Twix. The flour factor can shows just how nuanced states can get with product taxability and complicated it can be for sellers to get sales tax right. In fact, an investigation in North Carolina uncovered that retailers were overcharging sales tax on candy that should have been exempted under this rule.

State sales tax regulations can be tricky and it’s no treat trying to figure them out on your own. It’s easy to get caught up in the complex web of sales tax rules and rates. You know what else is scary? Trying to manage sales tax without dedicated software to do it for you. Ward off the evils of calculating tax and filing returns by automating sales tax in your ERP, ecommerce or billing system with Avalara AvaTax. For the bigger story on better sales tax management, check out A Tale of Two Accounting Departments.

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The dish on taxing deliveries

Repost from Avalara

What can’t be delivered today? For the right price, consumers can have a car delivered across the country, a sofa delivered from granny’s attic, and a gourmet meal delivered from a starred restaurant. Some businesses provide their own delivery services, some deliver via common carrier, and some partner with a third party to deliver their goods. No matter what the scenario, it’s essential to get sales and use tax right.

Unfortunately, tax laws and policies on delivery charges vary from state to state, and sometimes from transaction to transaction.

 ‘Fast’ food

Modern take-out and delivery services are said to have begun at a Chinese restaurant in 1920s Los Angeles. They began to flourish in the late 1950s, when they were welcomed by the crowd that embraced cake mixes and TV dinners. And today, food is one of the hottest areas in delivery.

After years of “avoiding delivery at all cost,” the online and mobile food ordering pioneer GrubHub is now focusing its efforts on providing delivery services. It’s not alone. Young San Francisco-based DoorDash is hot on its heels, connecting products and people with delivery in “less than 45 minutes” and striving to continually reduce costs. UberEATS boasts that, with its Instant Delivery service, “the average order takes 35 minutes from start to finish.” Food delivery start-ups are popping up like mushrooms in a Seattle yard, some staying local, some looking to dominate the national market. Even Amazon has entered the fray (perhaps in anticipation of food delivery by drone).

To those awaiting their food, delivery may seem simple: meals ordered with a call or a click magically appear after (hopefully not too much) time has passed. But behind the scenes, businesses work hard to process sales. Getting any part of an order wrong can lead to disgruntled customers and the dreaded unfavorable online reviews. If the error involves sales tax, a business can face penalties and fines or even find itself in court, as has the large pizza franchise that’s been dealing with class action suits in two states for allegedly improperly applying tax to delivery charges.

Taxability rules vary from state to state, and some can seem quite quirky. In Iowa, for example, delivering food that’s ready to eat is considered to be catering, and catering services are taxable. The Iowa Department of Revenue specifies that “this includes hot, delivered pizza.” However, “A person who makes pies and cakes and delivers them is not considered a caterer, and those sales are not taxable.” Try and make sense of that one.

 An inseparable link

Delivery charges don’t just pertain to food. They can be slapped on anything a business sends to a consumer, from a slim book of poetry to a multi-million dollar yacht.

Recently, the Illinois Department of Revenue amended its shipping and handling regulation in response to the Illinois Supreme Court decision in Kean v. Wal-Mart Stores, Inc. (a class action suit regarding the taxability of charges for delivering a trampoline). The updated regulation makes clear that, as of April 1, 2016, shipping fees are subject to sales and use tax when there is an inseparable link between the sale and the shipping incurred by the customer.

In the amended regulation, an inseparable link exists when either of the following is true:

  • Transportation and delivery charges are not separately stated on the invoice or contract
  • Shipping fees are separately stated, but the seller doesn’t offer the customer an option to pick up goods or obtain free shipping

Shipping fees are exempt from Illinois sales and use tax if there is no inseparable link, as when the customer is offered the option to pick up the purchase, or a free shipping option is available and offered.

The Illinois regulation also clarifies the department’s stance on mixed transactions, sales that include both taxable and nontaxable sales, or sales that are taxed at different rates (for example, the lower rates that Illinois applies to sales of food, drugs and medical appliances). So long as the invoice separately states delivery charges for each item, tax may be calculated for each separately listed item. However, if the invoice contains a lump sum delivery fee, “the lump sum delivery charge will not be taxable if the selling price of the items for which delivery is nontaxable is greater than the selling price of the items for which delivery is taxable,” and vice versa.

In Michigan, however, taxability often hinges on when the transfer of ownership occurred, and whether or not a seller is “simultaneously engaged in a nontaxable delivery service.” According to the Michigan Department of Treasury, “Delivery charges on merchandise delivered by a seller who is not engaged in a separate delivery service business as defined above are taxable if the charges are incurred prior to the transfer of ownership. Delivery charges are not taxable if incurred after the transfer of ownership.”

 Separately stated

Whether or not delivery charges are separately stated also comes into play in determining taxability in Missouri. The Missouri Department of Revenue recently announced that a Missouri Supreme Court decision has affected the taxability of delivery charges, noting, “If your business is not currently collecting and remitting tax on delivery charges, this decision may require you to begin doing so.”

The court opinion makes a distinction between sales price and sales transaction: “Taxability does not depend on whether the parties intended the charge for the service to be part of the sales price; taxability depends on whether the parties intended the provision of the service to be part of the sales transaction.” It’s a subtle but important distinction. Viewed another way:

  • Shipping and handling charges that are not intended to be part of the sale of tangible personal property (TPP) are not subject to tax even if they are separately stated
  • Shipping and handling charges that are intended to be part of the sale of TPP are subject to tax even if they are separately stated

Since taxability hinges on intention, which is intangible, the court listed a number of factors to be used to determine whether or not a delivery service is intended to be part of the sale. These include: when title passes from the seller to the buyer; who controls the cost and means of delivery; and whether the seller derives financial benefit from the delivery.

But what’s true in Missouri is not true everywhere. In Connecticut, for example, shipping and delivery charges connected to the sale of taxable tangible personal property or services are taxable “even if the charges are separately stated” and “regardless of whether the shipping or delivery is provided by the seller or by a third party.”

 Sorting it all out

Delivery charges are increasingly part of our new reality — a world in which there are more online shops, more food delivery, and more reasons to stay at home and click “Deliver” than ever before. Companies that don’t provide some sort of delivery option may find themselves quickly outpaced by competitors that do. But offering delivery services involves more than obtaining a truck or a building relationships with common carriers; it means getting sales and use tax right. Using third parties for delivery can also affect whether or not you need to collect sales tax on the charges. Download Sales Tax Implications of Drop Shipping to learn more.

Avalara AvaTax sales tax automation helps businesses to determine whether or not their delivery charges are taxable and, when they are, to calculate the correct rate for each transaction. It enables businesses to get sales tax right while focusing on getting their products to their customers.

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Written by Avalara, Tax Software Partner of the WAC Solution Partners

What’s new with SaaS

Repost from Avalara

It’s been said that by 2020, most aspects of our lives will be connected. We’re talking about the internet of things (IoT), of connecting coffee makers, lamps, ovens, refrigerators, wearable devices, you name it. Back in 2014, Forbes observed that “anything that can be connected, will be connected,” and that’s swiftly becoming reality.

Numerous businesses have already made the shift from on-premises to the three major cloud-based solutions: software-as-a-service (SaaS), Platform-as-a-service (PaaS) and Infrastructure-as-a-service (IaaS).

The more the world moves towards interconnectivity, and the more businesses seek ways to streamline their workforce, the more businesses will move their business processes to the cloud. During the next five years, more than $1 trillion in IT spending is expected to be “directly or indirectly affected by the shift to the cloud.” According to Gartner, an information technology research company, “Cloud-first strategies are the foundation for staying relevant in a fast-paced world.” The shift to SaaS is expected to grow by 37% through 2020.

State and local tax authorities have noticed this shift to the cloud, and many are eager reap revenue from it. Yet since it’s a relatively new industry, states are struggling with how — or if — to apply tax to it. In 2013, most states were “still silent” on how to tax the sale and use of IaaS, PaaS, and SaaS and provided “minimal guidance … on the nexus and sourcing issues surrounding any cloud services” (Tax Adviser). However, that’s changing as more and more states pass laws and issue rulings about cloud computing services. As a result, sales and use tax compliance around cloud computing is becoming more complicated.

Businesses are struggling to decipher how different states are taxing cloud-based services. Once determined, they struggle to ensure that they’re compliant with these policies and that they remain compliant in the face of change. Just how fertile this ground is for change is underscored by how frequently tax authorities need to address and update their policies.

Recent changes
Massachusetts enacted a tax on computer software and services in 2013 but quickly repealed it. Then Department of Revenue Director Amy Pitter has acknowledged that “the complexities and confusion surrounding the law were a burden”— even during its brief tenure (GovTech). It was also extremely unpopular among businesses.

Michigan attempted to tax remotely accessed software in 2014, but the court intervened. In the fall of 2015, Michigan again delved into the taxability of cloud computing. And early this year, the Department of Taxation created two distinct categories of cloud computing for tax purposes: products that don’t include a code that enables the vendor’s system to operate, and products that include electronically delivered prewritten computer software. Taxability is also affected by the primary object of a transaction.

Even cities are joining the fray. Chicago recently extended its personal property lease transaction tax to cloud computing services. After some delay, the tax took effect on January 1, 2016 and applies retroactively, with a lookback period of four years for businesses that have not complied with it. To help ease confusion (and there is plenty of that) the Chicago Department of Finance issued Tax Ruling #12 to explain how to apply the lease tax to newer technologies such as SaaS, PaaS, and IaaS.

Crazy-making Colorado
Then there’s Colorado. The state of Colorado exempts software-as-a-service. However, Colorado is a home rule state, meaning that counties and cities with a population of 2,000 or greater have the power to levy and collect taxes as they see fit. Approximately 70 Colorado municipalities have adopted home rule, and some of these tax SaaS at the local level (tax is remitted to the local tax authority).

That’s the case in Denver. Denver sales and use tax applies to all software, custom and pre-written, whether it is downloaded, delivered electronically, or accessed via the cloud. See Denver’s Tax Guide Topic No. 18, Data Processing, for additional information.

The situation is a bit more complicated in the City of Boulder, which dances around the edges but doesn’t specifically address the taxability of cloud computing services. For example, the city explains that retail sales of computer software are taxable unless “the cost of modification of the software is greater than 25% of the price of the unmodified software.” And it states that a license fee paid by a manufacturing company to a software manufacturer for the right to use its software is taxable. Software updates may or may not be taxable. When doing business in Boulder and in doubt, businesses are advised to contact the city.

In Fort Collins, sales and use tax “is imposed on the purchase price or charge for access, use, or receipt of information” even when the information is received electronically. However, “interactive systems on which the user updates as well as accesses the data” are not considered to be taxable information services. As with Boulder, the taxability of cloud computing services is not directly addressed.

Learn more about how states treat taxability of software and digital goods and services.

Tax Compliance in the Cloud
More companies are turning to SaaS solutions to manage business processes, saving time, resources and money. Risk mitigation is also improved by moving sales and use tax compliance to the cloud. With tax rates and rules constantly changing, on premise and manual processes are inefficient and prone to error. A SaaS solution like Avalara automates this process for faster, easier, accurate treatment of sales and use taxes on taxable and exempt transactions. Avalara has the added benefit of being a simple add-on to nearly any accounting system, ERP, ecommerce or point of sale system.

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Written by Avalara, Tax Software Partner of the WAC Solution Partners