Don Nickles, a former U.S. Senator once said that “The tax code is about 10 times longer than the Bible, a lot more complicated, and unlike the Bible, contains no good news.” While we tend to agree that the topic can be a bit dry, what you do not know can be dangerous.
Keeping up with updates to sales tax laws is a never ending task. Each new legislative session always comes with more new laws; sales tax is no exception and many states have made changes with these new laws in place.
Some state legislatures have made changes to their laws in an attempt to help businesses weather the pandemic, over and above the types of legislation that would be ratified in a typical year. Some of these were temporary and some will possibly become permanent if states find that they significantly improved business functions. So we thought we would review changes happening across the country and present them here. And remember - there is nothing more permanent than a temporary tax.
Keep in mind that sales tax laws and enforcement vary from state to state and should be verified, possibly with a Certified Service Provider (CSP). And remember that information herein is given as general guidance and not legal or business advice. For specifics applicable to your business across the various states in which you are a retailer, contact that state directly or consult with your CSP. Accountants and bookkeepers also benefit through a partnership with a CSP.
So let’s look at some of the sales tax law changes that have recently gone into effect, keeping in mind that the primary requisite for any new tax law is for it to exempt enough voters to win the next election.
In Alabama a new administrative rule does not require marketplace facilitators to collect and remit tax due on car rentals, but those that do not voluntarily opt to do so must abide by new reporting and notice requirements.
Arizona legislators have been busy. They changed the economic threshold for establishing nexus for tax collection by remote sellers and facilitators. The amount was codified to $100,000.00. This is part of the state’s original plan to reduce the threshold each year since the law governing sales into Arizona was created in 2019. Additionally, those entities required to pay sales or use tax, whether they are located in Arizona or not, will have to pay online if their tax liability is $500.00 or more. Arizona also legalized recreational marijuana in 2020. Sales are expected to begin in 2021, but the tax rate has not been set. Be on the lookout for this to come soon.
California Assembly Bill 85 now requires those who sell used vehicles to collect and remit sales tax on those vehicle sales.
Colorado is another state that is increasing a variety of so called “sin” taxes. The tax on a pack of cigarettes was increased from $0.84 to $1.94. Other tobacco products had the tax increased from 40 percent to 50 percent of the wholesale value. Additionally, a new tax was created for nicotine products, typically used for vaping, at 30 percent of wholesale value.
After much discussion, beginning July 1, 2021, remote sellers and marketplace facilitators had to collect and remit sales and use taxes. As with many other states, the threshold for sales into the state is set at $100,000.00. When determining whether the threshold has been meet, remote sellers making both direct and marketplace sales should exclude sales made through marketplace facilitators. With that being said, some marketplace facilitators will be required to collect and remit sales tax on behalf of third-party sellers on their platform.
Georgia changed its sales tax law to include marketplace facilitators; beginning in 2021, these entities will be required to collect and remit state and local lodging taxes. In a move to assist pandemic affected commerce, Georgia is also exempting certain exhibition for fine arts performance fees/tickets/charges from sales tax through December 2022. The exemption applies to admissions performed or exhibited by or within a facility owned by a 501c(3) organization or a museum of cultural significance as long as the primary mission of said organization is to advance the arts in the state and provide arts, educational, and culturally significant programs and exhibits for the citizens of Georgia.
A law that was signed in late 2019, but not enforced until 2021 requires that remote sellers collect the local portion of the state’s sales tax (AKA the Retailers’ Occupation Tax), which is destination-sourced. In the past remote sellers fell under the state’s use tax statute, but as Chicago is the only locality in Illinois that has its own use tax, the compliance burdens were lower.
In Indiana the legislature decided that in addition to sales and use tax, remote sellers now must collect and remit applicable fireworks public safety fees, waste tire management fees, and prepaid wireless service charges. Both remote sellers and marketplaces are required to collect and remit the new electronic cigarette tax.
Marketplace facilitators making sales into Kansas are now responsible for collecting and remitting transient guest taxes, along with sales and use tax. Kansas also eliminated click-through nexus as of July 1, 2021.
Louisiana eliminated the tax burden on some products; diapers and feminine hygiene products are now tax exempt.
Missouri enacted legislation imposing collection and remittance of sales and use tax to some remote sellers and marketplace facilitators that exceed the $100,000.00 threshold. Take note that while this became a law in 2021, collection and remittance will begin January 1, 2023.
Montana, which in 2020 legalized the recreational use of marijuana, will also tax the sale of these products. The 20 percent sales tax will go into effect in 2022.
The New Mexico legislature deemed that remote sellers and marketplace sellers will collect and remit local taxes at the rate in effect at the destination of the sale. This applies as well to direct-to-consumer alcoholic beverage sales; out-of-state wineries with nexus must collect and remit both state and local taxes.
Streamlined Sales and Use Tax Agreement provisions with an effective date of July 1, 2021 were removed from the Tennessee Code. These provisions were originally enacted in 2003, and subsequently delayed several times since then. Rather than further delay the effective date, they have been removed. This change does not affect any provision of the law that is currently in effect.
In another legislative action based on effects felt during the pandemic, Texas made changes to sales tax law based on the increase in remote work. Orders received by a salesperson who is working away from their office will be sourced to the location where the sales person works if the location meets the definition of a place of business. Also, orders received by shopping websites or applications will be sourced to the customer’s location unless fulfilled by the sellers Texas place of business. More information can be found in this seller’s guide and the sales tax rate locator.
Virginia now requires remote sellers of tobacco products to collect and remit the tobacco excise tax, as well as the state sales tax. Additionally, remote sellers that exceed the de minimis exemption threshold will be required to collect the state’s other tobacco products tax, which is imposed on non-cigarette tobacco products.
What do these changes mean for you?
Sales taxes at the state and local level change frequently. Given the complexity of collecting and remitting sales tax, it is recommended that both retail and service businesses subject to state sales tax employ a Certified Service Provider to verify that state and local sales taxes, where applicable, are collected and remitted properly.
As always, for tax compliance done right it is important to know the facts. And remember, you can be proud to pay taxes in these great states, but you can be just as proud and pay half the amount.