Dec 112014

motor homeSometimes just storing valuable personal property can raise tax issues. A businessman in Tennessee recently learned this lesson when the state assessed more than $100,000 in use taxes against him for keeping a motor home within the state’s borders. Although a lower court previously ruled in the businessman’s favor, a state court of appeals sided with the state’s tax collectors.

Ralph McCurry owns a one-member limited liability company that buys and sells “recreational parks and other real property.” Although McCurry organized his business in Montana, he maintained a residence in Tennessee. He purchased a motor home to serve as his mobile office. He did not pay any sales tax on the nearly $1 million purchase.

McCurry used the motor home between 2007 and 2012 to conduct business trips outside of Tennessee, but he spent at least six months out of the year at home. The Tennessee Department of Revenue argued this made McCurry liable for use tax on the motor home. The Department assessed McCurry approximately $103,000 in use taxes less a credit of about $27,000 for taxes previously paid to the State of Alabama on the same motor home.

McCurry sued the Department in Tennessee state court to overturn the assessment. A trial judge ruled against the Department, holding it could not assess use taxes against McCurry for a vehicle he used exclusively for business outside of Tennessee. The court said there were insufficient “minimum contacts” between Tennessee and McCurry to justify the tax assessment.

But in a decision issued on Nov. 14 of this year, a three-judge panel of the Tennessee Court of Appeals reversed the trial judge and upheld the Department’s assessment. Presiding Judge J. Steven Stafford, writing for the panel,     said the trial court should have gone beyond the “minimum contacts” test and determined whether there was a “substantial nexus” between Tennessee and McCurry’s business. The United States Supreme Court has previously held a state cannot assess sales or use taxes without first establishing a substantial nexus exists.

Here, even though McCurry did not conduct business within Tennessee, he established a “physical presence” by storing the motor home there. He also “used” the motor home within Tennessee by traveling to and from his home. Stafford stated that this was enough to establish a substantial nexus in Tennessee, especially since McCurry previously agreed to pay use taxes to Alabama when he stored the same motor home in that state.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Dec 092014
American Business wins state sales tax

Florida was rebuffed in its efforts to impose state sales tax on an in-state business which was acting as an online portal for web purchases for out-of-state florists delivering to out-of-state purchasers.

As Congress holds off on extending Internet sales taxes, state courts continue to deal with how to apply local tax laws to online sales. Recently a Florida appeals court rebuffed the state’s effort to collect sales tax from an Internet-based small business that sells flowers, gift baskets and prepaid calling cards to customers in Latin America. The court held such non-Florida business activities were beyond the reach of state tax collectors.

Florida’s Department of Revenue initially assessed three years of unpaid sales taxes against American Business USA Corp., a Florida-based corporation that operates a Spanish-language website targeting customers in Florida, Spain and Latin America. The company merely served as an online sales portal; it did not maintain any inventory. So, for example, if a customer in Latin America purchased flowers through the website, the company arranged for a local florist to fulfill the order.

American Business paid Florida’s sales tax  on sales to customers within the state but it did not pay tax on orders to customers outside of Florida. The Department of Revenue said this violated state law. Specifically, Florida imposes tax on all sales of “flowers, wreaths, bouquets, [and] potted plants.” This extends to sales where a Florida-based florist “gives telegraphic instructions to a second florist located outside Florida for delivery of flowers to a point outside Florida.”

On appeal from the department’s assessment, American Business argued the state’s policy was preempted by the United States Constitution. A three-judge panel of Florida District Court of Appeal agreed. In a decision issued on Nov. 12, the court said requiring collection of sales tax on out-of-state deliveries violated the Commerce Clause of the Constitution. This clause gives Congress exclusive authority to regulate interstate and international commerce. Since the 19th century, courts have also read this clause to prohibit “certain state actions that interfere with interstate commerce.”

Here, the court said Florida’s tax interfered with interstate commerce because there was no “substantial nexus” to commercial activity within the state. In other words, aside from the fact American Business incorporated in Florida and operated a website from the state, there was nothing to connect the out-of-state flower deliveries with the state. American Business had no Florida inventory and shipped nothing itself. The orders were carried out by companies with no connection to Florida whatsoever. Accordingly, without more of a “substantial nexus,” Florida could not collect sales taxes on these “exclusively interstate” transactions.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Nov 252014

Sales and/or use tax rates have changed in three states in Zip2Tax products since November 2014. There were changes in Alabama, Alaska, and Arizona.

In Alabama, tax rates changed for Adamsville.

In Alaska, tax rates changed for Anaktuvuk Pass, Clark’s Point, Hoonah, Hydaburg, Kobuk, Nunapitchuk, Seldovia and Yakutat.

In Arizona, tax rates changed for South Tucson.

There were 9 states with ZIP code changes effective after November 2014 including California, Florida, Georgia, Kentucky, Missouri, Ohio, Virginia, West Virginia and Wyoming.

Download the full ZIP code change documentation.

Angel Sauer

Nov 252014

A recent Windows update seems to be incompatible with oldeWidget crash fixr versions of the Zip2Tax widget and is causing it to crash when users attempt to perform lookups. Luckily this is easy to fix by simply upgrading to the newest version of the widget which is available now.

First you must uninstall the old widget by going to your computer’s Control Panel, find the “Uninstall a program” section and find “Zip2tax Widget”. Click uninstall. If you have any questions, follow Windows Help directions.

Next, use any browser to go to and click the “download” button. You will note the newest version of the widget is version 1.2.2. This version was released in July of 2013 and it includes improvements that you may find agreeable.

desktop widget 1.2.2

You will know you have the latest version of the desktop widget if it looks like this after you’ve logged in and it looks like this after you’ve made a ZIP code lookup and clicked the “Get Detail” button.

Installation instructions are included on the web page, or contact customer support if you have any questions or need help remembering your login credentials. 1-866-492-8494, or click on any Live Chat button.

We are sorry for this inconvenience, but Microsoft didn’t consult with us before they released this update so we are doing our best to cover for their rushed release.

Nov 182014

Marketplace Fairness Act Header

Long live internet sales tax!

Speaker John Boehner (R-Ohio) made it clear that the bill containing the current version of the Marketplace Fairness Act won’t come up for a vote in the House this session.

“The speaker has made clear in the past he has significant concerns about the bill, and it won’t move forward this year,” said spokesman Kevin Smith. “The Judiciary Committee continues to examine the measure and the broader issue. In the meantime, the House and Senate should work together to extend the moratorium on internet taxation without further delay.”

No sooner had the press release hit the air when backers claimed they’d get the bill attached to another piece of must-pass legislation and keep trying for the remainder of the lame-duck congressional session.

The fight is far from over,” claims Stephen Schatz of the National Retail Federation, a supporter of the MFA. The bill has widespread support amidst brick and mortar retailers who say online retailers have an unfair advantage because they do not have to collect sales taxes.

The bill has the unsurprising, mostly partisan support of the democrats and the Obama administration and the opposition of Republicans, conservatives, and anti-tax groups.

Stay tuned for more internet sales tax hijinks and updates as they become available.

Nov 012014

Sales and/or use tax rates have changed for four states in Zip2Tax products since October 2014. There were changes in Alabama, Arizona, Georgia and New Mexico.

In Alabama, tax rates changed for Sardis City, Detroit, Pickens County, Alexander City and Lee County.

In Arizona, tax rates changed for Coconino County.

In Georgia, tax rates changed for Greene and Pickens Counties.

In New Mexico, tax rates changed for Cimarron and Las Cruces.

There were 12 states with ZIP code changes effective after October 2014 including California, Colorado, Iowa, Kansas, Kentucky, Louisiana, Missouri, Ohio, Oregon, Virginia, and West Virginia.

Download the full ZIP code change documentation.

Angel Sauer

Oct 272014

air charter businessMost states assess both a tax on the sale and use of personal property. The use tax applies when no sales tax has previously been paid. State officials frown upon efforts to circumvent the use tax requirements, as an airplane dealer in Mississippi recently learned.

Two men formed a partnership in Tate County, Mississippi, called Johnny Reb, ostensibly to buy and sell airplanes. Johnny Reb paid no tax on the planes it purchased. Therefore Johnny Reb either had to sell the planes – and collect Mississippi’s 3% sales tax – or pay an identical amount in use tax if it used the planes for any other purpose.

According to Mississippi officials, Johnny Reb did neither. Instead, a state audit revealed the partners were using planes for personal use and, in effect, running a charter air service. Indeed, Johnny Reb’s tax returns and website identified it as a “charter” or “airplane leasing” business, not a dealership. Based on this information, the Mississippi Department of Revenue assessed Johnny Reb for unpaid use taxes (plus interest) of more than $160,000.

Johnny Reb appealed the department’s assessment to the Tate County Chancery Court. The Chancery Court is a trial court that handles certain administrative cases. The chancery judge reversed the department’s decision. He re-examined the facts of the case, including new information presented by Johnny Reb, and determined the company really was a dealership exempt from use tax. And even though there was evidence Johnny Reb used its planes to transport passengers, that was not the company’s “principal business” and it never made a profit from providing charter service.

But in a decision issued on Oct. 14 of this year, the Mississippi Court of Appeals reversed the chancery judge and reinstated the department’s original use-tax assessment. The appeals court said the chancery judge exceeded his authority in questioning the department’s determination of the facts. A chancery court may not reverse a tax decision because he personally disagrees with it; rather, he must find there was no “substantial evidence” supporting it. That was not the case here.

Moreover, the Court of Appeals said the use tax applies to Johnny Reb regardless of its “principal business” or whether it made a profit on charters. The department agreed Johnny Reb was primarily in business to sell planes. The problem was that it wasn’t doing that. It was using the planes, which meant it had to pay a use tax.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Oct 272014

New York State court case highlights differences between states when it comes sales tax refund procedures

Class actions seeking sales tax refunds are becoming more prevalent. As noted in “Papa John’s in lawsuit over sales tax on delivery fees,” back in July a federal judge in Miami denied a motion to dismiss a class action against pizza-delivery giant Papa John’s over allegations of improperly charged sales tax on its $3 delivery fees. More recently, on Sept. 30 a federal judge in New York dismissed a similar lawsuit against Home Depot. The New York decision illustrates the difference in state approaches to addressing claims for sales tax refunds.

Home depot sales tax on tool rentalThe lead plaintiff in the New York case is a man who rented three pieces of equipment from a Home Depot. He was charged 63 cents under a “tool rental agreement” with Home Depot. The plaintiff contends this was an unlawful sales tax collection, and he filed suit on behalf of any New York customer who signed a similar tool rental agreement.

In his Sept. 30 decision, U.S. District Judge William R. Skretny of Buffalo granted Home Depot’s motion to dismiss the class action complaint outright. Sketny said even if Home Depot incorrectly or illegally charged sales tax on its tool rental agreement, the plaintiff had to first seek a refund from the State of New York. State law allows any taxpayer to file a refund claim with the Department of Taxation and Finance within three years of the alleged improper payment. If the department rejects the refund, the taxpayer must then pursue an administrative appeal through the Department of Taxation, and if necessary, the New York State courts. Ultimately, Skretny said “the question of whether a vendor is collecting and remitting sales taxes in accordance with state law is a question that has been entrusted to the Department of Taxation in the first instance.”

In contrast, the federal judge who allowed the Papa John’s class action to proceed said it was unnecessary for the plaintiffs to pursue an administrative remedy before filing a lawsuit. Under Florida law, a person who makes an improper sales tax payment to a vendor must seek a refund from that vendor rather than the state. The judge explained Florida law allowed taxpayers to seek an administrative refund only when they directly paid the sales tax to the state. In contrast, Judge Skretny found New York law imposed an exclusive requirement to seek an administrative refund regardless of whether the tax was paid to the vendor or directly to the state.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Oct 142014

Sales tax laws often distinguish between taxable products and non-taxable services. For example, a pizza restaurant may have to collect sales tax on the sale of pizzas, but not on any delivery fees attached to that sale. This distinction may not always be obvious, however, and many combined product-service providers run afoul of local tax authorities on this issue.


A divided Louisiana appeals court found that cleaning and disposal of waste from portable toilets was considered a taxable provision of tangible property rather than a non-taxable service regardless of the fact that the cleaning services were optional and also stated separately on the invoices.

Here is a recent example from Louisiana. The City of East Baton Rogue assesses a 2% tax on the “gross proceeds” from the sale or rental of “tangible personal property.” The city exempts most “services” from the tax.

Pot-O-Gold Rentals leases portable toilets and holding tanks to customers in East Baton Rogue. Pot-O-Gold also provides cleaning and disposal services, both for its own products and those sold by other companies. Based on its reading of local law, Pot-O-Gold collected the 2% sales tax on its toilet rentals, but not on its cleaning or disposal services, which were stated in a separate charge on customer invoices.

During a 2011 tax audit, the city of East Baton Rogue assessed Pot-O-Gold for nearly $70,000 in back sales taxes, together with penalties and interest. The city argued Pot-O-Gold read the services exemption incorrectly; any cleaning and disposal provided in connection with the rental of toilets is subject to tax. Pot-O-Gold challenged the city’s position in court.

A trial judge sided with Pot-O-Gold, but in a decision issued on Sept. 17, a divided Louisiana First Circuit Court of Appeal ruled in favor of the city. Judge Mitchell R. Theriot, writing for the majority, said since the “true object” of Pot-O-Gold’s toilet rentals was the provision of tangible property to customers, the entire transaction – including any cleaning or disposal services – was subject to local sales tax. It did not matter that the cleaning services were optional, or that Pot-O-Gold provided standalone, nontaxable services to other customers.

Judge J. Michael McDonald filed a dissenting opinion. He said the majority’s decision created “an absurd result”: Pot-O-Gold had to collect sales tax for cleaning its own toilets, but not for cleaning someone else’s. McDonald said this was inconsistent with other areas of Louisiana sales tax law. For instance, removing garbage from a dumpster is not considered a taxable event according to the Louisiana Department of Revenue. But, according to the majority, Pot-O-Gold’s services were merely “incidental” to the rental of the toilets, and therefore subject to tax.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Oct 072014

The medical use of cannabis – marijuana – is controversial in the United States. But other countries, like Canada, allow licensed producers to cultivate and sell marijuana for medicinal purposes. A Canadian judge recently considered the question of how to classify such medical marijuana sales for sales tax purposes.

Cannabis in Canada

In Canada, medical marijuana is not taxable if obtained with a doctor’s prescription. But cannabis is subject to the GST if obtained through a legal private club with a just a medical certificate.

Unlike the United States, where sales tax is a purely state and local matter, Canada has a combined federal-provincial sales tax known as a Goods and Services Tax (GST). The GST applies to all sales of property and services, although many categories of transactions are subject to a “zero-rate,” which effectively exempts them from the tax. Under current law, the zero-rate applies to any “drug” listed on the government of Canada’s schedule of controlled substances. This exemption covers most prescription drugs.

Gerry Hedges grew cannabis in British Columbia for sale to a local medical marijuana club. The Canadian government said Hedges failed to collect more than $300,000 in back sales taxes on his cannabis. Hedges appealed the government’s assessment, arguing his cannabis constituted a zero-rate drug.

Judge Campbell J. Miller of the Tax Court of Canada heard the case. In a decision issued last month, Miller agreed with the government and said Hedges’ marijuana was subject to the GST. While the term “drug” includes marijuana, according to Miller, the GST law also requires the drug be made available only by prescription to qualify for the zero-rate. And Canadian law has been muddled on this point. Before 2013, a person only needed a certificate from a medical practitioner before legally obtaining medical marijuana, which according to Miller was not the same thing as a prescription one would give to a pharmacist. Last year, the government amended its regulations to require a prescription, which must be filled by a government-approved dispensary, rather than a private club like the one Hedges dealt with.

Miller said “[t]here is understandable confusion in the industry” as a result of the government’s changing regulations. There are effectively two ways to obtain medical marijuana. If it is obtained from a government dispensary with a prescription, it is considered a zero-rate drug under the GST. But if, as was the case with Hedges’ sales, marijuana is obtained through a private club with a medical certificate, the seller must collect the GST. Miller acknowledged his decision does not totally clarify the law, as “there remain gaps and inconsistencies” due to the government’s evolving approach to medical marijuana.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.