Excise Taxes Vary from State to State

Excise taxes are another form of generating revenue for federal and state governments.

more-taxesExcise taxes differ from sales and use taxes in that specific goods are generally subject to excise tax and also tend to be a specific amount versus a percentage of the sales price. Sellers report and remit excise taxes; however, the tax is usually either built into the sales price or a separate line item to pass through to the purchaser.

The most common goods subject to excise taxes are gasoline, alcohol and cigarettes. Reasoning for these items are to pass through the expense of maintaining roads and additional health issues contributed from alcohol and cigarette usage, also known as a Sin Taxes. Tire excise taxes are also common to assist in environmental issues associated with tire rubber.  Many states subject excise tax to many different goods, for various reasons, and many purchasers may not even realize they are paying the additional tax on top of sales taxes. A difference being if the seller does not collect sales tax, the purchaser owes use tax; if excise tax is not collected from the purchaser, the seller is still liable for the amount.

Some of the more unusual excise taxes charged include:

Maine – the official state fruit, blueberries, are subject to $0.15/per pound.

Alabama – decks of cards subject retailers to $2.00/pack sold. The last state to consider decks of cards a vice.

Washington – has a fish excise tax on various fish at various rates.

California – has a Lumber Products Assessment.

Nevada – recently implemented an excise tax of 3% on Transportation Network Companies (think Uber and Lyft).

Many states now have a Medical Marijuana excise tax, or are considering implementing.

 

bike-co-springsThe excise tax that amuses me is the Bicycle Tax in the City of Colorado Springs, Colorado. The excise tax is an attempt to have bicyclists share costs in road maintenance and bike infrastructures. Other states have attempted or are attempting to create a bicycle tax to ease road cost burdens, since bicyclists generally share the roads with automobiles. Colorado Springs implemented the excise tax in 1998 and is considered to be successful in generating funds to improve the bicycle riding experience. Colorado Springs is also the only city in the nation to have such a tax. Let’s take a look.

Source: Zip2Tax Spot-On™ Lookup

Source: Zip2Tax Spot-On™ Lookup

In addition to the above, depending on where in El Paso County and in Colorado Springs, a Regional Transit District Tax of 1.00% may apply.

For bicycle vendors, there is an excise tax of $4.00/new bicycle sold. This excise tax would most likely be passed through to the purchaser, either as a flat fee or built into the selling price of each new bicycle. The tax has been a success in Colorado Springs in that over the years, generating funds to create new and better bike trails and services.

Excise taxes generally are created to assist in the funding of specific projects or programs by way of cost sharing. Most consumers are unaware of excise taxes as they are generally rolled into one line item of “Taxes” on invoices or built into the sales price.

Sellers have the responsibility of reporting and remitting the excise taxes, usually on separate forms from sales and use tax-reporting forms. The best bet to find out if your goods are subject to excise taxes is to visit the state taxing authority and review their Excise Tax section.

Laura Hoffman

Laura Hoffman

Laura Hoffman is an Indirect Tax Specialist living in Las Vegas, Nevada. Laura retired from a multi-state natural gas distribution company after specializing in sales & use taxes, franchise fees, business licensing, property taxes, excise and utility taxes for over 15 years. 

Sales & Use Tax Changes for January 2017

Happy New Year of Tax Rate Changes!

Many changes this month so let’s get to them.

  • Alabama: The sales tax rates changed for the cities of York and Homewood and in Blount County.
  • Arkansas: Tax rates changed for the cities of Danville, Trumann, Waldron, and West Fork; and for Garland and Logan counties.
  • California: The state rate changed as did the City of Long Beach rate.
  • Colorado: There were tax rates changed for the cities of Grand Lake, Black Hawk, Canon City, Steamboat Springs, Wheat Ridge, and Edwards; plus the counties of Grand, San Miguel (SMARBusy_business_owner_balancing_prioritiesT) and Summit (housing authority).
  • Florida: Tax rates changed for the counties of Alachua, Bay, Brevard, Highlands, Liberty, Manatee, Marion, Osceola, Palm Beach and Santa Rosa.
  • Illinois: Tax rates changed for Danville.
  • Kansas: Tax rates changed for Horton, Oswego, Rolla, St. John, Stockton, Valley Falls and the counties of Brown and Rawlins.
  • Minnesota: Tax rates changed for Fergus Falls and the counties of Cook, Mille Lacs, Pine and Winona.
  • Missouri: Tax rates changed for Prairie Home, Ash Grove, Campbell, Glendale, Lake Lotawana, Leeton, Lone Jack, Macon, St. Charles, Velda Village Hills, Warrenton and the counties of Buchanan, Clinton, and Pulaski.
  • North Dakota: Tax rates changed for Ellendale, Harwood and Hettinger County.
  • Nebraska: Tax rates changed for Elmwood, Weeping Water and Wilber.
  • New Jersey: The state rate was reduced. Read More Here
  • New Mexico: Tax rates changed for Lordsburg, Columbus, Deming, Bloomfield and Edgewood.
  • Oklahoma:  Tax rates changed for Boise City, Glenpool, Collinsville, Jenks, Sapulpa, Bixby, Tulsa, Owasso, Sand Springs, Enid, Purcell, Broken Arrow and the counties of Tulsa and Okfuskee.
  • South Dakota: Tax rates changed for Bradley and Lake Norden.
  • Texas: Rates changed for Friendswood and Los Indios.
  • Washington: Rates changed for Twisp and Grays Harbor County.
  • Wisconsin: Tax rates changed for Sheboygan.

Changes in ZIP codes

Eleven states had changes in ZIP codes:

  • mister-zip-codeArizona
  • California
  • Colorado
  • Florida
  • Illinois
  • Missouri
  • New York
  • Ohio
  • Tennessee
  • Texas
  • Virginia

 

 

Until next month………..

B.D. French, Researcher

B.D. French, Researcher

Nexus in Today’s Technology Marketplace

nexus-workplace
Since 1992 and the Quill Corp. v. North Dakota [504 U.S. 298 (1992)] (“Quill”) ruling establishing physical presence in a state before a seller is required to collect sales or use tax, technology has redefined the marketplace. Remote sellers have enjoyed not charging tax on sales in states where they did not have a brick and mortar physical presence. The states realized the large amounts of tax dollars not collected from remote sales and have been trying to figure out how to impose taxes on these out-of-state sales. 
Amazon Laws
The Streamlined Sales Tax Governing Board and Agreement were formed in 2000 with a goal of overturning the Quill ruling and require remote sellers to charge tax. The purpose of the Agreement was the reduction of compliance burdens, especially to small remote businesses. Then a number of states began legislation known as “Amazon Laws”;  the multiple introductions of the Marketplace Fairness Act in the Senate in 2011, 2013 and 2015, and many more online sales simplification acts have made their way through local, state and federal legislation.  Before looking at current legislation and status of remote sales tax compliance, let’s take a look at the expanded definitions of what determines nexus.
Nexus

Merriam-Webster Dictionary defines nexus as a connection.

Substantial Nexus
Substantial nexus is established through the Commerce Clause requiring sufficient presence in a state prior to requiring collection of sales and use taxes. Substantial nexus was determined by physical presence (including employees) in the jurisdiction to require registration and collection of sales and use taxes. Many court cases have refined the definition of substantial nexus, the most notable case being Quill ruling. After time and significant technological advances in how business is transacted, substantial nexus and the Quill rulings have been under scrutiny and additional confusion.
Affiliate Nexus
Affiliate nexus is an evolution of the business world and the increase of online retailing. A business with an affiliate in a state, in which the business does not have any brick and mortar presence, becomes subject to sales and use tax registration and collection. Affiliation with Company A (in State C) to sell services or products with Affiliate B (in State D) who has a website in which they sell Company A products for a commission creates affiliate nexus for Company A and they are subject to sales and use tax registration and collection.
Acting as a representative for Company A creates affiliate nexus for Affiliate B in many states. The most notable case for affiliate nexus is the Borders Online v. State Bd. Of Equalization, (Cal. App. 1st Dist. 2005) which determined the acceptance of returns of purchases on-line in the brick and mortar stores created representation and therefore affiliation.
Click-Through Nexus
Click-through nexus is an extension of affiliate nexus for the growth of Internet marketing. Technology and Internet retailers are continuously improving and growing methods to increase their customer bases. Many states have implemented or are looking to implement Click-Though Nexus to keep up with the new technology. These laws presume an out-of-state retailer to have nexus in their states when a person in their state is referred to an out-of-state vendor’s website. If the referral results in a sale, nexus is created and the in-state retailer is required to collect sales & report use tax. These referrals are inclusive of the advertisement links one sees on Facebook pages.  Click ecommerceon one, purchase something, and a click-though nexus is created for the in-state retailer.
Economic Nexus
Economic nexus is the newest fight for states to impose sales and use tax on retailers not falling under other nexus definitions. Many on-line retailers (Amazon) have terminated affiliate agreements to not create affiliate nexus and subject to sales and use tax regulations. Enter economic nexus.
Economic nexus creates economic thresholds to create nexus and subject to sales and use tax regulations for nonresident retailers with no physical presence. States adopting economic nexus are creating various formulas to get a bright-line test for revenues received from the state during the tax year. Considerations for bright-line tests include analysis of the frequency, quantity, and the systematic nature of economic contacts with the state.
Notice and Reporting Requirements
A different approach to states collecting online retail use tax from in-state customers is Colorado’s Notice and Reporting Requirements. The law requires out-of-state retailers, not collecting sales tax from Colorado sales, to report transactions to state tax authorities and notify customers of the self-reporting and payment of the use tax obligation. Since there is no collection or remittance of sales or use tax required, the U.S. District Court of Appeals has held there is no violation to the Commerce Clause or the Quill ruling.
Sourcing Rules
The question of where the tax base is and who is owed tax arises through the nexus and simplification process. 
  • Destination-Based Sourcing – The tax base and rate is at the location of the consumer. 
  • Origin-Based Sourcing – The tax base and rate is at the location of the retailer. 
  • Hybrid Sourcing – The tax base and rate is at the location of the retailer, if the state is party to a distribution agreement.

The remote sale and collection of tax is a fluid world right now. Constant changes in state and federal legislation, technology and business models keep retailers and buyers on their toes. Technology moves much faster than legislation, so the legislative process may always be playing a game of “catch-up”.

Laura Hoffman

Laura Hoffman

 

Laura Hoffman is an Indirect Tax Specialist living in Las Vegas, Nevada. Laura retired from a multi-state natural gas distribution company after specializing in sales & use taxes, franchise fees, business licensing, property taxes, excise and utility taxes for over 15 years.  

Sales & Use Tax Changes for December 2016

Only one sales and/or use tax rate change in Zip2Tax products since last month. 

In Alabama, tax rates changed for East Brewton.

There were 6 states with ZIP code changes…

……in Indiana, New York, Oklahoma, Pennsylvania, Puerto Rico and Texas. 

That’s it for December!  Watch for a bigger list next month as we head into the new year.

Regards,

B.D. French, Researcher

B.D. French, Researcher

 

Rules For Taxing the Cloud Are Cloudy

cloudCloud computing is causing confusion to tax departments, small and large. Are cloud transactions subject to sales and use tax? Subject to income tax? How do you describe the cloud and what does it offer to companies?

What is the cloud really?

Before you can begin to answer any questions about taxing cloud transactions, you need to understand: what is the cloud?

Cloud computing essentially relies on shared computing resources versus local servers or personal devices for operating applications. “Cloud” is a metaphor for “the Internet” implying Internet-based computing. However, the cloud can provide much more than just application services. It offers data processing, information services, hardware lease/rental, telecommunication services, and software applications and systems, to name a few. Businesses are able to use cloud services to maintain a sophisticated infrastructure without the financial and employee resources local infrastructures require.

After understanding the principles of cloud transactions and characteristics, then you need to find how those offerings fit into state tax categories. Very few states have actually addressed cloud transaction tax categories and how they should be taxed. The IRS is being asked how cloud transactions should be characterized – provisions of services, rental income, royalty income, or what?

What are the characteristics of cloud transactions?

It is already common knowledge that finding and categorizing state tax regulations into neat, easily understood types is next to impossible. Each state maintains their own classifications, tangible/non-tangible definitions, taxable services and much, much more. The first step in determining a reasonable basis for cloud computing taxation begins with some basic state taxation questions:

What are the characteristics being provided by cloud computing for tax categorization?

  1. What are the sourcing issues? Destination-based (end user) or Origin-based (location of cloud data center)?
  2. What are the nexus considerations?
  3. Are services provided only; or is there a right to use tangible personal property?
  4. If tangible personal property involved, does the state tax all software or only canned software?
  5. Is there a right to access technology or just the use of technology?
  6. Is Internet access included?

Determining the use of your cloud computing will aid in answering many of these questions. If you are using only the cloud as an application server, then most likely the characteristics resemble those of software and software services. With that said, you still need to determine what your state regulations are for these characterizations. Some states tax canned software, but not custom software. Defining custom software is essential since there are different definitions of what is custom software. There is also much differentiation between states on software licensing and services; it would be recommended to check each state taxing authority to begin your research.

Some states determine that where the cloud computing center is located is the tax situs; others take the end-user location as the taxing situs. The latter could cause issues and complications for multi-state companies using one cloud computing center for multiple state locations. This may require allocation of usage to each state and company location.

Do Some Due Diligence

With so much at stake and states taking more interest in taxing cloud computing offerings, companies (large and small) would benefit from performing due diligence in what is or is not subject to taxation. Check the Streamline Sales Tax Governing Board, Inc. website for more information; however, any mainstream progress is slow to getting a common characterization and definition of cloud taxability. At a minimum, check the State Tax Matrices for your applicable states and determine if cloud computing is addressed in the matrix.

The take away is to ensure the tax department knows about any cloud computing usage in companies; don’t leave the research to the IT department. No offense to IT departments, but they are not the tax experts. Too many times tax departments are the last to know and then the tax consequences are already set in motion. Better to stay ahead and prepared and not have to fix the issue after-the-fact.

What’s Next?

The next major concern is the application of nexus rules and how they are affecting remote retailers and service providers. Does cloud computing create nexus? My next blog will cover some of the various nexus definitions and how they affect how business is run today.

Laura Hoffman

Laura Hoffman

 

Laura Hoffman is an Indirect Tax Specialist living in Las Vegas, Nevada. Laura retired from a multi-state natural gas distribution company after specializing in sales & use taxes, franchise fees, business licensing, property taxes, excise and utility taxes for over 15 years. 

Sales & Use Tax Changes for November 2016

Sales and/or use tax rates have changed in Zip2Tax products since the October updates.

In Alabama, tax rates changed for the cities of Coffeeville and York.  

  • The Coffeeville official notice can be found here.
  • The York official notice can be found here.

In Arizona, tax rates changed for the City of Globe.

  • The Mayor and Council of the City of Globe passed Ordinance No. 834. which amended the City Tax Code to increase the tax rate on retail sales from two percent (2%) to two and three-tenths percent (2.3%).  More details here AZ DOR.

zip-codes-picture

 

There were 16 states with ZIP code changes…

……in Arizona, California, Connecticut, DC, Florida, Georgia, Indiana, Minnesota, North Carolina, Nebraska, New Mexico, New York, Oregon, Puerto Rico, Texas, and Wisconsin.

 

Until next month, best regards!

B.D. French, Researcher

B.D. French, Tax Researcher

Sales And Use Tax Changes For October 2016

Sales and/or use tax rates have changed in 12 states in Zip2Tax products since September 2016.

In Alaska, tax rates changed for Sitka, Skagway, Seldovia and Whittier.
In Arkansas, tax rates changed for Bald Knob, Hartford, Wilson and Yell County.
In California, tax rates changed for Compton, Corning, Isleton, Marysville and San Jose.
In Georgia, tax rates changed for the counties of Hancock, Pulaski and Towns.
In Kansas, tax rates changed for Arkansas City and Salina.
In Missouri, tax rates changed for Audrain County, Cedar County, Crawford County, Bourbon, Jasper County, Knox County, Macon County, Ripley County, Cameron, Bernie, Country Club Hills, Ferguson, Fulton, Goodman, Louisiana, Malden, Marceline, Maryville, Oak Grove, Osborn, Paris, Richmond, Seymour, Steele, Trenton, Verona, Winona, Clark County, Union, and Stoddard County.
In North Carolina, tax rates changed for Cherokee County and Jackson County.
In Ohio, tax rates changed for Clinton County.
In Oklahoma, tax rates changed for Holdenville, Medicine Park, Webbers Falls, Sayre, Mooreland, Shattuck, West Siloam Springs, Blackwell, Kay County, Kansas, and Colcord.
In Texas, tax rates changed for Brownwood, Early, Buffalo Gap, Crystal City, Skellytown, Burton, Cranfills Gap, Double Oak, Follett, Hallsville, Jacinto City, Pattison, Three Rivers, Vega, Waskom, Danbury, Elmendorf, Krum, Millsap, Moulton, and Hardin.
In Vermont, tax rates changed for Brandon.
In Washington, tax rates changed for Ellensburg, Mattawa and Othello.

ZIP code changes too….

There were 13 states with ZIP code changes effective after September 2016 including D.C., Florida, Georgia, Idaho, Indiana, Kansas, Massachusetts, Michigan, Nebraska, New Mexico, Oregon, Pennsylvania, and Texas.
 Until next month…..
bd-french

B.D. French, Z2T Researcher

 

 

Minimize Your Risk of a Sales Tax Audit

audit-calculatorStates and cities are increasing sales tax audits as a source to help fund budget shortfalls.

Transactional tax bases are expanding and more items and services are becoming taxable.  Eventually, you will come under audit at some point in your business cycle. Audits may cover periods of three or more years back. Most states will use “triggers” for sales tax audit targets, yet still systematically select businesses for audit by random statistics.

Being prepared before the audit is initiated is the best defense for a good audit outcome. Here are some things to remember throughout the year to help minimize audit exposure.

In most states, all sales transactions are taxable, unless specifically exempted. This has to be the one of the most common oversights in determining taxability. Some states, such as Arizona, Texas and Washington, have taxable classifications, each with its’ own set of rules for rates, taxability and exemptions. Some exemptions are by statute; others require documentation such as a certificate or letter. Also, some exemptions need to be renewed or are set for a defined time period. Others are until the business is discontinued. When operating a business in multiple states, these classifications and rules can become very complicated and difficult to monitor. Analyzing these classifications and collections internally will aid in preparing for an audit.

Common sales tax audit pitfalls include:

  • Charging the wrong rate due to missed rate changes
  • Use tax accruals and reporting
  • Exemptions and resale certificates
  • Unique rules and regulations
  • Internet sales
  • Location of sale
  • Nexus applicability
  • Sales tax liability record keeping

Common proactive tips prior to a sales tax audit:

  • Good documentation of processes and procedures
  • Run a preliminary internal audit to determine possible weakness areas
  • Review tax classifications and their relevance to your business
  • Keep up with nexus rules and regulations
  • Documentation of exemption and resale certificates
  • Consistency in processes

Auditors look to see what processes a company uses to remain current and compliant. Consistency in timely filing, paying and reporting returns and reports help to establish a compliance pattern. Provide proof to an auditor of tax research tools used to keep current on new events. Keep documentation in an orderly manner so the auditor can follow and understand the process. All of these details can help mitigate any audit findings. Just because you come under audit does not necessarily mean you will be paying lots of dollars; you just have to spend time and resources in proving that you are doing everything right and in compliance.

Laura Hoffman

Laura Hoffman

 

Laura Hoffman is an Indirect Tax Specialist living in Las Vegas, Nevada. Laura retired from a multi-state natural gas distribution company after specializing in sales & use taxes, franchise fees, business licensing, property taxes, excise and utility taxes for over 15 years. 

Sales tax change frequency by state

Zip2Tax compares the sales tax change frequency of the states. Ever wonder how your state measures up?

It’s generally accepted that there are around 11,000 sales tax jurisdictions across this great and diverse country of ours. This fact alone would seem to be a fairly reasonable argument for the outsourcing of sales and use tax rates from a company such as Zip2Tax. As the head of marketing for Zip2Tax I am always trying to understand our customer’s needs better. I found myself wondering about the sales tax change frequency for all these jurisdictions. I mean, 11,000 rows in a document might be manageable if they only changed their rates every few years or so, right?

So I sat down and with my trusty Excel spread sheet and a large cup of strong coffee and started going back through our research documentation counting the number of months that there had been any sales tax changes in each state. I wanted to determine which states had the highest sales tax change frequency. I sampled a three-year period from December 2015 going back through January 2013.

… fully one-third of the time that these states CAN make sales or use tax rate changes, they DO.

When the numbers were crunched I had some surprises in store, to be sure. For one, the states that provide Zip2Tax with the most new customers have no obvious correlation with which states had the highest sales tax change frequency. In fact, California and New York were only slightly above average.

The standout in this sample was Alabama which turned out to be far and away the leader with changes in 30 out of the 36 months – that’s 83% of the time. This also helped to dash my hopes of discovering a hotbed of customer need for our product since Alabama has so far not proven to be a great source of new business.
sales tax change frequency

Arizona came in second with 14 changes over that same period. Georgia, Louisiana, Oklahoma and Texas all tie for third place with 13 sales tax rate changes over 36 months. That translates to mean that fully one-third of the time that these states CAN make sales or use tax rate changes, they DO. Not to overstate the obvious, but that is more frequently than quarterly updates.

… more than two-thirds, updated that tax a minimum of once a year, and by the end of 3 years, 86% of the states had made changes…

In fact, 68% of the states that collect a sales tax, that’s more than two-thirds, updated that tax a minimum of once a year, and by the end of 3 years, 86% of the states had made changes.

So as I drained the last of my cold coffee I felt some gratification in that even though sales tax will remain an extremely complex moving target in nearly all 50 states, at least it should mean a steady supply of customers for sales tax rate providers like Zip2Tax for the foreseeable future.

Fill in the sign up form below this blog to receive our monthly newsletter and get alerted when one of these states makes a sales or use tax change or other important tax-related information.

 

Incorrect sales tax charge leads to seemingly avaricious lawsuit

$3.10 in incorrect sales tax leads to $158k in attorney’s fees

Retailers need to be careful when implementing any automated system for calculating sales tax. Even minor errors can lead to a lawsuit if a customer is charged the incorrect sales taxincorrect sales tax amount. Indeed, there are a number of class action law firms and “professional plaintiffs” who prey upon such mistakes. And even when the amount sought is just a few dollars, any judgment may be accompanied by a substantial bill to pay the successful plaintiff’s attorney fees.

A recent Illinois case illustrates this problem perfectly. The retailer in this case was Sears, one of the country’s best known department stores. The plaintiff was a customer who claimed he paid $3.10 too much in sales tax when he purchased a digital television converter box from Sears.

Converter boxes are a device used to allow older televisions to receive digital broadcast signals. In 2008 and 2009, the National Telecommunications and Information Administration, a federal agency, distributed $40 “coupons” to subsidize individual purchases of converter boxes. In July 2008, the Illinois Department of Revenue advised retailers in that state they should deduct the coupon before assessing sales tax. In other words, the sales tax only applied on the net price paid by the customer.

In this case, the plaintiff presented a NTIA coupon when he purchased his converted box at Sears, which reduced the net price paid from $59.99 to $19.99. The sales associate, however, added the sales tax to the higher price before applying the coupon. As a result, the plaintiff paid an incorrect sales tax of $4.65 when he only should have paid $1.55, a difference of $3.10.

A law firm later sued Sears, purportedly on behalf of the plaintiff and anyone else who was similarly overcharged. While the law firm eventually abandoned its quest for class action status, a judge agreed the plaintiff was entitled to $3.10 in damages because Sears violated the Illinois Consumer Fraud Act. The court rejected Sears’ argument that this was a case of predatory lawyers “shopping for a lawsuit,” even though the same plaintiff had reportedly filed “23 class action complaints in the past eight years, using the same attorneys that represent him in this action.”

The judge also awarded the plaintiff’s law firm approximately $158,000 in attorney’s fees. Sears appealed the decision. In December 2015, an Illinois appeals court upheld the $3.10 judgment in favor of the plaintiff but threw out the award of attorney’s fees. It turned out the law firm did not submit proper billing records to the trial court. As the appeals court explained, the attorneys prepared written time sheets detailing their work, entered that information into a computer system, then threw the time slips out and only gave the printouts from the computer system to the court. The appeals court said the trial judge erred in admitting these printouts as evidence in lieu of the original time sheets. While the attorneys are still entitled to compensation, the appeals court said, the trial judge must reconsider the matter using only admissible evidence.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

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