Mar 312015

Sales and/or use tax rates have changed in Zip2Tax products in 17 states since March 2015. There have been changes in Alaska, Arkansas, California, Georgia, Kansas, Louisiana, Minnesota, Missouri, North Carolina, North Dakota, Nebraska, Ohio, Oklahoma, Texas, Utah, Washington and Wyoming.

In Alaska, tax rates changed for Sitka, Skagway, Seldovia and Whittier.

In Arkansas, tax rates changed for Barling, Cherry Valley, Dermott, Evening Shade, Higginson, Lead Hill, Lockesburg, Ward, Wilmot and Mississippi County.

In California, tax rates changed for Atascadero, Benicia, Coachella, El Cerrito, Guadalupe, Paradise, Pinole, Rancho Cordova, Red Bluff, Richmond, Sausalito, Stanton, El Cajon, and Alameda, Humboldt and Monterey Counties.

In Georgia, tax rates changed for the counties of Baker, Brooks, Chattahoochee, Clinch, Habersham, Liberty, Seminole and Twiggs.

In Kansas, tax rates changed for Eureka, Hoisington, La Harpe, Melvern, Shawnee, Wellington, and the counties of Dickinson, Gove, McPherson, Rooks, and Smith.

In Louisiana, tax rates changed for Epps, Terrebonne Parish, Delhi, Forest Hill, West Monroe, Colfax and Lafayette Parish.

In Minnesota, tax rates changed for the counties of Carlton, Saint Louis, and Steele.

In Missouri, tax rates changed for Ralls, Saint Francois, and Wright Counties, Park Hills, Brookfield, Liberty, Marshfield, Portageville, and Princeton.

In North Carolina, tax rates changed for the counties of Anson and Ashe.

In North Dakota, tax rates changed for Grafton, Jamestown, Killdeer, Kindred, Underwood and Williams County.

In Nebraska, tax rates changed for Benedict, Decatur, Elwood, Stanton, Upland, Utica, Bancroft, Bassett, Burwell, Duncan, Fairbury, Howells, Minden, Nebraska City, Norfolk, Rushville, Wayne, York and Dakota County.

In Ohio, tax rates changed for the counties of Hamilton, Lucas and Mahoning.

In Oklahoma, tax rates changed for Healdton, Nicoma Park, Elk City, Owasso and Grady County.

In Texas, tax rates changed for Lake Dallas, San Elizario, Bellevue, Ennis, Muchison, Progresso, Taft and Zapata County.

In Utah, tax rates changed for American Fork, Clearfield and Washington County.

In Washington, tax rates changed for North Bend, Seattle, Tonasket, Friday Harbor and Pacific County.

In Wyoming, tax rates changed for the counties of Crook, Johnson, Washakie, and Campbell.

There were 27 states with ZIP code changes effective after March 2015 including Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Massachusetts, Maryland, Michigan, Minnesota, Missouri, North Carolina, Nebraska, New Jersey, Nevada, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, and West Virginia. A PDF document enumerating ZIP code additions and deletions can be made available upon request.

Mar 232015

Hawaiian hotelsAnother state has been thwarted in its efforts to extend sales taxes to online travel companies (OTCs). On March 17, Hawaii’s Supreme Court awarded OTCs a partial victory, unanimously holding Travelocity and other OTCs were not liable for Hawaii’s transient accommodations tax (TAT), although they do have to pay a general excise tax (GET). The decision is likely the first ruling from a state supreme court on this subject. Previously, intermediate appellate courts in Colorado and North Carolina rejected state efforts to collect lodging taxes, which are similar to Hawaii’s TAT.

In 2011, Hawaii’s director of taxation assessed nearly a dozen OTCs for unpaid excise and transient accommodation taxes. The excise tax is not a sales tax. Hawaii’s GET is a tax on the gross receipts of businesses. On most services the GET is 4% or 4.5%. A business may elect to pass the GET onto its customers, which makes it seem like a sales tax, but it is not required to do so.

The TAT is a 7.25% sales tax on hotel rooms. The “operator” of the hotel or accommodation is responsible for collecting the tax and remitting it to the state. OTCs, of course, do not own or operate hotel rooms. They contract with hotels to sell rooms online. The hotel charges the OTC a net rate for the room; the OTC then sells the room for a price above the net rate and keeps the difference.

Nobody disputes the hotels are liable for the GET and TAT on their respective share of the room sales. But the OTCs argued they should not have to pay either tax on their markups, as they neither physically conduct business within the state of Hawaii nor personally operate any hotel rooms. The Hawaii Supreme Court, following the leads of the intermediate courts in Colorado and North Carolina, agreed with the OTCs on the latter point. The court rejected the director of taxation’s efforts to expand the definition of “operator” under the TAT to OTCs.

Hawaii law imposes the TAT on businesses involved in the “actual furnishing of transient accommodations.” The word “actual” is key here, the court explained, because it indicates the Hawaii legislature only intended to tax a single “operator” per hotel room. The law “does not contemplate or allow for multiple operators when a transient accommodation is furnished.” This means only the hotels, and not the OTCs, are responsible for the TAT.

However, the OTCs are liable for the GET, because that is a tax on both the “operator” of a hotel and any travel agency or tour packager. In this context, the court said, OTCs are travel agencies. And even if they lack a physical presence in Hawaii, they remain subject to the excise tax because they “receive income by virtue of selling the right to occupy hotel rooms located in Hawaii.” Still, the court’s decision will significantly reduce the OTCs’ tax bill, which would have been over $250 million had the state prevailed on the TAT issue.

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

Mar 182015
prepared foods

While meals tax, or prepared food tax, advocates call it a “luxury tax,” detractors point out that it applies equally to cheap takeout well as fine dining thereby affecting the poor more dramatically than the rich.

Sales taxes are not always uniformly applied to all goods. Some states impose a “meals tax”, which is a type of additional sales tax applied only to prepared foods served in restaurants and similar establishments. According to a 2012 survey by the nonprofit Tax Foundation, localities in 15 states and the District of Columbia charge some form of meals tax. Among the 50 largest U.S. cities, Virignia Beach, Virginia, had the highest meals tax rate at 5.5%. This was in addition to Virginia’s then-statewide sales tax of 5%, for a combined rate of 10.5%. Only Minneapolis reported a higher combined rate at 10.775%. (Virginia Beach’s combined rate is actually higher now – 10.8% – as Virginia subsequently raised its base sales tax to 5.3%.)

Teachers and police v. small business owners

Virginia Beach is not the only Virginia city struggling with high meals tax rates. In Charlottesville, a small city of about 45,000 residents and home to the University of Virginia, the combined sales-and-meals tax rate is currently 9.3%. Last month city officials proposed adding another 1% to the meals tax, bringing the rate to 10.3%.

50 cities with high meals tax

Chart courtesy the Tax Foundation.
The top 50 cities ranked for high combined meals and general sales tax rates in 2012.

Charlottesville Mayor Satyendra Huja said the additional 1% would add $2.1 million to the city’s coffers, providing additional funds for the city’s schools and police without increasing property tax rates. City Council member Kristin Szakos added the meals tax “is not a tax on necessities, it’s a luxury tax.”

Several restaurant owners have circulated a petition in opposition to the proposed 1% increase, which the City Council is expected to vote on in mid-April. The owners argue their customers have been unfairly singled out and asked to pay nearly double the general sales tax rate. Restaurants must also pay a processing fee on each credit card transaction based on the entire amount of the sale, including any meals tax. This can have a significant impact on the already thin profit margins of smaller, independently owned restaurants.

Is that chicken a “meal”?

Although meals tax enthusiasts like Charlottesville’s Szakos claim it is a “luxury tax,” the Tax Foundation’s 2012 report argued otherwise. The tax applies just as much to cheap takeout as it does fine dining. As the Foundation noted, “One could say that it is a tax on individuals with less flexible schedules or who do not like to cook – rich or poor.”

The meals tax also creates some odd legal hair-splitting over what exactly constitutes a “meal.” Virginia law says the tax applies to any “prepared food (including, without limitation, sandwiches, salad bar items sold from a salad bar, and prepackaged single-serving salads consisting primarily of an assortment of vegetables) and beverages … offered or held out for sale by a restaurant or caterer for the purpose of being consumed by an individual or group of individuals at one time to satisfy the appetite.” This definition excludes most foods sold at grocery stores, although it does apply to certain types of prepared foods sold within such stores. For example, if you buy an already cooked rotisserie chicken from a grocery store deli counter, that item is subject to the meals tax. But frozen chicken you have to reheat is not.

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

Mar 052015

On March 3rd, the U.S. Supreme Court dealt a potentially crippling blow to Colorado’s efforts to force out-of-state retailers to assist the state’s efforts to collect use taxes on Internet and mail order purchases. While the court unanimously sided with retailers opposing Colorado on a key jurisdictional question, at least one justice expressed concern that states have been unfairly restrained in taxing Internet purchases.

Direct Marketing Association v. Brohl

Colorado legislators adopted a law in 2010 imposing a number of reporting requirements on out-of-state retailers who do not otherwise maintain a physical presence in the state. First, these retailers had to inform all of their Colorado customers they were liable for use tax on their purchases. Second, retailers had to send a specific notice to each Colorado customer who purchased more than $500 worth of goods during the previous year about their use tax liability. Finally, retailers had to provide the state’s Department of Revenue with the names, addresses and total purchase amounts for each of their Colorado customers.

click-through nexus

Justice Kennedy’s assertion that it may be time to do something about the outdated Quill decision is highlighted if you look at the number of states that have attempted to enact their own version of Internet sales tax legislation.

The Direct Marketing Association (DMA), a trade group representing Internet and mail-order businesses, asked a federal judge for an injunction to prevent Colorado from enforcing this law. The judge granted that injunction in March 2012, holding Colorado’s requirements violated the Commerce Clause of the U.S. Constitution. Under the landmark 1992 U.S. Supreme Court decision in Quill v. North Dakota, the Commerce Clause forbids a state from requiring retailers who do not maintain a “physical presence” within the state to collect its taxes. Here, the judge agreed with the DMA that the three reporting requirements “impermissibly imposed undue burdens on interstate commerce” and were therefore unconstitutional.

But in 2013, the U.S. 10th Circuit Court of Appeals reversed the trial judge’s decision. The appeals court did not address the merits of the DMA’s constitutional arguments. Rather, the three-judge panel said the federal courts lacked the jurisdiction to hear the case at all. In 1937, Congress passed a law prohibiting federal courts from issuing any injunction which interfered with a state government’s “assessment, levy or collection” of its own taxes. The 10th Circuit said that anti-injunction rule applied to Colorado’s reporting requirements.

The Supreme Court disagreed. In an opinion authored by Justice Clarence Thomas, the high court said the “notice and reporting requirements” in the Colorado law are not part of the tax “assessment” or “collection” process. In fact, Thomas said the reporting requirements precede both. For instance, the word “assessment” in the 1937 law refers to the act of recording a taxpayer’s liability; but Colorado’s law addresses efforts to gather information about the taxpayer’s liability. Thomas said the anti-injunction rule does not extend to such information gathering efforts.

Time to reconsider Quill?

In a separate opinion, Justice Anthony Kennedy wrote to express his personal belief the court should reconsider and overturn Quill v. North Dakota. Kennedy said requiring states to establish a physical presence (or “substantial nexus”) before imposing tax collection responsibilities on out-of-state retailers caused “extreme harm and unfairness to the States.” Kennedy said many states were struggling to collect use taxes on Internet and mail-order sales – Colorado alone loses about $170 million a year, he said – and given the “far-reaching and structural changes in the economy” caused by the online shopping revolution, he argued the time had come for the court to reconsider its position.

Kennedy acknowledged the DMA case was not the right time and place to address this issue, but he added, “The legal system should find an appropriate case for this court to reexamine” the Quill decision.

This may not be the last word

Although the Supreme Court said the anti-injunction law did not stand in the way of the trial court’s original decision in favor of the DMA, this case is not yet over. In a footnote to its 2013 opinion, the 10th Circuit suggested the legal principle of “comity” cautioned federal courts against interfering with Colorado’s tax collection policies. Comity basically means that even if a federal court has the legal right to hear a case, it should decline to do so out of courtesy to the state’s authority. Colorado officials did not actually present a comity as a defense – and Justice Thomas said he and his colleagues took no position on the issue at this time – but the 10th Circuit may revisit the question following the Supreme Court’s decision.

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

Feb 272015
Illinois enact click-through nexus

Illinois is one of many states to enact a click-through nexus or “Amazon tax” law saying that merchants making sales through online marketing (grossing over $10,000 annually through clicks with affiliates in the state)  have established nexus and are liable to pay use tax even if the sales were not to Illinois residents.

Generally a state may only collect sales or use taxes if there is a “substantial nexus” between the seller and the state imposing the tax. The substantial nexus requirement arises from the United States Constitution, which gives Congress the exclusive right to regulate interstate commerce. As the U.S. Supreme Court explained in the 1992 decision, Quill v. North Dakota, before the Constitution’s adoption, “state taxes and duties hindered and suppressed interstate commerce; the Framers intended the Commerce Clause as a cure for these structural ills.”

In modern practice this means two things: first, a state cannot use its tax policies to discriminate against out-of-state commerce; second, a state cannot tax a transaction that has no real connection – i.e., a substantial nexus – to the state itself. This latter requirement is an ongoing source of tension in the age of Internet commerce, as online retailers can sell millions of dollars worth of goods in a state where the company maintains no physical or legal presence.

The “Amazon” Tax

One battlefield in this tax war is the use of affiliate or “click-through” marketing programs. Most people are familiar with these types of programs. A website contains an ad for goods available for sale at another website, such as Amazon; the user clicks the ad, purchases the product, and the affiliated website operator receives a commission from Amazon.

More and more states are contending that this advertising relationship alone creates a “substantial nexus” with an out-of-state retailer justifying the collection of sales or use tax. This past January, Illinois announced its second effort to collect such taxes. Illinois legislators made their initial attempt in 2011, asserting sales and use tax jurisdiction over any “retailer having a contract with a person located in this State under which the person, for a commission or other consideration based upon the sale of tangible personal property by the retailer, directly or indirectly refers potential customers to the retailer by a link of the person’s Internet website.”

A trade association representing affiliate marketers challenged Illinois’ action as a violation of a federal law prohibiting “discriminatory taxes on electronic commerce.” In an October 2013 decision, the Illinois Supreme Court agreed with the challengers and nullified the state law. The Illinois General Assembly responded in August 2014, passing a revised law allowing retailers to present evidence their referral activities are “not sufficient to meet the nexus standards of the United States Constitution.” The new law also applies to “promotional codes distributed through the [retailer’s] hand-delivered or mailed material,” such as catalogs. This requirement is intended to address the Illinois Supreme Court’s finding the earlier law singled out Internet-only promotions.

Under the new Illinois law, which took effect on Jan. 1, any out-of-state retailer that “made cumulative gross sales of $10,000 during the preceding four quarterly periods to customers referred by persons located in Illinois,” must register and pay state use taxes. Note the $10,000 threshold is based on the location of the affiliates, not the customers. So if an Illinois-based website’s referrals lead to $10,000 in sales for the out-of-state retailer, the retailer is liable for Illinois use tax even if only $5,000 of those sales were actually made to people living in Illinois.

Courtest The Tax Foundation circa 2009

Courtesy The Tax Foundation (Graphic created circa 2009)

Feb 272015

Sales and/or use tax rates have changed for Alabama, Arizona, Georgia, New York and South Carolina in Zip2Tax products since February 2015.

In Alabama, tax rates changed for Level Plains, Priceville, Littleville, Brantley, and Attalla.

In Arizona, tax rates changed for Flagstaff, Camp Verde, Bisbee, Oro Valley, and Apache Junction.

In Georgia, tax rates changed for Clayton.

In New York, tax rates changed for Horning and Cornell.

In South Carolina, tax rates changed for Aiken, Anderson, and Cherokee.

There were 14 states with ZIP code changes effective after February including Colorado, Connecticut, Kansas, Massachusetts, Nebraska, New Hampshire, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Utah, Washington and the District of Columbia.

Download the full ZIP code change documentation.

Angel Sauer

Feb 242015

The steps for claiming a sales tax refund or credit vary by state, but the most common procedures include adjusting the sales reported or tax due on the following return; amending the original return; or filing a separate refund claim either by letter or by a specific form.

sales tax refund methods

Methods various states allow for individual taxpayers to obtain a sales tax refund.

Traditionally, consumers were required to request sales tax refunds through the vendor they made the original purchase through. The vendor was then obliged to file a refund claim with the state on behalf of the customer. This method protected the state from duplicate refunds.

Today, with the growing popularity of reverse audits and sales and use tax recovery specialists, many vendors complained that filing refunds claims on behalf of the customer was overly time consuming. In response, many states have adopted procedures for the vendor to assign the right to receive the refund to the customer which, once awarded, allows the consumer to deal directly with the state in obtaining a refund of the sales taxes paid in error. Before filing a refund claim with a vendor, taxpayers should check with the state to determine if an assignment is feasible.

Source: CCH “Sales and Use Tax Answer Book” (2014)

Feb 242015

Vendors normally collect sales taxes from consumers on behalf of the state. States need to provide some method for the refund or crediting of overpayments in the case of returned goods, repossessions, or simple errors in tax calculation or interpretation.

When a product is returned and the money is refunded, the sale is undone and the tax is appropriately returned to the vendor which returns it to the consumer. The same theory applies to the uncollected portion of the sales price on repossessions and bad debts if the sale and tax had been previously reported.

Most states will only refund tax when presented with evidence that the tax has been returned to the consumers. Courts have ruled that to allow the vendor to keep the tax collected from the purchaser is “unjust enrichment.”

To claim a refund, the vendor must be able to document that the tax has been remitted to the state or local jurisdiction, that the tax was wrongfully or erroneously collected and remitted, and that the tax has been returned to the consumer where appropriate.

Feb 202015

Forty-six states currently impose a statewide sales tax of some kind. In most of these states the rate is not uniform throughout but varies among cities and counties. This is because 37 states allow for a “local option sales tax,” a process where an individual locality may choose to add a surcharge to the statewide tax rate. Local governments frequently use local option taxes to help defer the costs of capital improvements or special projects.2000px-Seal_of_Kentucky.svg

Kentucky may soon become the 38th state to allow this practice. On Feb. 12, the Kentucky House of Representatives voted 57 – 38 to allow localities to impose their own sales and use taxes. This, of course, is only a first step. The Kentucky Senate must still approve this measure as well as a proposed amendment to the state’s constitution. The constitutional amendment is necessary because Kentucky’s legislature does not currently have the legal authority to permit local option taxes.

Under the proposed amendment, which the Kentucky House approved by a 62 – 35 vote, the legislature may permit cities and counties to impose a sales tax of up to 1%. Any such levy would be added to the existing statewide Kentucky sales tax of 6%. Any proposed local option sales tax must be separately approved by the voters of the city or county, and the net proceeds of any tax must go to “the completion of capital projects” or servicing the debt on such projects, which can include anything from public utility lines to a sports facility. The local sales tax would therefore only last as long as necessary to pay for the approved capital project – but in some cases that could mean up to 10 years.

If approved by the Senate, the constitutional amendment will appear on the 2016 general election ballot. If voters approve the amendment, localities could begin the process of implementing a local option sales tax starting in January 2017. Cities and counties could then put sales tax proposals before local voters beginning with the November 2018 general election.

Despite the support of a solid majority of the Kentucky House and Gov. Steve Beshear, the local option sales tax’s future remains unclear in the state senate. Because a constitutional amendment is involved, a three-fifths majority of the 38 senators must vote in favor of the House’s proposals. Senate President Robert Stivers told the media he personally supports the local option tax but was unsure how the majority of his Republican caucus would vote.

The local option tax has muddled traditional party lines. In the Democratic-controlled House, the Republican leadership supported the local option tax. But many Democratic lawmakers spoke out against the measures, criticizing them as imposing a “regressive” tax on poorer Kentuckians. Likewise, several Republican candidates hoping to run against Gov. Beshear, a Democrat, in this November’s election, denounced the measures as an unwarranted tax increase. Supporters reply they only want to give local governments the option of using the sales tax to raise funds, and that voters would retain the final say.

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

Feb 122015

Michigan voters will head to the polls on May 5 to approve (or reject) a proposed 1% increase in the statewide sales tax. Last December, Michigan Gov. Rick Snyder and the state’s legislature agreed to the referendum as part of a package to fund transportation and educational programs. If approved, Michigan would have a statewide sales tax of 7%, which would tie it with several states for second-highest in the country.

1% Michigan sales tax hike proposed

Michigan Gov. Rick Snyder and the state’s legislature have proposed a 1% statewide sales tax increase as part of a package to fund transportation and educational programs.

The referendum is necessary because the sales tax is written into the Michigan Constitution. Voters must approve any constitutional amendments proposed by the legislature. Michigan’s 1963 Constitution originally set the sales tax at 4%. In 1994, an amendment imposed an additional 2% tax, with the proceeds directed to the state’s public schools. The Constitution also exempts prescription drugs and groceries from the sales tax. If the referendum passes, sales of gasoline and diesel fuel will also be exempt from sales tax (although other gas taxes would increase).

A report commissioned by the Michigan legislature estimated raising the sales tax from 6% to 7% will generate about $1.6 billion in additional annual revenues. Most of this new revenue will go to roads and mass transit. Michigan schools are expected to receive an additional $300 million.

Who will win the campaign?

The referendum has sparked a spirited campaign among both supporters and opponents. A group called Protect MI Taxpayers emerged last December to rally opponents under the slogan “Stop Government Pickpocketing!” Since then, at least three other opposition groups have formed, according to the Detroit News, including Citizens Against Middle Class Tax Increases, the Coalition Against Higher Taxes and Special Interest Deals, and Concerned Taxpayers of Michigan.

On the flip side, a group called Safe Roads Yes is leading supporters of the referendum, officially known as Proposal 1. Established groups backing Proposal 1 include the Small Business Association of Michigan and the Michigan Infrastructure & Transportation Association, the trade association that represents the state’s road construction companies.

Political analysts estimate the total cost of the referendum campaign may exceed $15 million. EPIC-MRA, a Michigan-based polling firm, conducted a survey of 600 Michigan voters in late January on Proposal 1. In response to a question offering basic details of the sales tax increase, a slim plurality—46% to 41%—said they would vote for Proposal 1. However, when the pollsters provided more detailed information about Proposal 1, the “No” vote overtook the “Yes” side by a margin of 47% to 38%. EPIC-MRA noted its survey had a 4% margin of error. (It is unclear how much information voters will officially receive, as the Michigan Bureau of Elections has yet to approve final ballot language for Proposal 1.)

Ultimately, the success or failure of the referendum depends on who gets more of their supporters to the polls on May 5. Only 43% of Michigan voters turned out for last November’s statewide elections. And besides Proposal 1, the May 5 election only features contests for city and local offices, which are typically low-turnout affairs.

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