Jan 142016
 

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.

 

Jan 122016
 

$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

Dec 312015
 

Sales tax updates: 19 states have sales and use tax rates which have changed in Zip2Tax products since December 2015. 

There are sales tax updates in Alabama, Arkansas, Arizona, Colorado, Florida, Georgia, Illinois, Kansas, Louisiana, Minnesota, Missouri, North Dakota, New Mexico, Nevada, Ohio, Oklahoma, South Dakota, Texas and Utah effective Jan. 1st.

In Alabama, tax rates changed for Rockford, Luverne and Waterloo.

In Arkansas, tax rates changed for Bald Knob, Brinkley, Gillham, Harrisburg, Viola and Crittenden County.

In Arizona, tax rates changed for Apache Junction, Phoenix and Prescott Valley.

In Colorado, tax rates changed for Bayfield, Bennett, Fraser, Lyons, Ouray, the Counties of Alamosa and Chaffee, Gunnison Valley RTA, Montezuma County Hospital District, Colorado Springs, Crested Butte and Greeley.

In Florida, tax rates changed for the Counties of Jackson, Walton, Hernando and Saint Johns.

In Georgia, tax rates changed for Hancock County.

In Illinois, tax rates changed for Morton Grove, Posen, Stickney, Bellwood, Bloomington, Herrin, Hopkins Park, Matteson, Shorewood and Cook County.

In Kansas, tax rates changed for Shawnee.

In Louisiana, tax rates changed for Folsom, Lake Charles and Merryville.

In Minnesota, tax rates changed for Rochester and the Counties of Otter Tail and Freeborn.

In Missouri, tax rates changed for Carthage, New Madrid County, Chillicothe, Holt County, Saline County and Aurora.

In North Dakota, tax rates changed for Alexander and Center.

In New Mexico, tax rates changed for Maxwell, Springer, De Baca County, Eddy County, Vaughn, Lincoln County, Mora County, Otero County, Jemez Springs, Farmington and Kirtland.

In Nevada, tax rates changed for Clark County.

In Ohio, tax rates changed for Portage County.

In Oklahoma, tax rates changed for Bartlesville, Gore, Hollis, Norman, Del City, Marshall County and Pittsburg County.

In South Dakota, tax rates changed for Astoria.

In Texas, tax rates changed for Corral City and Goliad.

In Utah, tax rates changed for Dutch John.

There were 13 states with ZIP code changes effective after December 2015 including California, Connecticut, Florida, Iowa, Indiana, Massachusetts, Michigan, Missouri, Montana, New Jersey, Oklahoma, Texas and West Virginia. A PDF document enumerating ZIP code additions and deletions can be made available upon request.

Angel Downs, Zip2Tax's ead tax researcher

Angel Downs, Zip2Tax’s lead tax researcher

Dec 292015
 

Your federal tax deduction for state sales and use taxes could be larger than your income tax deduction depending upon your circumstances

On December 18, President Obama signed a massive federal spending bill into law. Among other things, the law reinstates a federal income tax deduction for state sales and use taxes paid by individuals. This deduction officially expired at the start of 2015, but the new spending bill retroactively abolished the expiration date, thereby making the deduction “permanent” according to its legislative supporters.federal income tax deduction for state sales and use taxes paid by individuals.

What is the sales tax deduction?

Taxpayers who itemize deductions on their federal income tax return (Form 1040, Schedule A) are no doubt aware they can claim any state and local income taxes paid as a deduction. But a taxpayer may elect to deduct state and local sales taxes paid. This is in lieu of the income tax deduction. In other words, you may deduct either your state income tax paid or state sales tax paid, but not both. This election only applies for the current tax year, however, so if you take the income tax deduction on your 2015 return, you could still take the sales tax deduction on your 2016 return.

Why is there a deduction for sales and use tax?

Although most states assess some form of personal income tax, seven states do not, while two others only assess dividend and interest income but not wages or salary. This creates a disparity with respect to the federal income tax, as residents of states with no income tax, like Florida, are at a disadvantage compared to residents of states like California that charge a high income tax. The sales tax deduction is designed to remedy this imbalance.

Keep in mind, you can elect to take the sales tax deduction regardless of the state you reside in. While it is generally a good idea to take the income tax deduction in a state that has one, there may be situations where the sales tax deduction would be more favorable to you in a particular tax year.

How do I calculate my sales tax deduction?

As a basic rule, an individual can deduct the actual sales taxes he or she paid in a given tax year. This means you must actually keep the receipts of your purchases showing the sales tax paid. Alternatively, the IRS publishes tables of predetermined deduction amounts based on your state and locality. The IRS also provides an online calculator to help determine your deduction under this alternate method. You are free to choose either method.

 What sales taxes cannot be deducted?

You may not deduct any business expenses on Schedule A, which includes sales tax paid on items used for your trade or business. There may also be limits on how much sales tax you can deduct on an individual purchase. For example, if you pay more than the “general sales tax” rate for a motor vehicle, you may only deduct the amount equal to the general sales tax. Additionally, if you receive any refund for sales tax paid in a given tax year, you must reduce your deduction by an equal amount.

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

Dec 222015
 

While budgeting for travel, plan on paying sales tax on vacation rentals through companies like Airbnb

tax on rentals

Many people have turned to their spare bedrooms as source of additional income but sales tax on vacation rentals is a new fly in the ointment that renters in several states may have to deal with. Websites like Airbnb and VRBO allow anyone to list their properties for short-term rental. Travelers then book rooms through the website, which in turn deducts its fees from the money paid to the renter.

But as these services have become more popular, officials in a number of states have questioned whether sales tax should apply to these transactions. About a half dozen states currently require Airbnb and its competitors to collect local sales and hotel occupancy taxes. Just recently, Tennessee’s top law enforcement official said the Volunteer State should be one of them.

Earlier this year, a member of the Tennessee legislature asked state Attorney General Herbert H. Slatery III for an official advisory opinion to answer three questions. The first was whether Tennessee sales tax was due on “short-term rentals of homes, apartments, and rooms” arranged through websites. The second question was whether such rentals qualified as “hotels” subject to additional state and local tax on occupancy. And finally, assuming such taxes are due, who is responsible for collecting them?

On December 1, Slatery issued his opinion. Under Tennessee law, sales tax is assessed on any “sale, rental or charges” for any “accommodations” furnished to a person for less than 90 continuous days. The attorney general said the types of services offered through Airbnb and VRBO fit that description. However, Slatery also said only those “individuals who regularly or frequently rent their homes on a short-term basis” were liable for collecting sales tax. Individuals who only rent rooms through a website “infrequently or irregularly” are not subject to tax.

Slatery further determined individuals who regularly rent out rooms in their homes are effectively operating “hotels,” which are subject to varying levels of occupancy tax depending on the specific Tennessee county. By law it is the homeowners, not the third party websites, who are liable for collecting the tax since they are the “operators” of the hotel. And unlike the general sales tax, occupancy taxes must be collected even on “occasional” or “isolated” short-term rentals.

But as the attorney general noted, Airbnb and similar websites allow individual renters “to set the price of the rental and to specify any taxes that are due from guests.” Therefore he did not expect compliance with Tennessee sales and occupancy tax laws to be “overly burdensome” for people who rent rooms.

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

Dec 172015
 

Many state and local governments have turned to sales tax increases in order to address growing budget deficits. But the newly installed government of one Canadian province has decided to change course and cancel a planned provincial sales tax increase that was scheduled to take effect in 2016. It may be the first and only case in North America of such a reversal.

provincial sales taxIn Canada, unlike the United States, sales taxes is assessed at both the federal and provincial level. The federal portion of the tax, known as the Goods and Services Tax (GST), is 8%. This is added to each province’s sales tax to form what is called the harmonized sales tax (HST). Newfoundland and Labrador currently charges a 5% provincial sales tax, making its HST 13%.

Back in April, the government of Newfoundland and Labrador announced a 2% increase in the provincial sales tax, which would have raised the HST to 15% as of January 1, 2016. Then-Premier Paul Davis and his cabinet said the additional tax revenue was needed to “facilitate a return” to a surplus in the government’s budget by 2021. At the time, the government estimated it would run a deficit of about $1 billion in 2016.

But on November 30, Davis and his Progressive Conservative Party lost their majority in the provincial legislature following a general election. Liberal Party leader Dwight Ball was sworn in as the new premier on December 14. During the provincial election campaign, Ball said his “first order of his business” would be to rescind the 2% sales tax increase. And he kept his word. On December 3, Ball formally asked Bill Morneau, the finance minister for Canada’s federal government, “to take the required measures to ensure the general sales tax rate remain at 13 per cent after December 31, 2015.” Morneau, who recently took office himself, had to sign off on this action because the federal government is actually responsible for collecting the HST.

As of this writing, however, there is still some confusion among local businesses in Newfoundland and Labrador as to what sales tax rate they should charge customers come New Year’s Day. A local business leader told the Canadian Broadcasting Company, “small business owners are being left in the dark, and Canada Revenue Agency needs to make more details available.” After all, the official noted, it is businesses which collect the harmonized sales tax, and “[a]s such, they need to know when to adjust cash registers, accounting software and other details.” However, a press release from Newfoundland and Labrador’s Department of Finance, issued shortly after Premier Ball was sworn in, emphatically stated “the federal government has agreed” to the new government’s request to keep the sales tax at 13%.

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

 

Dec 162015
 

PA-lgSales tax rules often confuse customers and businesses alike. Perhaps the only thing more perplexing is the process of seeking a refund of sales taxes from the state when customers are overcharged. A group of Pennsylvania customers of the popular BJ’s Wholesale Club learned this lesson recently when a state appeals court threw out their lawsuit seeking such a refund.

The BJ’s customers purchased various items from the wholesaler using coupons. But BJ’s assessed state and local sales tax based on the non-discounted price of the items. The total sales tax paid was relatively low – about $3.50 per item – but the customers argued they should have paid less after taking the coupons into account.

The customers initially filed a class action against BJ’s in a Philadelphia court. But in Pennsylvania, customers must take their case for a refund of sales taxes directly to the state’s Department of Revenue. Although the customers initially asked for a hearing before the department, for some reason they withdrew this request and instead sent a letter to the agency’s chief counsel, seeking clarification of the applicable sales tax rules.refund of sales taxes

The chief counsel responded the customers were not entitled to a refund. Under department regulations, the chief counsel said, “amounts representing manufacturer’s coupons or discounts shall be excluded from the taxable purchase price of a product if both the items purchased and the coupons are described on the cash register tape.” In other words, the coupon had to be linked to a specific item; otherwise, the customer owed sales tax on the full purchase price of the item. Here, BJ’s receipts only listed a “scanned coupon” without linking it to any particular item.

The customers asked the Board of Finance and Revenue, another agency within the department, to review and reverse the chief counsel’s determination. The board replied it was powerless to do so, as the chief counsel’s letter was merely a statement of “the Department’s position on an issue,” not a final administrative order subject to appeal. The customers then appealed to the Pennsylvania courts, which were similarly unreceptive. The Commonwealth Court of Pennsylvania, in a November 24 opinion, agreed with the department and a lower court there was no procedure under state law “for an appeal of an advisory opinion.” This means the customers must begin anew and directly ask the department for a refund of sales taxes, which the agency is likely to deny given its advisory opinion.

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

Nov 302015
 

A state by state comparison of services subject to sales tax

While it is politically unpopular to raise sales tax rates, many states have found it possible to supplement lagging revenues by expanding the tax base – they make more types of goods and services subject to sales tax.

Whereas services used to be considered mostly tax exempt, that is no longer a safe assumption. States frequently tax services that are performed on tangible personal property such as contractor work or maintenance. Ongoing services such as repair contracts and extended warranties are also commonly subject to sales tax. The list of services subject to sales tax is ever expanding. Today, data processing, credit reporting, internet access and parking and storage are also services subject to sales tax in many states.

Services subject to sales tax

If you look at the chart for “general” services subject to sales tax it appears that most states tax services “generally”, but that doesn’t give you a complete picture. If you look at a less broad subset of services, in this case, janitorial services, you will see that the majority of states exempt it from sales tax (with multiple caveats.)

taxability of janitorial services

**Chimney cleaning exempt ***Janitorial or maintenance services performed on a casual-sale basis are not taxable. Janitorial services for the disabled may be exempt ****Nonresidential cleaning services, including janitorial services on a contract or fee basis, are taxable. Residential claning services are exempt. *****furnishing of cleaning services, including cleaning and renovation of furniture, capets and rugs is taxable. However the cleaning and restoration of misc. items other than furniture and structural claning are exempt provided certain conditions are met and the charge for each is separately stated. #Cleaning of a commercial or industrial building is taxable. Cleaning for individuals is exempt. ##Interior cleaning and maintenance service agreements of 30 days or more are taxable. ###Cleaning real property, such as windows, walls, and carpeting is exempt. Cleaning personal property, including furniture, rugs and draperies is taxable. ####However, cleaning personal property is taxable. ^Janitorial services does not include cleaning the exterior walls of buildings, septic tanks, special clean up jobs reqired by construction, fires, floods, etc., painting, papering, repairing, furnace or chimney cleaning, snow removal, sandblasting, or the cleaning of plant or industrial machinery or fixtures. ^^Routine and repetitive janitorial services exempt. Specialized cleaning of tangible personal property taxable, specialized cleaning of real property exempt. ^^^Generally, services for repair, alteration, or improvement of tangible personal property are taxable.

The take-away is that you will need to thoroughly understand what services your company performs and how they relate to the sale of any tangible property in each state in order to fully understand the sales tax implications. If you sell taxable services, you must register as a dealer to collect and report sales tax according to each state’s published rules.

 

Nov 302015
 

Sales taxes changed in Zip2Tax products for four states since November

In Alabama, tax rates changed for Randolph County.

In Colorado, tax rates changed for Winter Park.

In Louisiana, tax rates changed for Lafayette Parish.

In New York, tax rates changed for Chautauqua County and Jefferson County.

There were 10 states with ZIP code changes effective after November 2015 including the District of Columbia, Florida, Georgia, Indiana, Massachusetts, Minnesota, Mississippi, New Jersey, Ohio and Texas. A PDF document enumerating ZIP code additions and deletions can be made available upon request.

Angel Downs, Zip2Tax's ead tax researcher

Angel Downs, Zip2Tax’s lead tax researcher

Nov 272015
 

sales tax freeSouth Carolina reminds shoppers that Amazon orders will loose their sales tax free status as of Jan. 1, 2016.

As of New Year’s Day, South Carolina will become the 27th state to require sales tax be collected on Amazon orders. Amazon has long been aware that it will lose its sales tax free status. The deal the state’s legislature made back in 2011 with the retailer in exchange for in-state jobs expires after this month.

South Carolina expects to collect many millions of dollars once sales tax free Amazon shopping is a thing of the past. “We expect a significant increase in sales tax revenues,” said Rick Reames, state Revenue Director.

Amazon’s policy used to be to pull business out of states that tried to force it to collect sales taxes. South Carolina was among 10 states that gave Amazon a temporary tax reprieve in exchange for jobs and investment. In return, Amazon placed distribution centers in Lexington County and Spartanburg.

Even during the 4 1/2 years Amazon didn’t collect sales tax on South Carolina transactions, by law shoppers were still responsible for paying the tax not collected at the time of purchase. As per its compromise with the legislature, Amazon has e-mailed customers a yearly tally of what they’ve spent, reminding them they may owe the use tax on their income tax returns.

Even though Amazon did not share purchase information with the state’s department of revenue, use tax collections increased from $1.4 million in 2011 to $4.1 million in 2013 which the department attributes to awareness the e-mails generated.

Items sold by Amazon.com LLC, or its subsidiaries, and shipped to destinations in the following states are subject to tax:

Arizona Indiana Minnesota Ohio West Virginia
California Kansas Nevada Pennsylvania Wisconsin
Connecticut Kentucky New Jersey Tennessee
Florida Maryland New York Texas
Georgia Massachusetts North Carolina Virginia
Illinois Michigan North Dakota Washington

Note:

  • No sales tax is charged when purchasing gift cards; however, purchases paid for with gift cards may be subject to tax.
  • Items sold by Warehouse Deals and shipped to destinations in Alaska are subject to local sales tax.
  • Textbooks rented from Warehouse Deals and shipped to destinations in Delaware are subject to tax.