Sep 302015

Sales and use tax rates have changed in 16 states in Zip2Tax products since September 2015.

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

In Alabama, tax rates changed for Tallapoosa County, Grove Hill, Fayette, Evergreen and Dodge City.

In Arkansas, tax rates changed for Brinkley, El Dorado, and Western Grove.

In California, tax rates changed for Greenbrae and Monterey.

In Kansas, tax rates changed for Andover, Belleville, Buhler, Cherryvale, Eudora, Haven, LaCrosse, Lecompton, Meriden and Bourbon County.

In Louisiana, tax rates changed for Folsom.

In Minnesota, tax rates changed for Lyon and Scott Counties.

In Missouri, tax rates changed for Dent County, Salem, Henry County, Laclede County, New Madrid County, Sedalia, Bertrand, Bethany, Concordia, Country Club Hills, Crystal City, Fair Play, Galena, Hazelwood, Kirkwood, Miner, Rolla, St. John, Stanberry and Tipton.

In North Dakota, tax rates changed for Mandan.

In Nebraska, tax rates changed for Lincoln and Chadron.

In Ohio, tax rates changed for Lake County.

In Texas, tax rates changed for Stowell, Winnie, Rocksprings, Ropesville, Stratford, Gustine, Combes, Deer Park, Granger, Lake Dallas, Panhandle, Santa Rosa, Sonora, Southlake, White Deer and Yorktown.

In Utah, tax rates changed for Murray and Logan.

In Vermont, tax rates changed for Colchester.

In Washington, tax rates changed for Tumwater TBD.

In Wyoming, tax rates changed for Weston County.

There were 25 states with ZIP code changes effective after September 2015 including Alaska, Arizona, Colorado, DC, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Maryland, Missouri, North Dakota, Nebraska, New Jersey, Nevada, Ohio, Pennsylvania, South Dakota, Tennessee, Texas, Virginia 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

Sep 302015

Do you know the validity period of your exemption certificates? Did you know that each state treats them differently and that you should review them periodically to make sure they are still good?

It is a good business practice to periodically review exemption certificates because quite a few states claim their exemption certificates are good until the business has a change, the business closes, or the certificate is revoked. You won’t know if these conditions are met unless you check with your customers and vendors regularly and request updated exemption certificates from them.

Some states have no stated expiration for their exemption certificates but they recommend regular or periodic updates. In these cases we listed the least amount of time between recommended updates. In cases where the state listed “good until the exemption no longer applies” we stated that there was no expiration date. Other states note that exemption certificates are good forever however “exempt status must be renewed”, or they “recommend” updates. In these cases we noted the recommended update or renewal timeframe.

Exemption Certificate Validity

State Abbrev. Validity Period
Alabama AL Till Changed Or Revoked
Alaska AK NA – No Certificates
Arizona AZ Date On Certificate
Arkansas AR NA – No Certificates
California CA Till Changed Or Revoked
Colorado CO No Expiration
Connecticut CT 3 Years
Delaware DE NA – No Certificates
District Of Columbia DC Till Changed Or Revoked
Florida FL 5 Years
Georgia GA Till Changed Or Revoked
Hawaii HI Till Changed Or Revoked
Idaho ID No Expiration
Illinois IL 5 Years
Indiana IN No Expiration
Iowa IA 5 Years
Kansas KS Till Changed Or Revoked
Kentucky KY Till Changed Or Revoked
Louisiana LA 3 Years
Maine ME Till Changed Or Revoked
Maryland MD 5 Years
Massachusetts MA No Expiration
Michigan MI 4 Years
Minnesota MN 3 Years
Mississippi MS NA – No Certificates
Missouri MO 5 Years
Montana MT NA – No Certificates
Nebraska NE No Expiration
Nevada NV 5 Years
New Hampshire NH NA – No Certificates
New Jersey NJ 5 Years
New Mexico NM No Expiration
New York NY Till Changed Or Revoked
North Carolina NC No Expiration
North Dakota ND No Expiration
Ohio OH No Expiration
Oklahoma OK 3 Years
Oregon OR NA – No Certificates
Pennsylvania PA 3 Years
Rhode Island RI No Expiration
South Carolina SC Till Changed Or Revoked
South Dakota SD 1 Year
Tennessee TN Till Changed Or Revoked
Texas TX No Expiration
Utah UT 1 Year
Vermont VT No Expiration
Virginia VA Till Changed Or Revoked
Washington WA 1 Year
West Virginia WV 1 Year
Wisconsin WI 5 Years
Wyoming WY No Expiration
Sep 292015

value added taxMany states and localities have recently raised sales taxes in response to mounting budget deficits. But no U.S. jurisdiction has taken such drastic measures as Puerto Rico, which not only increased its sales tax rate by nearly 65% this year – it plans to replace the sales tax altogether with a value added tax (VAT). This would make Puerto Rico the first U.S. state or territory to adopt a VAT, which is commonly used by other nations around the world.

Debt crisis prompts major tax increase

On August 3, the government of Puerto Rico defaulted on a $58 million bond payment. Puerto Rico’s governor, Alejandro Garcia Padilla, noted the island’s economy is in a “death spiral” due to years of government overspending and declining employment. Indeed, the $58 million default was only the first sign of trouble. The government currently owes more than $70 billion to its creditors, with major payments coming due in December and January.

In an effort to raise government revenues, Gov. Padilla signed a tax reform law known as Act 72 this past May. Among other things, Act 72 raised the island’s sales and use tax from 7% to 11.5% as of July 1. (The island-wide rate is actually only 10.5%, but municipalities collect an additional 1%.) The law further extended the sales tax to a variety of services, including car rentals, bank charges levied against business checking accounts, waste disposal, and telecommunications. Act 72 will also create a new 4% sales tax, effective October 1, for providers of “designated professional services,” such as accountants, architects and engineers.

Sales tax vs. Value Added Tax

Puerto Rico adopts a VATThese sales tax increases are only a transitional measure, however, until April 1, 2016, when Puerto Rico will switch from a traditional sales tax regime to a value added tax (VAT). A VAT is a consumption tax traditionally assessed at each stage of production. In other words, while traditional sales tax is only calculated at the point of a retail sale to an end user, a VAT applies every time there is a transaction involving a product or service.

The idea is to embed the tax in the supply chain so that each participant – i.e., the producer of raw materials, the manufacturer of finished goods, and the retailer who sells he goods – must account for the VAT. In theory, this allows the government to collect more revenue than a traditional sales tax, as every participant in the supply chain must account for the VAT, cutting down on opportunities for tax evasion. This is no doubt why the value added tax is attractive to Puerto Rico’s revenue-starved government.

Yet Puerto Rico’s VAT will differ from similar tax regimes in one major respect. The island will exempt the sales of “raw materials” used in manufacturing from the VAT. (Technically, these sales will be subject to a 0% VAT.) Normally raw materials are a principal source of VAT revenue. But given Puerto Rico’s unemployment rate is well over 12%, the government is understandably reluctant to further burden the island’s beleaguered manufacturing sector.

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

Sep 232015

Voters in San Mateo, a city in the heart of California’s Silicon Valley, will decide in November whether to retain a 0.25% sales and use a tax approved in a prior referendum six years ago. If adopted, “Measure S” would extend the local tax until March 2048. San Mateo City Manager Larry Patterson said in an interview posted to the city’s website the additional sales tax revenue is necessary to make up for shortfalls in the city’s budget. “Since 1990, the State has taken nearly $50 Million from San Mateo to address its own budget deficit,” Patterson said, adding San Mateo “has over $35 Million dollars in critical street and road repairs with no available funding sources.”

sales tax cap

San Mateo County seeks to break California’s sales tax cap to support transportation projects

Indeed, even if voters keep the current 0.25% surcharge – which keeps San Mateo’s overall sales tax at 9.25% – it may not be enough to satisfy local demands for additional funds. According to the San Mateo Daily Journal, the county’s transportation authority would like to consider an additional 0.5% sales tax increase to finance additional road and public transportation projects. Together with Measure S, this would bring the sales tax within the City of San Mateo to 9.75%.

California law presently sets a statewide sales tax rate of 7.25%. Cities and counties may add up to an additional 2 percentage points, making the maximum allowable sales tax cap in any California jurisdiction 9.5%. This would obviously prevent San Mateo officials from seeking an additional 0.5% increase, as that would bring the total rate above the statewide maximum.

To that end, the California legislature adopted a bill on September 11 which would grant San Mateo County the ability to adopt the additional 0.5% increase without running afoul of the statewide sales tax cap. The provision specifically applies to San Mateo. (A second provision authorizes Monterey County, located to the south of San Mateo, to adopt a 0.375% increase). Such special legislation is generally prohibited under California’s constitution, but the legislature said the “unique fiscal pressures experienced by the San Mateo County Transportation Authority in providing essential transportation programs” justified the county-specific measures.

Earlier this year, the legislature did approve an increase in the statewide sales tax cap on local surcharges from 2% to 3%, which would have eliminated the need for the special San Mateo legislation. But Gov. Jerry Brown vetoed that bill on August 17. “Although I have approved raising the limit for individual counties,” Brown said in his veto message, “I am reluctant to approve this measure in view of all the taxes being discussed and proposed for the 2016 ballot.” As of this writing, Brown has yet to sign or veto the proposed increase for San Mateo and Monterey counties.

If Brown signs the bill, San Mateo voters will likely face a second referendum in November 2016 on a new 0.5% sales tax increase. Unlike this year’s vote on the 0.25% extension, which requires a simple majority, the new tax must be approved by a two-thirds majority, because it is a special tax for transportation purposes.

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

Sep 142015

community improvement district defeated by one voteMOThey say one vote can make a difference. That is especially true when there is only one person voting in an election. Property owners in the Business Loop 70 section of Columbia, Missouri, learned that lesson the hard way as their efforts to impose a half-cent sales tax increase have stalled due to resistance from a local college student – who happens to be the only registered voter in the area.

Missouri allows cities and counties to establish “community improvement districts.” Local property owners petition the city to form such districts, which if approved can levy their own property and sales taxes. These revenues are then used to finance infrastructure improvements within the districts. It is largely up to the people seeking to form a district to define its precise boundaries. Missouri law only requires its boundaries be contiguous and that the petition is signed by a majority of the property owners.

Columbia previously established a community improvement district for its downtown. Earlier this year, a group of property owners located in nearby Business Loop 70 submitted a petition to form their own district, which the city council approved in April. The new district’s leaders planned to raise $50,000 in new property taxes and approximately $220,000 through the proposed sales tax increase.

A potentially costly drafting mistake

Under state law, the sales tax increase must be approved by the “qualified voters” of a community improvement district. This means anyone living in the district who is registered to vote in state elections. If nobody actually lives in the district, then the vote takes place among the “the owners of one or more parcels of real property located within the district.”

Business Loop 70 owners thought they had defined the boundaries of their district to exclude any residential properties. This would allow them to approve the sales tax increase without difficulty. But it turned out they made a mistake. A single University of Missouri guest house remained within the district. The house’s resident, Missouri student Jen Henderson, registered to vote in February, making her the sole “qualified voter” under state law.

Henderson indicated she might oppose the proposed sales tax increase, noting it could raise prices for poorer residents who have to buy groceries within the improvement district. She said district leaders tried to “manipulate” her, asking her to “unregister” her vote so they could proceed with the sales tax increase unopposed. At an August 31 meeting attended by Henderson, the district’s board of directors decided to postpone the vote for now.

But this is not the end of the matter. The improvement district said it cannot raise sufficient revenue from property taxes alone to finance its planned improvements. And the district is already over $100,000 in debt, primarily because it must reimburse the city for the cost of certifying its petition. According to the Columbia Daily Tribune, the district’s board said it would continue to “work with Henderson and her attorney to find a mutually agreeable way to pass a sales tax.”

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

Sep 012015

Sales tax rate changes for September include two states: Alabama and New York; along with Zip code changes in 12 states in Zip2Tax products since August 2015.

In Alabama, tax rates changed for Midway.

In New York, tax rates changed for Yonkers.

There were 12 states with ZIP code changes effective after August 2015 including Alaska, Arizona, DC, Florida, Illinois, Massachusetts, Michigan, North Carolina, North Dakota, Ohio, South Carolina and 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

Aug 312015

back sales taxesOnline travel companies (OTCs) faced another setback last month as the District of Columbia’s highest court held Expedia and its competitors owed back sales taxes dating to 1998 on their “retail margins” for hotel rooms sold in the district. Washington, D.C. assesses a 14.5% sales tax on the “gross receipts” charged for the sale of lodgings to “furnished to transients.” The term “gross receipts” refers to the “sales price” of the hotel room, which is “the total amount paid by a purchaser to a vendor as consideration for a retail sale.”

OTCs typically function as middlemen. A traveler books a room through an online travel website and pays the OTC for the room. The OTC then remits a lower rate back to the hotel. The difference is the OTC’s “retail margin” or profit.

The OTC also assesses a separate “tax recovery charge” to the traveler. This recovery charge includes both the OTC’s service fees and the local sales tax owed by the hotel on its portion of the sales price. For example, let’s say a traveler books a hotel room in Washington through an OTC for $150 per night. If the hotel receives $100 of that, the OTC’s tax recovery charge would include $14.50 to cover the District’s sales tax, plus any additional service fees.

D.C. argued it was entitled to sales tax on the entire price paid by the traveler, including the OTC’s retail margin. The OTCs disagreed, maintaining they did not “furnish” hotel rooms, as required by D.C.’s sales tax law at the time. In 2011, D.C. amended its laws to expressly extend the sales tax to OTCs, so the dispute here is only whether the companies owe back sales taxes for pre-2011 sales.

The D.C. Court of Appeals found that the OTCs must pay thirteen years’ worth of back sales taxes

The D.C. Court of Appeals sided with the district. In a July 23 opinion, a three-judge panel held “the structure and purpose of the District’s sales tax law evince Congress’s intent to tax the full amount that customers pay for hotel rooms in the District of Columbia.” (Although the district is self-governing, Congress retains constitutional authority to legislate for the city.) And while the original district sales tax law – adopted in 1949 – could not have imagined a world where travelers purchased rooms over the internet, Congress “did know what a middleman was,” and the legislative history demonstrated legislators always intended to tax the full price paid by travelers, not just the portion remitted to the hotel.

The court did, however, side with the OTCs on one issue. D.C. argued it was also entitled to sales tax on the OTC’s recovery charges – that is, the reimbursements paid to the hotel for its share of the sales tax. D.C. argued this charge was subject to tax because the OTC did not separately state the sales tax paid to its customers. Instead, the recovery fee combined the sales tax paid and the OTC’s own service charges. The court said the district was nitpicking here, and the OTCs were “substantially compliant” with the law’s separate-statement requirements.

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

Aug 242015
sales tax on groceries

In most states, there is no sales tax on groceries. In others, they are taxed at a reduced rate, and a small number, such as Kansas, include them fully in the tax base. Source: The Tax Foundation, 2011.

Most states collect no sales tax on groceries, meaning food purchased for home preparation and consumption is usually tax exempt. According to the Federation of Tax Administrators, six states currently tax groceries at a lower rate than the general state sales tax. Seven other states charge their full rate of sales tax on groceries.

One of those seven states is Kansas, which recently increased its statewide sales tax from 6.15% to 6.5%. Kansas also permits local governments to add their own sales tax, which raises the rate upwards of 9% in some parts of the state. This means Kansas charges the “second highest” grocery tax in the United States, according to KC Healthy Kids, a Kansas City-based public health organization.

KC Healthy Kids recently released a study in conjunction with the Kansas Public Finance Center at Wichita State University which highlighted the regressive nature of Kansas’ grocery tax. That is, households earning less than $10,000 per year pay, on average, 5.2% more of their income in grocery taxes than households earning more than $200,000 per year. Households in non-metropolitan (rural) areas also tend to pay more in grocery taxes than households located in urban areas.

Does sales tax on groceries contribute to obesity?

The study further suggested Kansas’ high grocery tax may contribute to obesity, since low-income consumers purchase less healthy convenience foods as they “are often cheaper than fresh foods.” KC Healthy Kids, which fights childhood obesity, said reducing or eliminating the Kansas sales tax on groceries would therefore help promote healthier eating. “Research has found that higher fruit and vegetable prices leads to increased obesity,” the group said in a policy brief which, not surprisingly, indicated more than 86% of Kansans would support eliminating the grocery tax altogether.

Kansas does offer limited relief for low-income households in the form of a “Food Sales Tax Credit,” which is $125 per year for each exempt member of a taxpayer’s household. The credit is available to any taxpayer with less than $30,615 in federal adjusted gross income. This is not a refundable credit, however, so only taxpayers who already owe state income tax may claim it.

But that is not enough, according to critics like KC Healthy Kids, who are demanding the Kansas legislature repeal the grocery tax during its 2016 session. According to the Kansas City Star, several lawmakers support reducing or eliminating the grocery tax, although concerns remain about the potential loss of revenue. “State officials estimate that a 1 percent reduction in the sales tax on groceries this fiscal year would result in about $66 million less revenue to the state,” the Star reported, but KC Healthy Kids noted “eliminating the sales tax on fruits and vegetables” could lead to a reduction in the state’s estimated $1.3 billion in annual obesity-related expenditures.

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

Aug 242015
California sales tax

In November 2013, voters in the city of Modesto, California, defeated a proposed 1% increase in the local sales tax by just 507 votes. Undeterred by this narrow defeat, Modesto’s mayor and city council will again ask voters to approve a local sales tax increase on this November’s ballot, albeit only 0.5% this time. Recently, this new proposal – known as Measure G – survived a legal challenge by a local taxpayer group.

California imposes a statewide sales tax of 7.5%. Counties and cities may add their own tax on top of this rate. For example, sales in Modesto are presently taxed at 7.625%, although the city only receives 0.75%. The remainder goes to the state and Stanislaus County. Measure G would make the total sales tax 8.125%, raising Modesto’s share to 1.25%.Local sales tax increase

Modesto Mayor Garrad Marsh told the City Council in June additional taxes were necessary to provide “police and fire services and the rest on economic development and other essentials.” City officials estimate the 0.5% increase will yield an additional $14 million annual revenue. Steve Christensen, Modesto’s budget director, also told the council a 7.625% sales tax would not be out of line for California, as 84% of the state’s cities currently impose higher rates.

Needless to say, not all Modesto residents are eager to pay more in sales tax. The Stanislaus Taxpayers Association, which led the campaign to defeat the 1% increase in 2013, filed a lawsuit in early August, specifically challenging the ballot language of Measure G. When Modesto voters go to the polls in November, they will see a measure titled the “Safer Neighborhoods Initiative,” which promises “To make neighborhoods safer by restoring police patrols, crime prevention, gang suppression and youth development efforts; removing tagging; reducing nuisance properties; strengthening fire/emergency services; increasing neighborhood collaboration; and maintaining other general city services.”

The problem, according to the Stanislaus Taxpayers Association, is that nothing legally requires Modesto to dedicate the additional sales tax revenue to these purposes. Indeed, Measure G proposes a general sales tax increase, as indicated by the reference to “other general city services” in the language above. California law does authorize a city to collect a “special sales tax,” which must be used for a stated purpose. However, special sales taxes must be approved by a two-thirds vote, while a general increase only requires a simple majority.

The taxpayer association’s lawsuit argued the language of Measure G, which was prepared by the Modesto City Attorney’s office, would mislead voters into thinking they were voting on a dedicated, special sales tax rather than a general increase. The taxpayers association added it was inappropriate to refer to Measure G as an “Initiative,” which in California elections traditionally describe a voter-sponsored ballot question, not one placed by a city government. Accordingly, the group asked a judge to direct the city to either adopt different language or drop the ballot question altogether.

The judge did neither. On August 21, Stanislaus County Superior Court Judge Timothy W. Salter rejected the taxpayer association’s lawsuit. According to the Modesto Bee, Salter said changing or dropping Measure G at this point “would substantially interfere with the county election office’s ability to conduct the countywide November election,” and in any event, he was not convinced the language adopted by the city attorney was “false or misleading.”

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

Aug 242015
Sales tax refund

The only thing worse than owing sales tax is having to repay the same sales tax a second time. Several Minnesota electric cooperatives faced this scenario recently when the state’s Commissioner of Revenue said it “erroneously” provided a sales tax refund on taxes paid on their members’ monthly payments. The Minnesota Supreme Court ultimately sided with the commissioner’s re-interpretation of the law, although the justices said the change of heart may have come too late in some cases.

Connexus Energy v. Commissioner of Revenue

An electric cooperative is a membership association which purchases electricity from wholesale suppliers. Similar to a conventional utility, the cooperative bills each member monthly for their electric use. Where cooperatives differ is they distribute “capital credits” to members at the end of the year. These credits reflect any profits posted by the cooperative. The credits therefore represent the members’ equity in the cooperative.

Minnesota assesses sales tax on the purchase of electricity. The electric cooperatives in this case initially paid sales tax on the full amount billed to each member. But they later filed amended returns for the 2004, 2005 and 2006 tax years, claiming refunds for member payments later reclassified as capital credits.

At first, the commissioner agreed the cooperatives were entitled to refunds. But she later changed her mind and demanded the cooperatives return their refunds. The cooperatives appealed this action, first to Minnesota’s Tax Court and later the state’s supreme court. Both courts agreed the commissioner did not exceed her authority when she reassessed and rescinded the refunds.

Justice David Stras, writing for a unanimous Minnesota Supreme Court, said cooperative members’ monthly payments and their later receipt of any capital credits “were separate and distinct transactions.” In other words, when members paid their cooperative bill each month, that represented a single “retail sale of electricity” subject to sales tax. As Stras noted, the once-a-year allocation of capital credits “take place on different cycles and involve different subjects” than the monthly electricity usage bills.

That said, Stras added the commissioner waited too long before seeking repayment of some of the erroneous refunds. Under Minnesota law, “An assessment of a deficiency arising out of an erroneous refund may be made at any time within two years from the making of the refund.” Four of the cooperatives in this case said the commissioner waited until after this two-year period expired before making her assessment. In response, the commissioner noted state law also allows her to “assess additional taxes” within a 3 1/2-year period after a tax return is filed. Since she changed her mind within this time limit, she argued the four cooperatives still had to pay back the erroneous refunds.

On this point, the supreme court sided with the cooperatives. Stras explained while “either provision conceivably applies” here, the court must apply the “specific” rule over the “general” one. In this case, the 3 1/2-year limit is the general rule, as it applies to all tax assessments, while the two-year limit specifically applies to erroneous refunds.

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