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.

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Are services subject to sales tax?

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.

 

Sales taxes changed in four states for December 2015

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.

For November’s changes click here.

Angel Downs, Zip2Tax's ead tax researcher

Angel Downs, Zip2Tax’s lead tax researcher

Last month for sales tax free Amazon orders in South Carolina

sales tax freeSouth Carolina reminds shoppers that Amazon orders will lose 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.

Taxability matrix: Are pumpkins tax exempt?

Are pumpkins considered tax exempt food or non-exempt decorative items?

taxability matrix

If sales tax applies to jack-o’-lanterns, but not to edible pie pumpkins, what do you do in this case?

Pumpkins are one of those items where it isn’t clear whether the buyer is going to eat them or play with them. Only six states — Alabama, Idaho, Kansas, Mississippi, Oklahoma and South Dakota — do not exempt or at least reduce the sales tax rate on food and grocery items. This leaves pumpkin sellers with a conundrum. How is the determination to be made as to whether they are tax exempt food?

Back in 2007, Iowa briefly enacted and that same year repealed a law forcing retailers to attempt to determine whether the purchaser’s intended to eat or carve the bright orange squash. They were then supposed to charge sales tax on the carving jack-o’-lantern but exempt the sales tax for the delicious little soon-to-be treat.

The Iowa tax department sent a bulletin to retailers reminding them that where once all pumpkins were tax exempt food, now they were to be taxable if they were 1) advertised to be used as jack-o’-lanterns; and 2) they were understood to be jack-o’lanterns. How exactly one is supposed to “understand” the intended usage of a buyer and later prove that to the department of taxation is left to your imagination.

To complicate the matter even further, Iowa’s pumpkins could still be sales tax exempt if 1) the buyer presented a sales tax exemption certificate; 2) the pumpkin was of a pie variety and specifically advertised for that purpose, or 3) they were purchased using food stamps.

How are pumpkins treated in your state? Did you pay sales tax when you bought yours this year. Please comment and let us know your experience.

 

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