Tennessee rules for sales tax on vacation rentals

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

Proposed Canadian provincial sales tax increase reversed

provincial sales tax

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

 

Ambiguous receipts cost thrifty couponers

refund of sales taxes

refund of sales taxes

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

Washington State sales tax held hostage

Conditional legislation holds the fate of the Washington state sales tax

Washington voters recently approved an unusual ballot initiative which effectively holds the state sales tax hostage unless legislators propose a separate constitutional amendment related to future tax increases. Assuming the initiative survives an ongoing court challenge, the Washington legislature has until next April to approve a second referendum for the 2016 election. Otherwise, residents will see an immediate 1% cut in the statewide sales tax.

state sales taxMany states allow voters to enact legislation directly through an initiative process. In Washington, voters may initiate ordinary legislation but not amendments to the state’s constitution, which must be proposed by the legislature. This has frustrated efforts by anti-tax activists in the state to legislate a “supermajority” requirement for tax increases. A “supermajority” means each house of the Washington legislature would have to approve any future tax increase by a two-thirds vote rather than a simple majority. Although voters have passed a number of supermajority initiatives in recent years, they have either been suspended by the legislature or struck down as unconstitutional by the Washington Supreme Court. In a 2013 decision, the court held any supermajority rule required a constitutional amendment.

Since the legislature will not approve such an amendment on its own, supermajority proponents switched tactics. They proposed a new initiative, I-1366, which mandates a 1% cut in the state sales tax – reducing it from 6.5% to 5.5% – unless the legislature “first proposes” an amendment to the state constitution which would “require that for any tax increase, either the voters approve the increase or two-thirds of each house of the legislature approve the increase.” The initiative sets an April 15, 2016, for the legislature to act.

In the recent Nov. 3 election, Washington voters approved I-1366 by a margin of about 45,000 votes. But that does not mean the controversial measure will become law. Opponents of the law, including many local governments, have already filed a lawsuit challenging the initiative’s constitutionality. Specifically, opponents claim I-1366 is “beyond the scope of the people’s initiative power.” This past August, a Seattle judge declined to remove the measure from the ballot. On Sept. 4, the Washington Supreme Court upheld that decision.

The Supreme Court did not settle the underlying constitutional challenge to I-1366. Rather, it held the purpose of the measure was “not sufficiently clear” enough to warrant injunctive relief before the election. The lack of clarity refers to the dispute over what I-1366 actually proposes. Opponents argue it is an improper attempt to amend the state constitution by initiative. But proponents claim it is merely “conditional legislation” whose primary purpose is to cut the sales tax.

Indeed, conditional legislation is a common governmental practice. Congress often uses such legislation to condition federal funds on certain acts by states or private parties. For example, states raised their legal drinking age to 21 after Congress made it a condition for continuing to receive federal highway funds. But this is likely the first time a voter initiative has conditioned a state’s ability to collect taxes on a future legislative action.

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

No preferential tax treatment for DC TV station

preferential tax treatment

preferential tax treatment

Many states and cities offer preferential tax treatment to certain types of businesses. This often includes a temporary exemption from collecting sales and use taxes. Recently the District of Columbia successfully opposed an effort by a no preferential tax treatmentlocal television station to qualify for such a tax break.

In 2000, the Council of the District of Columbia, which exercises legislative power for the nation’s capital under a congressional mandate, adopted the “New E-Conomy Transformation Act.” This act authorized preferential tax treatment for businesses classified as “Qualified High Technology Companies” or QHTCs. Among other benefits, a QHTC is temporarily exempt from collecting the District’s 5.75% sales and use tax.

The act defines a QHTC as any individual or entity doing business in the District of Columbia with at least two employees and “deriving at least 51% of its gross revenues earned in the District” from one of five classes of high-technology activity. For example, a company providing “Internet-related services” such as web design would qualify as a QHTC.

Another qualified class includes “Information and communication technologies.” It was this classification which prompted the recent litigation. WRC-TV, the NBC television affiliate in Washington, DC, claimed it was as a QHTC and therefore entitled to a sales and use tax exemption. The District’s Office of Tax and Revenue (OTR) disagreed and assessed a “deficiency” of more than $78,000 against the television station. An administrative law judge upheld this assessment, prompting WRC to seek review in the District of Columbia Court of Appeals.

The court affirmed the OTR’s assessment in an October 22 decision. The core of WRC’s argument was it “generated”

at least 51% of its local revenues from “information and communication technologies.” That is to say, WRC purchased and “used” such technologies to produce its television programming. Like most broadcast television affiliates, WRC actually sells advertising, not tangible products or information technology services.

The Court of Appeals agreed with the OTR the District’s QHTC law “requires a much closer nexus” between “information and communications technologies” and the revenues generated by WRC’s advertising sales. As the court explained, “If WRC’s sale of advertising via technology-enabled television programming counts as a QHTC activity…then so would a similar technology-intensive provision of services for fees (in place of advertising) by, for instance, accounting, brokerage, or even law firms, with the resulting danger of a tax exemption swallowing up the taxation rule.” The court said the DC government clearly intended the QHTC designation apply to companies “engaged in the development and marketing of high technology systems,” rather than businesses, like WRC, which merely purchase such technology in order to produce and sell other services. Accordingly, the court affirmed the OTR’s decision and ordered WRC to pay $78,784.84  in back taxes.

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

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