Exemption certificates need to be reviewed for validity

Exemption certificates

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
California sales tax

Local sales tax increase to reach ballot in Modesto, California

Local sales tax increase

Local sales tax increase

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 PrivyCouncil.info

Sales tax rates and use tax changes for July 2015

Sales tax rates – July 2015

Sales tax rates have changed in 20 states and Puerto Rico and there were 13 states with ZIP code changes in Zip2Tax products since June 2015. Sales and or use tax rates are changed in Alabama, Arkansas, Arizona, California, Colorado, Iowa, Illinois, Kansas, Louisiana, Minnesota, Missouri, New Mexico, Ohio, Oklahoma, South Dakota, Utah, Washington, and West Virginia.

In Alabama, tax rates changed for Cedar Bluff and Fairview.

In Arkansas, tax rates changed for El Dorado, Manila, Moorefield and Ouichita County.

In Arizona, tax rates changed for Graham County and the city of Marana.

In California, tax rates changed for the city of Weed.

In Colorado, tax rates changed for Georgetown.

In Georgia, tax rates changed for the counties of Muscogee and Whitfield.

In Iowa, tax rates changed for Lone Tree, Solon, Hills, Swisher and West Branch.

In Illinois, tax rates changed for Carbon Cliff, Carbondale, Coulterville, Crestwood, Deland, Elkville, Glenwood, Highwood, La Grange, Lyons, Montgomery, Morrison, Oglesby, Rantoul, Rock Falls, Toledo, Wadsworth, Westmont, and the counties of Calhoun, Greene, Jefferson, Jersey, Jo Davies, Knox, McDonough, Morgan, Perry, Piatt, Scott, White and Whiteside.

In Kansas, the state rate changed and there were tax rates changes for Clifton, Hutchinson, Lyndon, Marquette, and the counties of Gove, Morton, and Nemaha.

In Louisiana, tax rates changed for Winn Parish, Claiborne Parish, and Calcasieu Parish.

In Minnesota, tax rates changed for Hubbard County.

In Missouri, tax rates changed for Cape Girardeau, Hold County, Lawrence County, Buffalo, California, Concordia, Hannibal and Saint Joseph.

In New Mexico, tax rates changed for the counties of Bernalillo, Chaves, Dona Ana, Luna, Roosevelt, San Miguel, Santa Fe, Sierra, Torrance, Valencia, and the cities of Artesia, Sliver City, and Kirtland.

In Ohio, tax rates changed for the county of Richland.

In Oklahoma, tax rates changed for Barnsdall, Castle, Clinton, Colbert, Commerce, Foster, Rattan, Vici and the counties of Custer and Cotton.

In Puerto Rico, the possession tax rate changed.

In South Dakota, tax rates changed for Columbia and Westport.

In Texas, tax rates changed for Garrett, Sandy Oaks and Kendleton.

In Utah, tax rates changed for Farmington.

In Washington, tax rates changed for Sequim TBD and Dayton TBD.

In West Virginia, tax rates changed for Bolivar, Charles Town, Charleston, Martinsburg, Milton, Nitro, Parkersburg, Ranson, Thomas, Vienna and Wheeling.

There were 13 states with ZIP code changes effective after June 2015 including Alabama, Arizona, California, Florida, Iowa, Kansas, Kentucky, Montana, North Carolina, Ohio, South Carolina, South Dakota, and Utah. A PDF document enumerating ZIP code additions and deletions can be made available upon request.

For June’s changes click here.

Angel Downs, Zip2Tax's ead tax researcher

Angel Downs, Zip2Tax’s lead tax researcher

Should you charge sales tax on shipping?

Sales tax on shipping

Whether or not you should charge sales tax on shipping charges depends on several factors

Shipping charges may be exempt from sales tax if some or all of the following apply:

  1. Delivery by common carrier or USPS
  2. Charges stated separately and not bundled with other charges such as handling
  3. Shipping charges are not included in the price of the item
  4. Purchased items are tax exempt
  5. If shipment includes both exempt and taxable property the seller should allocate the delivery charge and tax the non-exempt portion.
  6. Charges paid by purchaser
  7. Delivery and billing by independent contractor who is not the seller and paid by the purchaser
  8. Delivery charges are optional
  9. Delivery is separately contracted
  10. Items delivered outside the state
  11. Retailer is engaged in a separate delivery business
  12. Shipment is made direct to the purchaser
  13. Shipment occurs after title passes to purchaser

 

Taxability of shipping rules by state

Some states apply sales tax on shipping based on the shipping agreement in relation to the item’s transfer of title to the purchaser while others treat shipping as a non-taxable service if contracted for independently. Some states try to merge these two approaches thereby creating a patchwork of regulations and opaque rules.

While not a fail-safe approach, here are a few best practices to improve your company’s chances of avoiding having to collect sales tax on shipping: Have the buyer pay the freight charges; bill the transportation charges separately following the sale; pass the title to the purchaser before shipping; and use a common carrier or the US mail.

Following is a list of the basic tax on shipping rules for each state and a few of their most general exceptions and caveats.

Refer to the numbered exemptions listed above

Alabama – Shipping is not taxable in Alabama (AL) if 1 and 2.

Arizona – Shipping is not taxable in Arizona (AZ) if 2.

Arkansas – Shipping is taxable in Arkansas (AR).

California – Shipping is not taxable in California (CA) if 1, 2, 7 or 13.

Colorado – Some shipping is taxable in Colorado (CO) except if 2, 3 and 8; certain localities may tax all shipping.

Connecticut – Shipping is taxable in Connecticut (CT) except 4.

District of Columbia – Some shipping is taxable in the District of Columbia (DC) except when 2 and 13.

Florida – Some shipping is taxable in Florida (FL) except when 2 and 8 or 2 and 13.

Georgia – Shipping is taxable in Georgia (GA) with certain exceptions.

Hawaii – Shipping is taxable in Hawaii (HI) except 10.

Idaho – Shipping is not taxable in Idaho (ID) if 2.

Illinois – Some shipping is not taxable in Illinois (IL) if 9.

Indiana – Shipping is taxable in Indiana (IN) but 5.

Iowa – Shipping is not taxable in Iowa (IA) if 2 or 9 but 5.

Kansas – Shipping is taxable in Kansas (KS) but 5.

Kentucky – Shipping is taxable in Kentucky (KY)

Louisiana – Shipping is not taxable in Louisiana (LA) if 2 and 13.

Maine – Some shipping is taxable in Maine (ME) except when 1 and 2 and 12 all apply.

Maryland – Shipping is not taxable in Maryland (MD) if 2.

Massachusetts – Some shipping is taxable in Massachusetts (MA) except when 2 and other exceptions.

Michigan – Shipping is taxable in Michigan (MI) except when 11 or 13 but 5.

Minnesota – Shipping is taxable in Minnesota (MN) but 5.

Mississippi – Shipping is taxable in Mississippi (MS)

Missouri – Some shipping is taxable in Missouri (MO) except when 2 and 8.

Nebraska – Shipping is taxable in Nebraska (NE) but 5.

Nevada – Some shipping is taxable in Nevada (NV) except 2 and 13.

New Jersey – Shipping is taxable in New Jersey (NJ) except when 4.

New Mexico – Shipping is taxable in New Mexico (NM)

New York – Shipping is taxable in New York (NY)

North Carolina – Shipping is taxable in North Carolina (NC) but 5.

North Dakota – Shipping is taxable in North Dakota (ND) but 5.

Ohio – Shipping is taxable in Ohio (OH) but 5 and except 6.

Oklahoma – Shipping is not taxable in Oklahoma (OK) if 2 and 3 but 5.

Pennsylvania – Shipping is taxable in Pennsylvania (PA) except when 4 or 7.

Rhode Island – Shipping is taxable Rhode Island (RI) except 7.

South Carolina – Shipping is taxable South Carolina (SC) except 13.

South Dakota – Shipping is taxable in South Dakota (SD) except 7 but 5.

Tennessee – Shipping is taxable in Tennessee (TN) except 7.

Texas – Shipping is taxable in Texas (TX) except 7.

Utah – Some shipping is taxable in Utah (UT) except when 1, 2 and 3 but 5.

Vermont – Shipping is taxable in Vermont (VT)

Virginia – Shipping is not taxable in Virginia (VA) if 2.

Washington – Shipping is taxable in Washington (WA) except 13.

West Virginia – Shipping is taxable in West Virginia (WV) except 1 , 2 and 7.

Wisconsin – Shipping is taxable in Wisconsin (WI) but 5.

Wyoming – Shipping is not taxable in Wyoming (WY) if 2.

As always, we recommend you consult with the department of revenue for any state in which your company has nexus and ask for a determination in writing whenever the rules are confusing or contradictory.

California Board Equalization clarifies title transfer location tax

board of equalization

board of equalization

In California, all sales and use taxes are administered at the state level by an agency known as the Board of Equalization. Counties and cities may impose their own sales and use taxes, but the board handles all collection and distribution. The sales tax is assessed on retailers for the privilege of selling tangible goods within California, while the use tax is assessed on purchasers who use or store goods in California without paying any prior sales tax.

The distinction between sales and use taxes matters a great deal to local governments in California. The board allocates sales tax revenues directly to the city where the sale is completed. In contrast, the Board distributes use tax proceeds to a “countywide pool,” which is shared by all the cities and local governments within a particular county.

In 2012, a California Superior  Court judge sided with a group of cities that had sued the board over its distribution policies. Specifically, the cities said the Board improperly classified certain sales taxes as use taxes. Obviously, the cities wanted to maximize the direct distribution of sales taxes to them, as opposed to the indirect distribution of use taxes through the countywide pools.

But in a December 2014 decision, a California appeals court reversed the Superior Court and upheld the board’s policies. The dispute centered on how to classify sales shipped from out-of-state locations to customers in California. Under the board’s rules, sales tax applies when “title transfers to the purchaser in California”; use tax applies in all other cases. The cities argued sales tax should apply “to all transactions negotiated by a retailer in California regardless of where or when title passes.”

The appeals court explained the California legislature failed to define when “title transfers” occur for purposes of classifying a transaction as subject to either sales or use tax. That means the board has the discretion to make that call, provided it does so “in a rational manner” consistent with state tax laws. Here, the board applied theCalifornia Uniform Commercial Code, which states unless a contract provides otherwise, transfer of title occurs at the “time and place at which the seller completes his performance with reference to the physical delivery of the goods.” In other words, title passes when the goods are shipped, not when they are received. So items shipped from out-of-state are therefore subject to use, rather than sales, tax.

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

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