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.

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.

 

Exemption certificates need to be reviewed for validity

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

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.

Kentucky House approves local option sales tax

Forty-six states currently impose a statewide sales tax of some kind. In most of these states the rate is not uniform throughout but varies among cities and counties. This is because 37 states allow for a “local option sales tax,” a process where an individual locality may choose to add a surcharge to the statewide tax rate. Local governments frequently use local option taxes to help defer the costs of capital improvements or special projects.local option sales tax in Kentucky

Kentucky may soon become the 38th state to allow this practice. On Feb. 12, the Kentucky House of Representatives voted 57 – 38 to allow localities to impose their own sales and use taxes. This, of course, is only a first step. The Kentucky Senate must still approve this measure as well as a proposed amendment to the state’s constitution. The constitutional amendment is necessary because Kentucky’s legislature does not currently have the legal authority to permit local option taxes.

Under the proposed amendment, which the Kentucky House approved by a 62 – 35 vote, the legislature may permit cities and counties to impose a sales tax of up to 1%. Any such levy would be added to the existing statewide Kentucky sales tax of 6%. Any proposed local option sales tax must be separately approved by the voters of the city or county, and the net proceeds of any tax must go to “the completion of capital projects” or servicing the debt on such projects, which can include anything from public utility lines to a sports facility. The local sales tax would therefore only last as long as necessary to pay for the approved capital project – but in some cases that could mean up to 10 years.

If approved by the Senate, the constitutional amendment will appear on the 2016 general election ballot. If voters approve the amendment, localities could begin the process of implementing a local option sales tax starting in January 2017. Cities and counties could then put sales tax proposals before local voters beginning with the November 2018 general election.

Despite the support of a solid majority of the Kentucky House and Gov. Steve Beshear, the local option sales tax’s future remains unclear in the state senate. Because a constitutional amendment is involved, a three-fifths majority of the 38 senators must vote in favor of the House’s proposals. Senate President Robert Stivers told the media he personally supports the local option tax but was unsure how the majority of his Republican caucus would vote.

The local option tax has muddled traditional party lines. In the Democratic-controlled House, the Republican leadership supported the local option tax. But many Democratic lawmakers spoke out against the measures, criticizing them as imposing a “regressive” tax on poorer Kentuckians. Likewise, several Republican candidates hoping to run against Gov. Beshear, a Democrat, in this November’s election, denounced the measures as an unwarranted tax increase. Supporters reply they only want to give local governments the option of using the sales tax to raise funds, and that voters would retain the final say.

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

Kentucky looks at tax renovation

A Kentucky tax proposal that could significantly raise revenue has been sent to the state’s Appropriations and Revenue Committee of the House of Representatives.Kentucky sales tax proposal

It has been suggested that the tax renovation, known as Kentucky Competes, could raise as much as $210 million more annually for the state. While the proposal includes adjustments to income, corporate and property taxes, the sales tax-specific items include:

  • Change of the existing cost-of-performance based formula for apportioning “sales” of services to destination sourcing;
  • The amount charged for labor or services rendered in installing or applying the tangible personal property, digital property, or service sold;
  • Exemption of certain equine products and pharmaceuticals for food animals;
  • A lowering of the wholesale tax on beer, wine, and distilled spirits while repealing the distilled spirits case tax.
  • An increase on tax to cigarettes and other tobacco products
  • A broadening of the sales tax to selected services including landscaping, janitorial, warranty contracts, launderers and linen suppliers, security system services, pet care, tanning salons, fitness centers, golf and country clubs and marinas, and overnight trailer campgrounds.
  • A new sales tax for online travel companies.

Gov. Beshear will await a committee consensus before introducing formal legislation.

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