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

StateAbbrev.Validity Period
AlabamaALTill Changed Or Revoked
AlaskaAKNA – No Certificates
ArizonaAZDate On Certificate
ArkansasARNA – No Certificates
CaliforniaCATill Changed Or Revoked
ColoradoCONo Expiration
ConnecticutCT3 Years
DelawareDENA – No Certificates
District Of ColumbiaDCTill Changed Or Revoked
>FloridaFL5 Years
GeorgiaGATill Changed Or Revoked
HawaiiHITill Changed Or Revoked
IdahoIDNo Expiration
IllinoisIL5 Years
IndianaINNo Expiration
IowaIA5 Years
KansasKSTill Changed Or Revoked
KentuckyKYTill Changed Or Revoked
LouisianaLA3 Years
MaineMETill Changed Or Revoked
MarylandMD5 Years
MassachusettsMANo Expiration
MichiganMI4 Years
MinnesotaMN3 Years
MississippiMSNA – No Certificates
MissouriMO5 Years
MontanaMTNA – No Certificates
NebraskaNENo Expiration
NevadaNV5 Years
New HampshireNHNA – No Certificates
New JerseyNJ5 Years
New MexicoNMNo Expiration
New YorkNYTill Changed Or Revoked
North CarolinaNCNo Expiration
North DakotaNDNo Expiration
OhioOHNo Expiration
OklahomaOK3 Years
OregonORNA – No Certificates
PennsylvaniaPA3 Years
Rhode IslandRINo Expiration
South CarolinaSCTill Changed Or Revoked
South DakotaSD1 Year
TennesseeTNTill Changed Or Revoked
TexasTXNo Expiration
UtahUT1 Year
VermontVTNo Expiration
VirginiaVATill Changed Or Revoked
WashingtonWA1 Year
West VirginiaWV1 Year
WisconsinWI5 Years
WyomingWYNo Expiration

Feminine hygiene (tampon tax) sales tax exemption debated

“Tampon tax” on feminine hygiene necessities called unfair

tampon taxStarting July 1, Canada will exempt products “marketed exclusively for feminine hygiene purposes” from the federal government’s 5% goods and services tax (GST). Members of Canada’s Parliament had lobbied Prime Minister Stephen Harper’s government for years to abolish what they deemed an unfair “tampon tax” that discriminated against women. On May 25, the government responded by presenting a motion to Parliament to formally exclude “sanitary napkins, tampons, sanitary belts, menstrual cups or other similar products” from the GST. Parliament unanimously approved the motion on June 1. Subsequently, at least one Canadian province, Newfoundland and Labrador, announced plans to exempt feminine hygiene products from its provincial sales tax, which is currently 8% and scheduled to rise to 10% next year.

Fighting tampon taxes in the United States and around the world

According to a June 3 article by Taryn Hillin for the website Fusion, only five U.S. states  – Maryland,Massachusetts>, Pennsylvania, Minnesota and New Jersey – specifically exempt feminine hygiene products from state sales tax. Although most states exempt “necessities” such as toiletry and health care items from sales tax, the majority do not classify tampons as such. But as Hillin observed, “feminine hygiene products are not a choice; they’re a required part of being a woman.”

Canada’s recent action may spur some U.S. states to reconsider their own “tampon taxes.” For instance, on May 21, >New York Assemblyman David I. Weprin introduced a bill to exempt all feminine hygiene products from sales tax, which is as high as 8.875% in some parts of the state. It is unlikely, however, the full legislature will act upon the bill before the scheduled end of its session later this month.

The movement to abolish the “tampon tax” has also spread outside of North America. Joe Hockey, the Treasurer for Australia’s federal government, said in a May 25 interview he would support exempting feminine hygiene products from the country’s 10% goods and services tax. But Hockey’s boss, Prime Minister Tony Abbott, later said his government had no plans to push for an exemption at this time, adding GST rules are largely determined by the individual Australian states.

Meanwhile, in the United Kingdom, Prime Minister David Cameron said last April he would support exempting feminine hygiene products from the country’s goods and services tax, but his government could not do so unilaterally because of European Union regulations, which sets a minimum 5% tax on “sanitary products.”

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

Federal income tax deduction for state sales taxes passes House

Sales tax deduction

H.R. 622 would make the federal income tax deduction for state sales taxes permanent.

On April 16, the U.S. House of Representatives passed H.R. 622, a bill designed to make the federal income tax deduction for state sales taxes permanent. If you itemize deductions on your annual Form 1040, you are probably familiar with this provision of the tax code. Basically, you are allowed to deduct several types of state and local taxes from your federal taxable income. This includes any “general sales tax” or “compensating use tax.” The amount of the deduction is based either on your actual receipts showing the sales tax you paid, or an estimate based on a table published by the Internal Revenue Service.

The sales tax deduction, however, automatically expired on December 31, 2014. This means as the law currently stands, you will not be allowed to deduct sales taxes paid in 2015 on your 2016 returns. H.R. 622 would reinstate the sales tax deduction without setting a new automatic expiration date, thus making the deduction “permanent.”

Tax fairness or a deficit increase?

The sales tax deduction is elective; that is, you may deduct either your state income tax or sales tax, but not both. Nine states do not collect their own income tax, notably Florida and Texas. This means if you live in one of those states, you are out of luck if Congress does not extend or make permanent the sales tax deduction. Consequently, supporters of H.R. 622 argue their bill is about simple fairness: There is no reason to place taxpayers in states without an income tax at a disadvantage.

But opponents of H.R. 622 argued fairness may come at too high a price. Democratic members of the House Ways & Means Committee argued in a dissenting report the permanent extension of the sales tax deduction “would add more than $224 billion to the deficit.” The Democrats said there should at least be a “revenue offset” to compensate for the projected loss of revenue. They also complained the Republican majority failed to consider extending other tax deductions and credits supported by Democratic members.

Still, 34 Democrats joined all but one Republican in approving H.R. 622, which passed by a vote of 272 – 152. The bill must still be approved by the Senate and signed into law by President Barack Obama.

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

Three Missouri companies tripped up on construction sales tax

Missouri’s highest court recently issued three decisions regarding the application of sales and use taxes to materials used in construction.sales tax exemptions in construction

Fred Weber, Inc. v. Director of Revenue

In the first case, Fred Weber, Inc. v. Director of Revenue, a manufacturer argued it was entitled to a refund of nearly $140,000 in sales taxes paid on asphalt and rock base that it sold to road-paving companies. Missouri law exempts from sales tax “any materials used or consumed in the manufacturing, processing, compounding, mining, or producing of any product.” Here, the manufacturer argued its materials were used in the process of paving roads and therefore qualified for sales tax exemptions.

Although a state administrative tribunal sided with the manufacturer, the Missouri Supreme Court unanimously reversed and reinstated the Missouri Director of Revenue’s initial decision denying the sales tax exemptions and refund. The Supreme Court said the exemption only applied to “industrial-type activities” such as heavy manufacturing, not construction or maintenance of roads. The court pointed to other sales tax exemptions that specifically mention construction activities and held that because similar language was not used here, Missouri’s legislature did not intend to apply this exemption so broadly.

 

Ben Hur Steel Work, LLC v. Director of Revenue

The second case, Ben Hur Steel Work, LLC v. Director of Revenue, deals with the same sales tax exemption. Here, a construction subcontractor sought a refund of nearly $200,000 in sales taxes paid on the purchase of steel beams. Again, the Supreme Court said the exemption only applies to materials used in “large-scale industrial activities” and not construction. Additionally, the court said it was “well settled” under Missouri law that a subcontractor is considered the “consumer of materials used and purchased in the fulfillment of a construction contract,” and therefore responsible for paying all applicable sales taxes.

 

Alberici Constructors, Inc. v. Director of Revenue

Constructors, Inc. v. Director of Revenue, the final case, involves approximately $18,000 in use taxes paid on the rental and delivery of several cranes and a welder rented to facilitate the construction of a cement manufacturing plant. Missouri exempts from sales and use tax any “materials and supplies solely required for the installation or construction of such machinery and equipment” as is necessary to complete such a manufacturing facility.

Unlike the prior two cases, the question here was not whether the cranes and welder were being used for an exempt purpose — they were — but rather whether they constituted “materials” used in the plant’s construction. The Supreme Court agreed with the Director of Revenue, who said the rented cranes and welder were not “materials” as defined by the Missouri legislature. Even if machinery may fall within the strict dictionary definition of “materials,” the court said the fact the legislature expressly used the word “machinery” separately in the same statute indicates they must be treated as distinct categories.

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

Michigan rules telecommunications signals are not sales tax exempt

telecommunication signals ruled not sales tax exemptSavvy businesses often look for loopholes they can exploit to (legally) avoid paying sales taxes. But state revenue departments and courts tend to frown on creative interpretations of the law. A group of telecommunications companies in Michigan recently learned this lesson.

Like many states, Michigan tries to avoid double taxation by clearly distinguishing wholesale and manufacturing operations from retail sales. Michigan exempts from sales tax any purchase of tangible goods used in the manufacturing of other tangible goods intended for sale. This industrial processing exemption means, for example, a company that produces the proverbial widget does not have to pay sales tax on the machinery necessary to produce the widget.

In this case, a group of telecommunications companies claimed the industrial processing exemption applied to their purchases of electricity. Normally, Michigan imposes a sales tax on electricity. The companies argued since they converted that electricity into telecommunications signals – which is really just another form of electricity – they were engaged in manufacturing.

Not surprisingly, the Michigan Department of Treasury did not see it that way. And in a decision issued on Dec. 4, neither did the Michigan Court of Appeals. Judge Henry William Saad, writing for the court, agreed with the Department and a lower court that the industrial process exemption did not apply here, therefore it is not sales tax exempt.

The basic flaw in the telecommunications companies’ arguments, Saad said, was that while electricity is a form of “tangible personal property” under Michigan sales tax law, telecommunications signals are not legally considered a form of electricity. Indeed, Saad concluded telecommunications signals are not even “tangible personal property,” a basic requirement for invoking the industrial process exemption in the first place.

As written, Michigan law defines tangible personal property to include “electricity, water, gas, [and] steam.” Saad pointed to the Michigan legislature’s specific enumeration of water and steam, which are both forms of water. In contrast, the legislature did not specifically enumerate “telecommunications signals,” and it would therefore be improper for the courts to construe the term “electricity” to include such signals.

Furthermore, Saad noted, telecommunications signals do not fall within the broader definition of tangible personal property, which includes anything that “can be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses.” Obviously, a wireless telephone or Internet signal cannot be seen or perceived by human senses. Nor can they be weighed or measured in any conventional sense.

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

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