February 8, 2024

States. Be Better. The Top 10 Sales + Use Tax Stories from 2023

This post is a loose summary of the transcript from the Taxing Poetic podcast, Episode 14. We have wrapped up Season One of Taxing Poetic.

We’re having a blast and hope you are, too. If you haven’t already, please rate and subscribe, and offer a review for Taxing Poetic. It helps people find us. In our season wrap-up, we covered the Top 10 Stories from 2023. Enjoy!

10. RDF Fees: Minnesota and Colorado enacting laws to tax delivery fees.

Tim apologized to Minnesota and Colorado in advance, never a good sign. These two states enacted a delivery fee for anyone who is using a motorized form of transportation to deliver a good to someone in the state. Any delivery using a motorized vehicle to deliver a good within the state would have this fee applied to the transaction. In Tim’s view, this calls for a return to horse and buggy, dog, and hay carts. “Awesome!”

9. In Kentucky, body augmentations (think, Botox, implants, etc.) are now considered tangible personal property (= taxable). The question Tim and Jenny had was whether it mattered if such augmentations are electable when it comes to also being taxable. We’ve charged Donna with answering that question. Check back here for the answer in February.

8. The state of Georgia has decided to start taxing digital works, January 1st, 2024.

Any audiovisual work, digital books, digital codes, other digital goods like artwork, photographs, magazines, videogames, and audio greeting cards…you know those animated greeting cards that you get from Jib Jab your family sends you? Exactly. The frustration for many on this new tax in Georgia is that it's going against Georgia's own decades-long interpretation of the definition of tangible personal property.

As written, the rule doesn't talk about software, it specifically refers to digital products. Think iTunes downloads, digital books from Amazon and the like. Tim said he wouldn’t be surprised to see Georgia augment the rule and start going after software in the future. Given the large number of software companies and downloads that would ultimately become taxable, we could ultimately see significant push back on the law.

7. On a positive note, many states (with Kansas and Alabama joining the list) have begun to eliminate regressive taxes – taxes on grocery-qualified items, feminine products, diapers, wipes, etc. This is welcome and especially helpful to lower income families. We hope to see many other states make this move one day.

6. The state of Florida has always taxed commercial rent. It is reducing that tax from6% to 4.5%.

You have to be very careful as to what qualifies as commercial rent when it comes to this tax. When you're looking at a lease, there are certain components of that lease that are considered to be mandatory and as a mandatory portion ofthat lease, those components will be subject to the commercial rent tax or the sales tax. So like Common Area Maintenance (CAM) and other mandatory components of the lease are subject to sales tax. When you structure a lease, you need to make sure that someone is actually collecting the tax on those components from you. If they're not collecting the tax from you and you're not paying that tax, you would be subject to that as a use tax in Florida.

We've had to help a number of people around that because there are certain retailers that own out-parcels out in front of their store locations that they may rent out to a fast-food restaurant or to some other business. And they've just taken the position that they won't collect the tax. They're like, "It's too complicated. We're not going to do it. We're not going to collect the tax. We're going to just say that it's a use tax that's imposed on the consumer. They need to turn around and actually accrue that use tax in Florida and it's their responsibility." We can help you look at your lease, we can understand what would be subject to the use tax and make sure that you're clean under audit. Or also if you're a lessor in Florida, we can help you kind of figure out how to calculate the necessary components of that tax. PS: you’re wondering why Florida taxes personal property, that is not the view they take. They are taxing a lease, not personal property.

5. Illinois’ “Level the Playing Field” law facing potential modifications or repeal.

The short version, since Tim can truly Tax Poetic about this one for hours is that based on U.S. law, tax cannot be discriminatory, and must be fairly apportioned. However, businesses that have physical locations in Illinois are getting a benefit from this law. So if someone has an office in Illinois, but their goods are outside of Illinois and they’re shipping them into Illinois, they only have to collect at the 6.25% state sales tax. They don't have to collect on the locals because what they say is since that business has a physical location inside the state, they can use origin-based sourcing.

Anyone that without an office in Illinois with all their goods are located outside of Illinois that ship into Illinois are required to use destination-based sourcing and they have to collect at all the local taxes, which could be upwards of 10% in some jurisdictions, even higher if we're talking city of Chicago. As Tim says, “That is a fundamental problem. That is a discriminatory tax. You're discriminating against people who live in the state versus out of the state. “ At the time of the podcast, we anticipated challenges to the law.

UPDATE: Since the podcast, an out-of-state online retailer (PetMeds) has challenged the Illinois Independent Tax Tribunal over an audit assessment that was based on the Level the Playing Field law. We issued an update on that here.

4. Missouri Wayfair, Five Years Later.

Missouri finally got on the remote seller bandwagon, with their legislation taking effect in 2023.They originally came out and wanted to make the threshold $1.00.  Basically, the requirement was going to be if you sold a dollar’s worth of goods inside of Missouri, you were going to have to collect sales + use tax. Needless to say, that low number never saw the light of day and the threshold is $100,000 as of this writing. Other states have adjusted their thresholds upward because as Tim says, “as speculation folks, this isn't me having boots on the ground knowledge, but I'm guessing that the department's got so inundated with registrations and other things that they just said, ‘Man, we got to bump this threshold up. Dude, this is crazy.’”


3. The bracket system, and we don’t mean March Madness.

First, the definition of the bracket system in the sales tax world: “think back in the day when you had cash registers and you would turnaround and you were trying to add up a bunch of things, on one of those manual, old-school, big, gigantic cash registers. And you came up to a transaction, let's say that ended in $14.68. You would look to a sales tax bracket and you would say, "Okay, my transaction ended in between 64 and 69 cents, I need to use this amount of tax." And it would allow you to round up and it would basically cause the states to get more money.

But now we have to put those brackets inside of POS systems, the modern cash register/accounting system, so that when you're actually calculating it out, it uses, in accordance with the state law, the correct amount of cents so that you can remit it appropriately to the state. Maryland and Pennsylvania are still using the bracket system AKA “government math.” We think they can be better.

2. Tennessee’s alcohol tax (liquor-by-the-drink) at 25% may actually discourage drinking.

At this rate, it encourages people to Uber across state lines for some of their drinking fun, and just generally gives Tennessee a bad sales tax name. Tennessee. Be better.

1. Tennessee, again. Effective July 1, 2024 Tennessee is taxing outside of state services when property Is delivered back into the state.

No surprise that we expect to see challenges to this before it takes effect in July 2024. If passed, what they're basically saying is if you do repairs to tangible personal property or software, or better yet, if you're doing laundry and dry cleaning outside of Tennessee or installing tangible personal property that remains tangible personal property after installation and it's done outside of the state of Tennessee, but then you bring it back into the state of Tennessee where it's going to be used, you basically owe use tax on all of the services and the charges for the installation or that tangible personal property.

For example, if you have a dry-cleaning service, it's right across the border of Mississippi and you send all your dry cleaning stuff over there for work. You have a big factory in Memphis and you're like, "Hey, I'm going to go send all this stuff to my little facility over in Mississippi, and boom, you bring it back." Guess what? Tennessee's now saying, well, you now owe use tax and all that dry cleaning that you sent over to Mississippi, even though the service was performed in Mississippi. What Tennessee's trying to argue is that the benefit of the services being received and obtained inside of Tennessee, so you need to pay that tax in Tennessee. Stay tuned for updates on this one.

Disclaimer: This post is a loose summary of the transcript from the Taxing Poetic podcast, Episode 14. Gaps, nonsensical meandering and occasional inaccuracies are possible, plus the laws are challenged and changed over time. Please reach out to our team for questions and to discuss your sales and use tax situation before taking any action.

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