Online Sales Tax and SaaS: A Recap of What You Need to Know
Last year was a big one in the online sales tax debate; everything changed following the Wayfair v. South Dakota Supreme Court decision. Once the ruling was announced in June, states began creating and implementing online sales tax provisions for internet retailers selling to state residents. In addition to adding uncertainty for small business trying to sort out tax code for dozens of states across the country, the ruling complicated another already-confusing situation: the taxability of SaaS (software as a service).
Online Sales Tax & SaaS in States Across the Country
How does the taxability of SaaS tie in with the Wayfair ruling? The Wayfair ruling doesn’t relate specifically to SaaS – it’s about nexus – but because states are enacting laws which now make it easier to create nexus (for instance, the South Dakota standards that started this all – sales of over $100,000 in a year OR 200 transactions), companies now need to be more diligent in determining whether their products and services are subject to tax in various states. That’s where the analysis of the SaaS revenue stream fits in. Many of our clients that were, perhaps, based in one state and may have had physical presence nexus in one or two other states didn’t have that much to worry about. But now, we need to know where their revenue streams (SaaS and others) are taxable because they are often reaching the minimum thresholds for registration, collection and filing of sales tax.
SLEEPING GIANTS AWAKEN: CA, TX & WAYFAIR
In the United States, the sales tax landscape has changed drastically due to the recent U.S. Supreme Court Case of South Dakota v. Wayfair (June 2018). Following this landmark decision which made it easier for companies to create nexus in states, many states have enacted legislation which establishes guidelines/thresholds for economic nexus. In a previous blog, we talked about this epic decision.
What is Economic
Nexus?
In the past, companies needed to have physical presence, or “boots on the ground,” in a state in order to have nexus (or taxable presence) in a state. This meant that a company needed to have offices, inventory, employees, or contractors in a state for a certain amount of time. Companies now don’t necessarily need to have physical presence in a state for them to create nexus; they now can have nexus in a state by virtue of economic nexus. Economic nexus essentially means that companies with sales of a certain dollar amount or a certain number of transactions with a state are required to register, collect and remit sales tax. Some states require both criterion. Additionally, note that some states base their economic threshold on taxable sales, while other states mention gross sales.
3 Fascinating Examples of State Tax Law Intersecting Technology
As we welcome the New Year, I thought it would be fun to look at a few areas where state tax laws and technology are coming together. Keep reading for three different updates that share ways modern tech is affecting states’ revenue.
1. Ohio Accepts Cryptocurrency for State Tax Payments
Cryptocurrency like Bitcoin has been around for a while now, yet Ohio is setting an interesting state tax precedent by allowing businesses to pay their fees with the digital currency.
This is especially interesting as these types of currency are known for volatility. However, the state’s taken this into consideration. OhioCrypto explains:
What You Need to Know About San Francisco’s New Economic Nexus & Tax Measures
Lately we’ve been sharing a lot about new economic nexus standards and measures passed in the recent election. But states aren’t the only entities with new taxes and fees; San Francisco recently passed legislation requiring companies engaging in business in the city to pay a variety of fees and taxes. Filings are due February 28, 2019, so it’s important to understand how your company might be affected.
Initiatives passed in November’s election, including Proposition C’s homeless tax and Proposition D’s tax on the cannabis industry, implement payroll expenses, gross receipts taxes and a new economic nexus standard for entities doing business within the city. Here’s an overview of the details.
Focus on Texas
Texas is the second largest state in the country by both area and population. Due to its size and geographic features, the state contains diverse landscapes common to both the U.S. Southern and Southwestern regions. Although Texas is popularly associated with the U.S. southwestern deserts, less than 10% of Texas’ land area is desert. Most of the population centers are in areas of former parries, grasslands, forests, and the coastline. Traveling from east to west, one can observe terrain that ranges from coastal swamps and piney woods to rolling plains and rugged hills, and finally the desert and mountains of the Big Bend.
Texas is nicknamed “The Lone Star State” to signify its former status as an independent republic, and as a reminder of the state’s struggle for independence from Mexico. The “Lone Star” can be found on theTexas state flag and on the Texan state seal. The origin of Texas’ name is from the word taysha, which means “friends” in the Caddo language.
Business Climate
Texas’ large population, abundance of natural resources, thriving cities and leading centers of higher education have contributed to a large and diverse economy. Ever since the discovery of oil at Spindletop, energy has been a dominant force politically and economically within the state.If Texas were its own country it would be the sixth largest producer of oil in the world.
Holiday Shopping & Online Sales Tax: An Overview of What You Need to Know
Now that we’re in the midst of the holiday shopping season, businesses and states are starting to see the effects of the Wayfair online sales tax decision. Looking back specifically at Cyber Monday, there are a lot of fascinating results regarding how states and businesses fared. Are states projecting an accurate amount of revenue?
It’s also worth noting how the new online sales tax laws will affect small internet retailers as they struggle to comply with various states’ laws during this busy holiday shopping time. How will they fare given the new regulations?
Cyber Monday & Online Sales Tax
While about two dozen new states are now collecting taxes from internet purchases as a result of recent economic nexus (Wayfair-like) legislation, there are major states (e.g. California, Texas and New York) that have not passed online sales tax legislation. Still, some retailers are choosing to collect taxes anyway, just to be safe.Read more
A Helpful Overview of the 2019 State Sales Tax Ranking
Over the past few years we’ve seen how companies have determined where to base operations based on considerations like sales tax, credits and incentives, and overall business climate. When it comes to running a business, which states are friendliest and which are most unfavorable?
The Tax Foundation’s 2019 State Business Tax Climate Index compiles various state details to offer a fascinating comparison for corporate leaders. Keep reading for an overview of how the various states stack up next to each other, especially in regards to sales tax.
2019 State Sales Tax Ranking
The Tax Foundation’s review of this year’s sales tax ranking includes a map with a helpful visual of each state’s placement on the list.Read more
Tis the Season to be Thankful!
Most of you who visit our blog are looking for insightful articles on State Tax matters. And I hope you agree that we generally deliver in that regard. But today, as this Thanksgiving week begins, I’m taking a moment to reflect on the many things I’m thankful for in my life and I wanted to share them in this space. We can probably agree that there’s currently not enough gratitude and true thankfulness in the world, and I think we need to get back to some of the basics – saying please and thank you (and meaning it), opening doors for each other (actual doors as well as those related to opportunities for others), treasuring our families (even when they don’t agree with our every belief), and opening our hearts and homes to those who are less fortunate – including our four legged friends!
FOCUS ON NORTH CAROLINA
The Tar Heel State is a southeastern U.S. state with a landscape ranging from Atlantic Ocean beaches to the Appalachian Mountains. Charlotte, the state’s largest city, is home to the NFL’s Carolina Panthers and museums, such as the NASCAR Hall of Fame. The state motto (“First in Flight”) honors the Wright Brothers, who flew their first plane in Kitty Hawk on the Outer Banks.
North Carolina provides a large range of recreational activities, from swimming at the beach to skiing in the mountains. North Carolina also offers everything from theme parks to lighthouses.
Business Climate
North Carolina is the leading U.S. state in the production of flue-cured tobacco and sweet potatoes, and second in the farming of pigs and hogs, trout and turkeys. In the three most recent USDA surveys, North Carolina also ranked second in the production of Christmas trees.
Important State Tax Measures to Watch on Election Day
Happy Election Day! I hope everyone was able to make it out to the polls or mail in their ballots for today’s midterm elections.
While we wait to see the results later today, I wanted to take a look at a few noteworthy state tax measures, initiatives, amendments and proposals across the country.
Carbon State Tax Initiative: Washington
Washington’s Initiative 1631 would impose a tax on carbon emissions from companies that either sell or use fossil fuels; it would be the first of its kind across the country.
What would this new state tax cost companies? The Tax Policy Center explains, “The proposed rate is $15 per metric ton of carbon emissions beginning in 2020 with $2 annual increases until the state meets its emissions target.” The Tax Foundation specifies the target as, “Reducing overall emissions to 25 percent below 1990 levels by 2035, and by 50 percent below 1990 levels (or 70 percent below the state’s expected emissions for that year) by 2050.”Read more
