Reminder to CA Manufacturers: Sales Tax Exemption!
Remember when the California Manufacturing Sales Tax Exemption first came into fruition, on July 1, 2014? It seems like so long ago. But maybe it’s a good time to remind companies about this useful partial exemption available to manufacturing companies.
What exactly is this exemption?
It allows certain manufacturers and biotech companies to exempt a portion of California sales and use tax on purchases of qualified equipment used in manufacturing and R&D (research and development).
This exemption went into effect July 1, 2014 and applies to any sale, purchase, and lease of qualified tangible personal property on or after this date. The exemption was formerly set to sunset on July 1, 2022. However, the Governor of California recently signed Assembly Bill (A.B.) 398, which extends the exemption for manufacturing and research and development equipment to July 1, 2030. The bill has also expanded the exemption to include additional companies (see below).
Ongoing Amnesty Program: Act Soon!
Last month, we updated our readers on an ongoing amnesty program for state taxes that is currently taking effect. As this program could be helpful to sellers utilizing fulfillment marketplaces, we wanted to provide an update on this program so qualified companies can take advantage of the potential benefits of the amnesty.
What exactly is it?
Despite certain online sellers, like Amazon, volunteering to collect tax across the U.S., many online sellers are not collecting tax in states where they may have (intentionally or inadvertently) created nexus. Amnesty programs encourage companies to become compliant in a given state. This one is a grand-scale amnesty, covering many states.
The nexus committee of the Multistate Tax Commission (MTC) approved the MTC to participate in a multistate sales tax amnesty program for third-party sellers whose only nexus with a state is the use of fulfillment services offered by third-party marketplaces. The Multistate Voluntary Disclosure Program (MVDP) provides a way for a taxpayer with a potential tax liability in multiple states, to negotiate a settlement, using a uniform procedure.
How is Indiana Advocating for Online Sales Tax? With a Lawsuit
Every time we turn around, it seems there’s a new development in the online sales tax debate. As states continue to get involved and look for new ways to bolster their revenue, the issue continues to grow larger and more complex. Now Indiana is looking to the courts to settle the matter.
Indiana’s Online Sales Tax Lawsuit
On August 29, IndyStar reported that Indiana's Attorney General filed a lawsuit asking Marion Superior Court (in Indianapolis) to find the state's online sales tax law constitutional. " The law, which went into effect July 1, requires out-of-state businesses to collect and remit the same sales taxes as Indiana-based businesses."
This isn't the first lawsuit Indiana's online sales tax law, House Enrolled Act 1129, has been involved in. American Catalog Mailers Association and NetChoice argued the legislation was unconstitutional back in June.Read more
FOCUS ON MAINE
This month we travel all the way to the northeast corner of the country to the state with the rocky coastline and maritime history of Maine, the Pine Tree State.
Maine is the northeasternmost state in the contiguous United States. It is known for its jagged rocky coastline, low, rolling mountains, heavily forested interior, picturesque waterways, and its seafood cuisine, especially clams and lobster.
During the last ice age, the receding glacier left artifacts that we find interesting today- millennia later. Much of Maine’s geomorphology was created by extended glacial activity at the end of the last ice age. Prominent glacial features include Somes sound and Bubble Rock, both part of Acadia National Park on Mount Desert Island. Carved by glaciers, Somes sound is considered to be the only fjord on the eastern seaboard and reaches depths of 175 feet. The extreme depth and deep drop-off allow large ships to navigate almost the entire length of the sound. These features also have made it attractive for boat builders, such as the prestigious Hinkley Yachts.
New Online Sales Tax Legislation: Why Is It Interesting?
As you know, we’ve been following the online sales tax debate for years. From the Marketplace Fairness Act to states taking matters into their own hands, it’s been interesting to follow as lawmakers debate how to handle imposing state sales tax on internet retailers. It’s especially difficult given the wide variety of taxes and fees that would need to be imposed at a state, county and city level.
New Online Sales Tax Bill: No Regulation Without Representation
The latest legislation coming from Washington DC is called the No Regulation Without Representation Act. Unlike previous bills, this one would actually remove the ability for states to collect online sales tax by essentially codifying the physical presence standard set in the US Supreme Court case Quill Corp v. North Dakota (1992). What would that mean for taxpayers? It would define physical presence (and that you have to have it in order for a state to impose its taxing scheme), as Quill did, and also likely create a de minimis threshold. The bill would essentially eliminate click through nexus standards and affiliate nexus rules currently being imposed by various states.Read more
How Did Washington Expand Nexus? The Latest State Tax Legislation
Over the last few years, Washington has taken an interesting approach to its nexus and state tax law. Back in 2015, it adopted a click-through statute and economic nexus thresholds for businesses making sales in the state. Washington currently has a few other interesting bills up for debate, but in the meantime the Department of Revenue (DOR) enacted another piece of legislation that affects economic nexus.
About Washington State Tax Law HB 2163
Washington’s DOR explains how this new state law affects nexus and business and occupation (B&O) tax alongside a few examples on its website. Here’s a brief summary.Read more
AMNESTY PROGRAM DIRECTED AT FBA SELLERS
There is a new scheduled amnesty program that may help businesses correct overlooked tax obligations if they have been selling products and services in other states. Many companies engage in multi-state sales through an intermediary, like Amazon, eBay and similar organizations called “fulfillment services.” The fulfillment centers place a seller’s inventory in warehouses in multiple states to expedite shipping, but in the process, create nexus for the seller in those states. As such, the sellers have an obligation to collect sales tax and pay income tax. Unfortunately, unpaid taxes may incur penalties and interest. Now there may be a short time window to correct these errors and avoid interest and penalties.
On Monday, July 31, the nexus committee of the Multistate Tax Commission (MTC) approved the MTC to participate in a multistate sales tax amnesty program for third-party sellers whose only nexus with a state is the use of fulfillment services offered by third-party marketplaces. The MTC is an intergovernmental state tax agency working on behalf of states and taxpayers to facilitate the equitable and efficient administration of state tax laws that apply to multistate and multinational enterprises.
FOCUS ON SOUTH DAKOTA
This month takes us to the Mount Rushmore state of South Dakota. South Dakota is the 5th least populous state in the U.S., with a population of 865,454 people in 2016. It is also the 5th least densely populated state in the country. South Dakota is in the north-central United States, and is considered part of the Midwest by the U.S. Census Bureau. It is also part of the Great Plains region, which covers most of the western two-thirds of the state. West of the Missouri River the landscape becomes more and more rugged, consisting of rolling hills, plains, ravines, and steep flat-topped hills called buttes. In the south part of the state, east of the Black Hills, lies the Badlands of South Dakota. Erosion from the Black Hills, marine skeletons that fell to the bottom of a large shallow sea that once covered the area, and volcanic material, all contribute to the geology of this area.
Ohio's New Online Sales Tax: Now Cookies Can Create Nexus?
What do cookies, nexus and online sales tax have to do with each other? States are continuing to look for ways to justify charging sales tax to internet retailers; Ohio just took a page out of Massachusetts’ book.
Massachusetts’ Online Sales Tax Directive 17-1
A couple of weeks ago we shared that Massachusetts created a directive that redefined nexus to include internet cookies, which meant that the state was recognizing these bits of computer code as a way to establish a physical presence, therefore making internet retailers responsible for collecting and remitting sales tax from online shoppers.Read more
The Nexus Discussion - Some Practical Examples
Almost every conversation in and around state tax consulting begins with nexus. Why? Because it’s still of utmost importance to companies to know whether they have nexus, or taxable presence, in a state such that the state can require them to register to collect and remit sales tax and/or to pay income based or franchise taxes. If a company doesn’t have taxable presence, then they are not obligated to file in a particular state. I’ve been practicing in state tax for longer than I care to admit, and I still have this conversation daily with existing clients and new clients as we talk about their potential exposure to taxes in multiple states. It doesn’t help that states are getting more aggressive and creative (maybe a little too aggressive and creative) in defining what constitutes nexus.
Since the infamous 1992 Supreme Court case, Quill Corp. v. North Dakota, 504 U.S. 298 (1992), we’ve been talking about nexus as it relates to substantial physical presence in a state. What sorts of things create that physical presence? I often tell clients that it is like having “boots on the ground”. While “substantial” is also a subjective term, it includes the following activities engaged in within a state. Most of them seem fairly straightforward, so I’ve included some examples of specific items we often encounter with clients.
Employees located in a state
Generally, when companies think of creating nexus by virtue of employees located in a state, they’re thinking of employees physically residing in the state, or coming to work in a company office in the state. However, other employee activities in the state can also create nexus. Consider the following scenarios:
- A company salesman works from his home in Texas. But his territory, which he travels into regularly to generate sales, includes the neighboring states of New Mexico, Arizona, Oklahoma and Louisiana. Depending on the number of days spent in each state, he likely has created nexus for the company, not just in Texas, but in the other states as well.
- A different company employee engaged in operations, travels to every jobsite of the company and assists with the installation of the company product, confirmation that it functions correctly and other initial troubleshooting. This employee has likely also created nexus for the company in most states he visits.
