2022 Sales Tax Important Takeaways And What To Expect For 2023
It is hard to believe 2022 has come to an end. As we begin a new year, it's important to take a look back at all that has happened in the world of sales tax to better understand what to expect for 2023. Though we can't predict exactly what will happen with the sales tax landscape in 2023, in this blog post, we share what to expect based on trends we saw during the past 12 months.
1099-K Tax Code Changes
Taking it all the way back to the beginning of 2022, starting on January 1, small business owners using mobile payment apps such as Venmo or Paypal who made over $600 in transactions on goods and services were required to report their earnings starting on their 2023 filings.
The Wayfair Decision Turned Four
If you regularly follow our blog or have any involvement in the sales tax world, you know how monumental the June 2018 U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc. was for the sales tax climate and inspiring states across the country to introduce economic nexus legislation. In 2022, as the Wayfair decision turned four, a survey for Avalara found that the impact of economic nexus has never been greater for businesses of all sizes, and even more so for smaller businesses. Eighty-three percent of respondents recognized Wayfair impacted how their company does business, which was the highest number since the survey was first conducted.
Colorado Simplified The Sales Tax Code
While many of the sales tax changes in 2022 added complexity for business owners, some states actually implemented legislation last year in an attempt to simplify compliance requirements. Colorado is one example. Introduced in January and signed in April, Senate Bill 22-032 outlined several changes to Colorado's complex "Home Rule" city system. We outline the specifics in this article.
Rising NFT Sales Bring Up Sales Tax Concerns
Non-Fungible Tokens, or NFTs, have been around since 2014 and started to gain mainstream use in 2021. Moving into 2022, they have only continued to gain momentum, bringing about sales tax ramifications and compliance questions. Currently, at least 31 states apply sales taxes to digital products and services, some of which are broad enough to likely include NFTs if they can be viewed or heard. In 2022, Pennsylvania, Washington and Wisconsin became the first states to officially cite NFTs as digital assets subject to sales and use taxes. The Pennsylvania Department of Revenue listed them as taxable but did not offer guidance, while Washington provided an interim statement with definitions of key terms and a proposed plan for arbitrating exactly where transactions related to the sale of NFTs physically take place. Wisconsin also issued guidance, shared here.
Sales Tax Trends For 2023
Non-Luxury Essential Sales Tax Exemptions
Almost all U.S. states exempt necessity purchases like groceries and feminine hygiene products from sales tax, but some still tax them. Last year we began to see a trend of states eliminating the tax requirements, such as Louisiana and Michigan, with more eliminations starting at the beginning of this year, including Colorado and Iowa. We expect to see other states follow their lead.
Sales Tax Law Continues To Catch Up To Technology
Carl Davis, the Research Director of the Institute on Taxation and Economic Policy shared with TaxJar information on the way sales tax laws are updated. "It all comes down to the fact that the economy often evolves more quickly than state tax codes do. Digital downloads and streaming - those were exempt from sales tax not because lawmakers decided that they deserved to be tax-exempt. They were exempt because those things didn't exist at the time the sales tax statute was written."
This explains the complication that newer developments like NFTs and digital goods can have on sales tax compliance. This being said, we expect this year's tax code will continue to catch up with these evolving areas as they began to last year.
Do You Have Sales Tax Questions?
If you have sales tax compliance questions, we would love to support you. We are a skilled team of multistate sales tax professionals, so if you have questions about your state sales tax obligations, please contact us today. We're happy to clarify any multistate tax issues you're trying to navigate.
How To Ensure Sales Tax Compliance For Your Nonprofit Organization
While nonprofits are generally exempt from paying federal and state income tax, sales tax compliance can be a little more complex. It can be easy to overlook the importance of sales tax compliance in your operations but ignoring it could cause hefty fines and penalties which can put a serious strain on your budget. In this blog post, we share up-to-date sales tax information to ensure your nonprofit organization stays compliant now while avoiding potential issues later.
What Qualifies A Business As A Nonprofit?
As defined by the National Council of Nonprofits, a nonprofit is an organization that provides a way for people to work together for the common good, transforming hopes and beliefs into actions. If a nonprofit meets certain requirements and is officially granted nonprofit status by the IRS, it will be exempt from paying most taxes to federal and state governments.
For the IRS to grant a nonprofit a tax exemption, its articles of incorporation must state that it was formed for charitable purposes or limit its activities to those permissible under the Tax Code. To receive the exemption, a business must apply to be a registered 501(c) entity. Most are exempt under section 501(c)(3), which gives an exemption to charitable organizations and lets donors deduct their charitable contributions. But just because you are a registered nonprofit exempt from certain state and federal taxes does not mean nonprofits are off the hook from sales tax compliance completely.
Does Your Nonprofit Have Sales Tax Liabilities To Consider?
There are two sides to sales tax compliance that nonprofit organizations may face. The first is for items that a nonprofit may purchase. Are they exempt from paying sales tax on those items that other people would be required to pay? It depends on the state and the item. For example, in Utah, nonprofits are exempt from paying sales tax when purchasing items that directly fulfill their mission. In our home state of California, most items are subject to sales tax, although there are a few specific exceptions. In North Carolina, you must pay sales tax at the time of purchase but can file semiannually for a refund.
Similar to any other area of taxation, one key requirement is proper documentation of exemption. Each state has its own exemption certificate and requirements for accepting them. These certificates are presented to a seller by the nonprofit purchaser. The certificate proves to the seller that the buyer is a legitimate nonprofit and not required to pay sales tax.
The second area to consider is if the nonprofit is actually selling something, do they need to charge sales tax on those services or products? What are their liabilities? What are their filing requirements? This also depends on the state. For most states, any otherwise taxable products and services should also be subject to sales tax when sold by a nonprofit. For example, if a nonprofit sells T-shirts, they would be subject to sales tax collection for the T-shirts sold in states that subject sales of clothing to sales tax. Similarly to sales tax on items purchased by a nonprofit, some states will not require a nonprofit organization to collect sales tax if the proceeds are going toward funding their mission.
We often see sales tax questions come up related to a charity putting on an auction or selling raffle tickets to make some extra money. As the California article notes, the facts and circumstances are often very important in determining the taxability.
Common Sales Tax Issues For Nonprofits
As you can see, requirements vary by state, so challenges can arise even if you try to stay informed. A common issue that many nonprofit organizations face in general is more frequent audits. Nonprofits may face audits more often than other businesses since the IRS wants to ensure that they are being run for the right reasons, not for personal gain. As such, state taxing agencies may also be inclined to more frequently audit these entities. Note that while the designation for a nonprofit entity might be at the federal level, the question of whether the entity is subject to sales tax is a state matter. In our practice we often find that nonprofit companies assume they are exempt from all taxes because of that nonprofit status. As with so many other nuances from state to state, the laws around nonprofits and sales tax can vary significantly, so it's very problematic to make those assumptions. To avoid this, we recommend reaching out as soon as possible to a team of multistate sales tax compliance experts like our talented team at Miles Consulting Group.
Do You Have Other Sales Tax Compliance Questions?
If you are a nonprofit organization with sales tax compliance questions, we would love to support you. We are a skilled team of multistate sales tax professionals, so if you have questions about your state sales tax obligations, please contact us today. We're happy to clarify any multistate tax issues you're trying to navigate.
A Useful Guide To Economic Nexus And New Missouri State Tax Updates
Are you a large company with operations in multiple states? If so, it's essential you stay up to date on economic nexus or state sales tax changes that may affect your organization. Trying to keep track of all the laws and regulations can be a daunting task, but thankfully we've put together guidance designed to help make sense of these complex topics. We provide an overview of what economic nexus is and how it impacts businesses that operate in multiple jurisdictions, as well as outline the specific impact of recent Missouri legislation on companies doing business within its boundaries. With this information at hand, you can be sure your business remains compliant and avoids costly penalties.
What Is Economic Nexus?
First, what is economic nexus? We have covered this topic in depth throughout the years, so for more detail click here and here, but in short: Economic nexus is the result of the 2018 U.S. Supreme Court ruled Wayfair decision, which held that economic presence (measured by dollar amounts of sales and/or number of transactions into a state) was sufficient for a state to require businesses to collect and remit sales tax, instead of just physical presence. In the years since the decision, this set off a scramble by states to create new economic nexus legislation to take advantage of the state-friendly ruling in Wayfair. Part of the challenge for companies trying to be compliant is that the enactment dates vary significantly by state. . Today, every state that imposes state level sales taxes (45 states) has some sort of economic nexus legislation, though the specifics vary by state. Missouri was the very last state to enact economic nexus legislation, which goes into effect on January 1, 2023.
Missouri Enacts Economic Nexus Legislation
If you do remote business in Missouri, you may have to start collecting and remitting sales tax on your sales in the state starting in just a couple of weeks. Currently, the state's economic nexus threshold is $100,000 in cumulative gross receipts from taxable sales of tangible personal property delivered into Missouri during the previous or current calendar year. It is important to note that sales made through third-party marketplace facilitators also count toward this threshold.
Economic Nexus Challenges And Effects Heading Into 2023
As we approach 2023, economic nexus legislation may affect remote businesses more than ever before. According to a May 2022 Avalara study, 83% of businesses shared that Wayfair impacts how their company does business, which was the highest percentage over the last six survey periods, dating back to 2019. The survey also found that even with some states having over four years of economic nexus legislation under their belts, businesses are still struggling to comply with both nexus and marketplace facilitation legislation, with just 46% of respondents sharing they had made all necessary changes to comply with state enacted economic nexus laws, an all-time low for the survey. With so many companies struggling to meet multistate nexus requirements, could we see threshold standardization in the future?
Could Remote Sellers See Standardization In The Future?
The answer? Potentially. Back in November of 2022, the Government Accountability Office (GAO) weighed in, recommending that Congress enact sales tax regulations across the country for a stronger tax system. They share their reasoning in a report linked here, including that similar taxpayers should receive similar treatment, instead of remote sellers having more complex requirements compared with brick-and-mortar sellers. We will certainly keep you updated on developments, but we're not optimistic that Congress will act on this. The reason the Wayfair case was the catalyst for the change to an economic nexus standard is because Congress never acted on the changing e-commerce world of the 1990s and 2000s.
Still Have Sales Economic Nexus Sales Tax Questions?
As you can see, many remote sellers struggle to keep up with economic nexus requirements. Working with an experienced team of state sales tax experts like Miles Consulting Group is a great way to manage your economic nexus obligations and avoid an audit. If you have questions about your multistate sales tax compliance or accuracy or have any other sales tax questions, please contact us today. We're happy to clarify any issues you may be trying to resolve.
Excited For Thanksgiving? Breaking Down The Sales Tax Implications Of Your Big Turkey Dinner
As the big day approaches, you may be finalizing your grocery list for your delicious Thanksgiving feast. While many items you purchase for Thanksgiving dinner will be sales tax free, there are a few key things to be aware of. In this blog post, we break down the sales tax implications of your big turkey dinner. Stay informed and have a happy Thanksgiving!
Turkey Dinner Sales Tax Obligations
First, we look at the most essential part of Thanksgiving - the food! Currently, you will only be taxed on groceries in 11 states, and many of these 11 have either reduced or paused that charge as inflation rates soar.
Maybe you decide to bypass the stress of cooking and choose to eat out at a restaurant or order takeout. If you do eat at a restaurant, you will be charged sales tax in most states. Check out this comprehensive guide to see what you may be charged on top of your base meal price. If you would rather eat from the comfort of your home and decide on takeout, this guide lists your state's sales tax prices for prepared foods consumed at home.
Food probably isn't the only purchase you are making for the holiday. If you are using the following items as part of your Thanksgiving feast, you will likely be charged sales tax on:
- Wine/Alcohol
- Fall or Thanksgiving-themed decor
- Place settings, silverware, platters, etc.
Am I Charged Sales Tax On Thanksgiving Items I Buy Online?
Prior to the 2018 Wayfair Decision, online sellers only needed to collect and remit sales tax for states they had a physical presence in. Today, every state with sales tax has established some set of economic nexus legislation, meaning that online products are subject to sales tax based on the state the buyer is located in, as long as they meet a certain threshold of sale items or sale dollar total.
Thanksgiving Travel & Sales Tax Requirements
Are you planning to travel for the holidays? If you are visiting Delaware, Montana, New Hampshire, Oregon or Alaska, you may want to make your turkey day purchases after you arrive - these states do not have statewide sales tax. If you are spending the holidays in Alaska, keep in mind that even though they do not have a statewide sales tax, they do allow cities and towns to levy sales taxes.
We Are So Thankful For You!
We appreciate our amazing clients and colleagues all year, but this holiday of thanks is the perfect excuse for us to remind you how grateful we are for your continued support of Miles Consulting Group. Thank you for being part of our family, and have an amazing holiday!
If you have questions about your state sales tax obligations, please contact us today. We're happy to clarify any multistate tax issues you're trying to navigate.
California- New Sales Tax Responsibilities for Cannabis Retailers
California, often the leader in disruptive industries, as well as being known for complexity in its taxing schemes, is once again making a significant change in the taxation of recreational cannabis. Readers may be aware that California was the first state to legalize medical marijuana in 1996. And the sales tax landscape around the sale of cannabis for recreational use has been evolving since the state legalized it in November 2016, and we’ve covered some of these rules (and changes) as our clients in this industry have also evolved.
NFTs & Sales Tax: Why The Details Are Important To Pay Attention To
Dedicated readers of our blog know we have been covering issues related to sales tax and digital products for years; it's a tricky area we often help clients with.
As NFTs, or non-fungible tokens, have gained popularity worldwide, we are beginning to see sales tax questions arise about these products. As with other digital products, the details are vital to understanding your sales tax obligations.
In this article, we share why understanding specific details related to NFTs is so important for ensuring sales tax compliance.
When Are NFTs Subject To State Sales Tax?
Very few states have issued specific guidance on whether the sale of an NFT is subject to sales tax. So how do NFT sellers know if they should collect and remit sales tax in each state they have NFT sales in? First, we can look at a state's legislation regarding digital products. Traditionally, only tangible personal property was eligible for sales tax, but when digital products gained traction, some states began to implement taxes on them. The devil is in the details, however, because the definition of a 'digital product' varies by state. Some states say that if a digital product is taxable in its tangible form, then it is taxable in its intangible form. Some states actually treat intangible goods as tangible personal property (TPP) because they can be seen and experienced, and some don't tax digital products at all because they are intangible.
In states where a "digital good" is broadly defined, an NFT may fall into that category. An example of this is in Pennsylvania, where they tax "any otherwise taxable tangible personal property electronically or digitally delivered, streamed or accessed." Recently, Pennsylvania also released direct guidance further stating that NFTs are subject to sales tax as a digital good. Another state that has issued direct guidance on NFTs and sales tax is Washington state. They published a comprehensive guide defining which NFTs are taxable and more.
Even if the states sellers have nexus in have not issued direct guidance, if they require sales tax collection for digital products, it is likely that the seller will be obligated to collect and remit sales tax for NFTs sold there. Furthermore, if NFTs are subject to sales tax in a state and sold through a third-party marketplace facilitator, and the state they are being sold in has marketplace facilitator laws, the platform may be responsible for collecting and remitting sales tax. Direct and third-party sellers don't need to have a physical presence in the state to have nexus. As long as they meet a certain threshold of sales (the threshold amount also varies by state) in a state, they need to collect and remit sales tax.
Additional NFT Sales Tax Challenges
If that isn't complex enough, another issue some NFT sellers may run into is that they often don't know where their customers are located since transactions are conducted online with electronic payment in cryptocurrency. As explained in this article by Bloomberg Tax, as people become increasingly protective of their personally identifiable information, it may be hard for NFT sellers to stay above their competition if they are requesting this type of information from their customers, but it certainly makes it difficult to comply with sales tax obligations.
Need Help Figuring Out Your Multistate NFT Sales Tax Obligations?
As you can see, there are a multitude of details to keep in mind when figuring out your multistate NFT sales tax obligation; we can help you understand them to stay compliant. Working with an experienced team of state tax consultants like Miles Consulting Group is an excellent way to stay on top of your NFT sales tax requirements. If you have questions about your state sales tax obligations, please contact us today. We're happy to clarify any NFT sales tax issues you're trying to navigate.
Focus on Kentucky
This month we travel to the Bluegrass State of Kentucky. The nickname is based on the bluegrass found in many of its pastures due to its fertile soil.
The Red River Gorge is a canyon system on the Red River in east-central Kentucky. Geologically, it is part of the Pottsville Escarpment, a resistant sandstone belt of cliffs and steep sided, narrow crested valleys. The prevalence of sandstone allowed the Red River to cut a magnificent gorge through the mountains. It is a rock climber’s paradise and is some of the best natural areas around!
Are Out-Of-State FBA Sellers Exempt From Sales Tax Collection In Pennsylvania?
Out-of-state FBA sellers in Pennsylvania may not need to collect state sales tax on sales made with their inventory.
In the beginning of September, FBA sellers, with the help of the Online Merchants Guild, secured a victory against the Pennsylvania Department of Revenue (DOR) when the Commonwealth Court determined that FBA (Fulfillment by Amazon) inventory is not sufficient to establish a sales tax collection requirement for nonresident FBA sellers. In this blog article, we explain what FBA inventory is, the background that led to this decision and what it means moving forward.
What Is An FBA Seller?
FBA is a service that allows businesses to outsource order fulfillment to Amazon. Businesses send products to Amazon fulfillment centers and when someone makes a purchase, the FBA workers pack and ship the order, take care of customer service and process returns.
What Sales Tax Obligations Do Out-Of-State FBA Sellers Have?
This question has been a long time coming. In 2012, an initial agreement was made with Amazon and the Department of Revenue (DOR) where Amazon agreed to collect and remit sales tax on direct sales. In 2018, when Pennsylvania's marketplace facilitation laws went into effect, Amazon began collecting sales tax for third-party sales. They came to an agreement with the state that they would not be liable for third-party sales tax collection from sales made before the law was enacted.
It doesn't appear this same agreement was made with FBA sellers, because as early as 2017, the DOR began to develop a strategy to collect sales tax from the sellers who had an inventory presence in the state. In 2021, the DOR sent FBA merchants a Business Activities Questionnaire Request stating that inventory in the state created a physical presence, resulting in tax obligations.
On September 9, 2022, the Commonwealth Court of Pennsylvania determined FBA inventory does not establish a sales tax collection requirement for nonresident FBA sellers.
One of the arguments made by the Online Merchants Guild that may have led to their success is that a merchant loses control over their merchandise as soon as it enters the Amazon Fulfillment system, which means that they don't have any authority over where it goes.
This is a big step for FBA sellers and may lead to changes in the over 20 other states that have FBA warehouses and marketplace inventory sales tax obligations.
One important thing to note is that this ruling is for sales tax. Taxpayers in Pennsylvania (and other states) must still consider whether inventory in the state creates a taxable presence (nexus) for income tax and requires a company to file income tax returns.
Do You Have Other Sales Tax Compliance Questions?
Sales tax requirements vary by state, and as a multistate seller, it can be hard to keep up. It is important to understand your liabilities and maintain your compliance. Working with an experienced team of state tax consultants like Miles Consulting Group is an excellent way to stay updated. If you have questions about your state sales tax obligations, please contact us today. We're happy to clarify any multistate tax issues you're trying to navigate.
Beermaking in California- Some Sales Tax Considerations
It’s Oktoberfest which means, lederhosen, dirndls, oompah music, accordions, Alpenhorns, polkas, huge decorative beer steins with and without lids, and old-fashioned fun for everyone. At Miles Consulting Group (“MCG”) we love Oktoberfest and we love talking and blogging about beer. (I’ll bet you didn’t know our president and founder, Monika, is fluent in German.)
Today, we are going to talk about the ingredients in beer and how sales tax applies to them. Miles Consulting wants to make sure you beermakers aren’t paying more sales tax than you should.
New Quarter, New Sales Tax Legislation: How To Stay Up To Date With Liabilities
The beginning of October comes with a lot of change and excitement: The change in seasons, in weather, getting ready for the winter holidays and last but not least - quarterly sales and use tax legislation changes. In today's article, we share some of the most relevant sales tax changes that began on October 1.
Colorado Sales Tax Updates
Diapers and incontinence products are now exempt from Denver city and county sales and use tax. These products will be exempt from sales and use tax in the state beginning January 1 as part of House Bill 1055 to "redress the inequitable burden" taxing these products places on caregivers and women.
Another new sales tax law that began October 1 in Colorado is destination sourcing - meaning that sales tax is now calculated based on the buyer's address when the taxable product or service is delivered to the consumer. If you have questions about these changes, this is a helpful place to start.
Virginia Lodging Tax Legislation
Services such as Expedia and Airbnb that broker hotel rooms and short-term rentals will now have to collect and remit sales and lodging taxes to the Virginia Department of Taxation under H.B. 518, effective October 1.
Tax Legislation For New Jersey Sign Installation
New Jersey sign installers have new sales tax legislation to be aware of starting at the beginning of October. A new public law allows the installers to purchase signs and materials for use in fabrication and installation for resale. In this case, a resale certificate must be issued by the sign installer to the seller to document the exemption. The sign installer must charge sales tax on the sale of all signs.
Also, the new law excludes the installation of signs from the capital improvement sales tax exemption, so installation of all signs is also subject to sales tax.
October Sales Tax Holidays
There are a few sales tax holidays coming up this month. Florida will have a gas tax holiday the whole month of October, with the sales tax on motor fuel going down by $0.25 per gallon. October 28-30 is the National Guard Member holiday in Nevada. This article from Tax Foundation includes a helpful map to see which sales tax holidays are coming up the last few months of 2022 in your state.
Need Help Keeping Up With Ever Changing Sales Tax Legislation?
As you can see, sales tax legislation is constantly changing, and it can be hard to keep up. It is important to understand your liabilities and keep up with your compliance. Working with an experienced team of state tax consultants like Miles Consulting Group is an excellent way to stay updated. If you have questions about your state sales tax obligations, please contact us today. We're happy to clarify any multistate tax issues you're trying to navigate.
