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.
October is Breast Cancer Awareness Month
We generally use this blog to report on multistate tax topics, from the taxability of SaaS in various states, to various issues faced by both “traditional” internet retailers and now marketplace facilitators, to new laws passed by states in various areas. (So I thought I’d get those in there…)
But today I’d like to use this space to talk about something that’s been near and dear to me personally for over 20 years – raising funds annually for the American Cancer Society’s Making Strides Against Breast Cancer. Why? Because individual and corporate engagement, and with it, private donations are important in the fight against so many diseases in the United States. In the last couple of years, we’ve been talking about Covid-19 and the many casualties of that crazy pandemic. But cancer is still, behind heart disease, the leading cause of death in Americans. It's likely that you’ve either known someone dear to you who has heard the words “You have cancer.”
Focus on Iowa
This month we travel to the Midwestern state of Iowa, the Hawkeye State. Sitting between the Missouri and Mississippi Rivers, the state is known for its rolling plains and cornfields.
Iowa has a humid continental climate throughout the state with extremes of both heat and cold. The average annual temperature at Des Moines is 50 degrees Fahrenheit. Winters are often harsh and snowfall is common. Iowa summers are known for heat and humidity, with daytime temperatures reaching 90 degrees.
Spring ushers in the beginning of severe weather season. Iowa averages about 50 days of thunderstorm activity per year. Iowa averages about 47 tornadoes per year. However, 2008 had the most tornadoes ever in a year: 105!
Returning To The Office? Important Information To Understand Your State Tax Liabilities
When the pandemic first hit, many businesses were forced to transition to a remote working model for safety reasons. And many of those remote employees decided to move away from their “home state” for a variety of reasons. Now, businesses are starting to transition back to the office, with 50% of leaders saying their company already requires or is planning to require a return to in-person full time this year, according to a study from Microsoft.
Whether you decide to bring your employees back to the office full time or just part time, what are the tax implications you should consider? Please note that this blog post won’t get into the state tax withholding, worker’s compensation or other payroll tax matters related to the employee directly. We focus here on how employees may create nexus (and filing responsibilities) for both state sales tax and income tax.
Taxation Issues Created By Remote Workers
Before we discuss the return to the office, it is important to understand the tax implications for business owners with remote employees in different states. We recommend checking out our past articles on the topic where we share detailed updates, but in short, remote workers who live in a different state than they work can create “nexus,” which is the amount of contact from a company needed in a given state in order to be obligated to collect sales tax in that state or to be subject to income tax or gross receipts type taxes. When we talk about employees or offices in a state, we’re talking about creating a physical presence nexus with a state. That’s important, because once nexus is deemed to be created, companies need to examine their filing requirements. For sales tax, it may require registration for sales tax, collection of the tax, remittance and the filing of returns. From an income tax perspective, companies need to review how to source income and then file income tax returns.
During the pandemic, some states decided they would not assert nexus on companies with short-term situations, while others waived nexus just for a certain period of time. Now that businesses are returning to the office, employees may be moving back to their business’s home state. How does this affect the nexus your business may have reached in a particular state? Do you just get to leave the state from a filing perspective once your employee comes back “home”?
Back To The Office: Tax Liabilities
One of the questions business owners may be wondering is how long until they can deregister and stop collecting sales tax in a state where their remote employee used to live?
As with most sales tax requirements, the answer varies by state and is subject to change.
Some states, such as New York, Tennessee, Vermont and Virginia, keep it simple — when the condition establishing the physical nexus in a state ends, a company’s sales tax compliance obligations also end.
Other states are not as easy to manage. About 35 states have trailing nexus policies, meaning they have an obligation to remain registered and report taxes in a state for a certain period of time, even after the established nexus ends. The amount of time that trailing nexus lasts varies by state. In some states it may just be for the rest of the calendar year, in some for another full year, and others don’t have a designated period of time. To learn more about specific trailing nexus requirements in your state, check out our blog article linked here.
Still Have Questions About Tax Liabilities Created By Your Employees?
As you can see, tax liability varies by state. Working with an experienced team of state tax consultants like Miles Consulting Group is a great way to get clarity on any tax liability requirements. If you have specific 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.
Gray Areas In State Sales Tax: What You Need To Know Now
Tax legislation can be difficult to understand. It is not black and white; individuals sometimes interpret the same law in different ways. While most people can agree on the basics of sales tax laws , there are plenty of gray areas as the laws get more specific, especially if you are new to multistate sales tax compliance. In this blog article, we look at two areas of sales tax that often cause confusion: the taxation of digital products and services.
Digital Products & Sales Tax Confusion
SaaS and sales tax may at first seem like a straightforward area of taxation, but if you have kept up on our other blog articles linked here and here, you know it can get confusing quickly. In these cases, we recommend working with an expert multistate sales tax team like Miles Consulting Group.
For example, we worked with a client who developed a product on a platform they charge a subscription for, so it sounds like it would fit into a SaaS category. But given the way their customers interact with the product, it also could be categorized as an information service.
In this example, the client had multiple revenue streams, some classified as SaaS and others classified as information services. This created complications for the client because the same exact product may be taxed differently depending on how the state categorizes it. To help our clients with these issues, we look into what specifically the client provided to the customer and the tax law for each state they made sales in.
It is critical that a company correctly categorizes their products and services in each state they have liability in order to stay compliant and avoid a tax audit. To ensure compliance for all of our clients, we dig even deeper into statutes, ruling requests and regulations issued by a state's department of revenue relating to SaaS and information services.
Companies can even approach a state to ask for a ruling on why products or services are categorized a specific way. States often do come back with a ruling in these cases (though it may not be binding), which can help clear up some of these gray areas of SaaS sales tax.
Gray Areas In Service Sales Taxations
In the past, while it certainly varied by state, very few services were taxed overall. As our economy has become strongly service-based, many states have incorporated more sales service tax laws. Just like with SaaS and digital products however, the laws regarding the taxation of services are not uniform across all states, so it is another example of sales tax legislation with some gray areas. Currently, no two states tax services in exactly the same way.
A few areas that states vary on include: definitions of services, treatment of services and sourcing of services.
Since states do vary greatly in their service sales tax legislation, we recommend thinking about the services being taxed in six categories to clear up the confusion.
- Services related to the sale of tangible personal property (TPP). This typically means services that improve or repair property such as car repair or carpentry services.
- Services to real property including landscaping and janitorial work.
- Services performed for companies and businesses including credit reporting agencies and telephone answering services.
- Personal services, which includes personal grooming or other types of self-improvement. Tanning salons and animal grooming services would fit under this category.
- Professional services including physicians, accountants and other licensed professionals.
- Amusement/recreation services. This includes admission to amusement parks and other types of entertainment.
In our recent blog article linked here, we go into more detail about services and sales tax. Check it out to begin to understand the complex gray areas of service sales taxation.
Still Have Sales Tax Clarification Questions?
As you can see, there are many gray areas in sales tax legislation. Even if you are compliant, it can be difficult to make the right decisions related to sales tax for your company. Working with an experienced team of state tax consultants like Miles Consulting Group is a great way to get clarity on any gray area decisions you may need to make. 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.
