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.
NFT And Digital Product Sales Tax Clarification: Important Legislation To Keep In Mind
As the 2021/2022 fiscal year ended on June 30, many states implemented sales tax legislation reforms. In this blog article, we share a few standout updates you should know about.
Washington State Department of Revenue & NFT Sales Tax
NFTs, or non-fungible tokens, have been around since 2014, but started gaining momentum in 2021 and have only risen in popularity since. As you can imagine, this has created some sales tax confusion.
Washington state is one of the few states to tackle the taxiblity of NFTs, and on July 1, 2022, the Washington State Department of Revenue published an interim statement on how sales tax applies to NFTs. The statement is "intended to provide general information related to the taxability of certain transactions involving NFTs and does not intend to address any exemptions, exclusions, deductions, credits or other incentives that may apply." The interim statement functionally defines NFTs as a digital code.
Maryland Clarifies Sales Tax On Digital Products
The latest changes from Senate Bill 723 and House Bill 791 came into effect on July 1, 2022. The bills are a clarification of the state's tax on digital products and the third time that the digital product legislation has been fine-tuned.
The synopsis shared by the Maryland General Assembly states the purpose of the bill is to, "Alter the definition of digital product for purposes of the application of the sales and use tax to exclude certain products where the purchaser has a certain property interest and certain types of computer software."
As of July 1, SB 723 excludes the following from the list of taxable digital products:
- Any product that has electrical, digital, magnetic, wireless, optical, electromagnetic or similar capabilities where the purchaser holds a copyright or other intellectual property interest in the product if the purchaser uses the product only for commercial purposes, which includes marketing activities.
- Computer software or software-as-a-service purchased or licensed solely for commercial purposes in an enterprise computer system, which includes operating programs or application software for the exclusive use of the enterprise software system that is housed or maintained by the purchaser or on a cloud server, whether hosted by the purchaser, the software vendor or a third party.
Illinois Begins Year-Long Grocery Sales Tax Holiday
Starting at the beginning of July, Illinois suspended its 1% grocery sales tax for one year. This suspension doesn't include other items aside from food purchased at the store - medicine and hygiene products specifically will still be taxed at the 1% rate. Ready-made food, soft drinks, candy and alcohol will continue to be taxed at the state sales tax rate of 6.25% plus any local taxes if applicable.
Still Have Sales Tax Legislation Questions?
As you can see, sales tax legislation updates frequently and compliance is important for businesses to avoid an audit. Working with an experienced team of state tax consultants like Miles Consulting Group is a great way to stay up to date on multistate tax legislation. 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.
Focus on Maryland
This month we travel to the birthplace of religious freedom in America, the mid-Atlantic state of Maryland. Formed by George Calvert in the early 17th Century, the state was intended as a refuge for persecuted Catholics from England. George Calvert was the first Lord of Baltimore and the first English proprietor of the then-Maryland colonial grant. Maryland was the seventh state to ratify the U.S. Constitution and played a pivotal role in the founding of Washington D.C., which was established on land donated by the state.
Maryland is defined by its abundant waterways and coastlines on the Chesapeake Bay and Atlantic Ocean. Its largest city, Baltimore, has a history as a major seaport, and is also home to such tourist attractions as the National Aquarium and the Maryland Science Center.
Beer Brewing and Sales Tax in California- Part II
In our first beer blog in April we gave brewers an overview of how California’s sales and use tax applies to the beer brewing industry. In this beer blog we do a quick overview of some sales and use tax basics and then we share some more helpful tips so your tax reporting is as clean and crisp as your beer.
