The realm of taxation, particularly concerning sales tax, is an ever-evolving landscape with continuous modifications. This article offers an overview of recent alterations and updates in this dynamic field.
Sales Tax Transformations Midyear Assessment
The Tax Foundation has unveiled its "State and Local Sales Tax Rates, Midyear 2023" report. This comprehensive report analyzes sales tax rates across 45 states along with the District of Columbia, encompassing both statewide sales taxes and local sales taxes across 38 states.
Key Highlights Include:
- Occurrences of local sales taxes surpassing state rates.
- The states with the highest average combined state and local sales tax rates are Tennessee (9.548%), Louisiana (9.547%), Arkansas (9.44%), Washington (9.4%), and Alabama (9.24%).
- California claims the highest statewide sales tax rate at 7.25%.
- Colorado boasts the lowest non-zero state-level sales tax rate of 2.9%, followed by five states with 4% rates: Alabama, Georgia, Hawaii, New York, and Wyoming.
- South Dakota has decreased its state sales tax rate from 4.5% to 4.2% effective from July, marking the most recent statewide rate reduction since New Mexico's cut from 5.125% to 5% in July 2022. (Additionally, New Mexico's state-level gross receipts tax rate decreased from 5% to 4.875% as of July 1.)
Abundant Tax Benefits
Alongside the prevalent back-to-school sales tax holidays happening this season, several states have revised their sales tax structures to favor consumers.
Alabama is reducing its sales tax rate on food from 4% to 3% as of September 1. If the state's Education Trust Fund meets specific growth criteria, the rate will further drop to 2% on September 1, 2024, or in a subsequent fiscal year.
Starting July 1, Kansas has ceased taxing delivery charges that are separately delineated on invoices, bills of sale, or related documentation provided to buyers. This includes transportation, shipping, postage, handling, crating, and packing charges. Ohio's sales tax exemptions, set to become effective on October 1, have been updated to include new exemptions for various children's products like diapers, therapeutic or preventive creams and wipes, child-restraint devices or booster seats, cribs, and strollers.
Commencing September 1, Texas will eliminate sales tax on essential baby products such as diapers and wipes, as well as menstrual products.
Trust in Income Adjustments: New Jersey has passed budget legislation that introduces alterations to the state's corporate tax regulations. Among these adjustments is the adoption of economic nexus sales tax thresholds (200-plus transactions or receipts exceeding $100,000) for income tax purposes. This step aligns New Jersey with other states that enforce rules for collecting sales tax revenue from out-of-state businesses for income tax objectives.
In Alabama, the Court of Civil Appeals has ruled against the retroactive application of the 2014 revisions to the "prepaid telephone calling card" provision in the Tax Code. The revisions were deemed unconstitutional when applied to a taxpayer acting as an authorized dealer for Boost Mobile.
A taxpayer inquired about tax applicability for equipment purchases from broker auctions in Illinois. The Department of Revenue granted an occasional sale exemption, considering that the transaction was brokered privately with confidential negotiations and separate agreement from the broker's auction listing service.
A general contracting services provider from out-of-state in Texas had waived penalties for failing to file sales tax and corporate income tax returns. The taxpayer's reliance on professional advice, as well as subsequent corrective measures, was taken into account.
New Mexico's Taxation and Revenue Department updated FYI-206, outlining gross receipts tax collection responsibilities for online marketplace providers and sellers. The updated guidance reflects the reduced gross receipts tax rate of 4.875% for out-of-state taxpayers and introduces Form TRD-31117 for reporting and paying gross receipts tax.
A taxpayer in Texas faced sales and use tax assessment for its sales of licensed software applications. The taxpayer argued that it was exempt from remitting tax before October 1, 2018, due to lack of nexus with Texas. However, evidence indicated otherwise.
Texas observed a 2.7% increase in sales tax revenue, reaching $3.99 billion in July compared to the same period in 2022. The sales tax revenue for the three-month period ending in July 2023 marked a 4.5% rise from the previous year.