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Latest Updates In Sales Tax Landscape

Jeff Gibson · September 15, 2023 · 5 min read

Latest Updates In Sales Tax Landscape

The sales tax landscape refers to the overall framework, environment, and conditions surrounding sales tax regulations, policies, and practices within a specific jurisdiction or across multiple jurisdictions. It encompasses various elements, including legal frameworks, administrative procedures, compliance requirements, technology, and economic factors, that collectively shape the administration and enforcement of sales tax laws.

The sales tax landscape is dynamic and subject to constant evolution due to changes in legislation, court rulings, economic trends, and technological advancements. It varies significantly from one jurisdiction to another, as different states, countries, or regions may have distinct sales tax laws, rates, exemptions, and compliance procedures.

Key components of the sales tax landscape include: Tax Rates and Structures: The sales tax landscape encompasses the diverse range of tax rates and structures adopted by different jurisdictions. This includes variations in tax rates for different types of goods and services, as well as differences in tax structures such as origin-based vs. destination-based taxation. Compliance Requirements: The landscape includes the regulatory requirements and obligations imposed on businesses to collect, report, and remit sales tax to tax authorities. This encompasses registration processes, filing deadlines, record-keeping requirements, and audit procedures.

Technology and Automation: With advancements in technology, the sales tax landscape has witnessed the adoption of automated solutions for sales tax compliance, including software platforms for tax calculation, reporting, and remittance. Technology plays a crucial role in streamlining compliance processes and ensuring accuracy.

Economic Factors: Economic conditions, consumer behavior, and market trends influence the sales tax landscape. Changes in consumer spending patterns, the growth of e-commerce, and shifts in business models impact sales tax revenue, compliance challenges, and policy considerations.

Legal and Regulatory Developments: Court rulings, legislative changes, and regulatory updates shape the sales tax landscape. Landmark court cases, such as the South Dakota v. Wayfair decision in the United States, have had significant implications for sales tax nexus and remote sellers.

Understanding the sales tax landscape is essential for businesses to navigate compliance challenges, mitigate risks, and adapt to changes in tax laws and regulations. It requires staying informed about legal developments, leveraging technology solutions, and maintaining proactive compliance strategies to ensure adherence to sales tax requirements

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.

State-Specific Updates

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.

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