"Oh beautiful, for spacious skies, For amber waves of grain, For purple mountain majesties, Above the fruited plain..."1
Today’s article introduces our Sales Tax Tuesday features. I know, you are saying “wait a minute Murph, we had Sales Tax Tuesday articles a few years ago covering every state in the US.” If you have been reading us since our early days you would be absolutely right.
With the assistance of Avalara, “the Sales Tax People”, I wrote a whole travel log a few years back that not only covered need to know about Sales and Use tax for every state from Alabama to Wyoming, but also was a hit with our readers because we included interesting facts and history about each state.
Well, we’ve decided it was time to do it all over again. To take another state-by-state journey and Avalara agreed to help us out once again.
So, you are probably wondering why Insightful Accountant and Avalara have teamed up to bring back Sales Tax Tuesday. Well, the answer is simple, things change…for example did you know that there were 36,254 tax changes impacting rates and taxability of products and services during 2017 alone?
In order to find all those changes, this series will be like going on a long RV trip with sights to see, stuff to do, and things to buy in every state. Of course buying stuff means paying sales tax all along the way. That will help us find out what is and what isn’t taxable, how much tax is collected, and when states have gone absolutely nuts about their sales tax rules.
Let me give you a few more examples. The economic downturn impacted states at different paces, those states first experiencing the significance of declines in their revenues began looking for alternatives to meet their budgetary requirements. Many found Sales and Use tax as one of the most viable ways to increase their revenues and so they raised tax rates, lowered exemptions, and change taxability of products.
Some states decided to use enforcement as a tool to collect more revenues so in 2017, 26 states offered amnesty on back taxes, penalties, and interest for online marketplace sellers in order to collect previously uncollected taxes. Others called out the ‘sales tax police’ and hired ‘collection agencies’ to do their dirty work.
Too many states don’t have balanced budget requirements so they saw their debt levels rise despite new revenue measures. As a result, they continued to look for ways to bail themselves out even as the economy began to improve. One new source for state tax being used by these states will come from marijuana sales as four states (California, Maine, Massachusetts and Nevada) are finalizing new rules regarding recreational use, and three other states (Arkansas, Florida and North Dakota) are preparing for new sales and product taxes for medical use.
As they say, the "times are a changing" and what you don’t know about Sales and Use Tax in your state can come back to bite you. As if a knowledge of state tax rules and regulations wasn’t enough the reality is that this thing they call ‘Nexus’ is ever expanding. In 2017, 12 states proposed economic Nexus on out-of-state businesses meeting certain sales thresholds of maximum gross receipts. You could very well be doing business with customers in a distant state for which you have tax liabilities.
Avalara is the leader in sales tax automation for businesses of any size. Their product
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offering provides the most complete set of transaction tax compliance services available, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. Absolutely nobody knows sales tax better than Avalara.
Sales tax provides critical revenue for states. Other than property and income tax, sales tax is the largest source of tax revenue in the majority of the 46 states that collect it. From a government perspective, making sure every sales tax dollar is collected, through audits, fines, penalties rates and rules, is an exercise for income.
It’s easy to be lured into a false sense of compliance when it comes to sales tax. You might be saying, "I only have one tax rate to worry about...", but the reality is that things are changing and just because you could once ship a package out of state without worrying about taxability, doesn't mean you can do that today.
Let's face it, retail is changing. Those brick and mortar stores of yesterday are giving way to the e-Commerce websites of today. Many retailers don't even have a storefront, they sell exclusively on-line that means they are even more at risk in terms of sales tax compliance.
Manual sales and use tax management is prone to error and directs staff time to pass-through rather than revenue-generating activities. Automation via Avalara allows growing businesses to leverage limited resources of time and money to remain fully sales tax compliant without sacrificing productivity.
You will want to 'tune-in' every week because we are randomly publishing the states, no alphabetical order so you can 'count-down' to your state, you will just have to check each Tuesday to see if we are covering your state, or a state you do business with.
In order to start this series out, we are going to cover a few generalities, and then next week, you should find our 'first state', right here at Sales Tax Tuesday 2018.
Sales & Use Tax Terminology and Concepts:
Audit: Audits will typically cover sales and use tax, as well as exemption certificates. Focus points are around use tax and exemption, because these are areas most commonly overlooked and/or done incorrectly. It is also common for states to focus their targets for audits on companies based outside of their home state, because of an unfamiliarity with laws and unrecognized nexus that leads to greater audit penalties than in-state businesses.
Exemptions: There are three main types of exemptions: product or service exemptions (see next); entity based exemption, meaning the customer is exempt because of how the business is categorized or defined (government entities); use-based exemptions, meaning that the customer is exempt because of the reason of use for that product or service (resale). The latter two require exemption certificates.
Nexus: Nexus is the requirement to collect and remit tax in a certain state or jurisdiction. It is established by a “substantial physical presence”. Most commonly this will be property or payroll in that state but also includes business activity ranging from contract workers to tradeshow attendance to affiliate relationships. These rules vary from state to state.
Product and Service Taxability: This type of exemption establishes that a certain product or service is exempt because of what is categorized or defined as, and will vary from state to state. While what is considered tangible personal property (TPP) is taxable in every state, other products and service are non-taxable or partially taxable depending on how each state views that product or service. The most common example of this is freight, but we see it in many industries; predominantly technology, medical, and service.
Rates: There are more than 10,000 taxing jurisdictions in the U.S. 45 states plus D.C. having at least a state sales tax rate - most have county, city, and special tax jurisdictions (transportation, police, environmental, etc...) as well. At any location you can have between 0 and 6 sales tax jurisdictions to make up the composite rate to charge. Zip codes often overlay multiple jurisdictions making it necessary to use the exact location to determine the correct sales tax rate.
Returns: States require the remittance of sales tax in various forms and frequencies. Most states offer an online or electric method at this point, but not all. The frequency is typically based on expected sales revenue, and can be annual, semi-annual, quarterly, monthly, or even bi-monthly in some cases.
Sales Tax: a tax paid to a governing body for the sales of certain goods and services. Usually laws allow (or require) the seller to collect funds for the tax from the consumer at the point of purchase or product delivery.
Use Tax: a type tax levied in the United States by numerous state governments. It is assessed upon tangible personal property purchased by a resident of the assessing state for use, storage, or consumption in that state (not for resale), regardless of where the purchase took place. Such tax is typically paid to the governing body directly by the consumer rather than being collected and remitted by the seller (as with Sales tax).
Credits & Acknowledgements (and some Americana thrown in for good measure.)
1 - America the Beautiful (lyrics taken therefrom). Lyrics written by Katharine Lee Bates (first as a poem in 1893) and finally set to music in 1904 to a tune composed by Samuel A. Ward in 1900. The song (words and music together) was first published in 1910.
Bates composed her poem during train travels between Wellesley College (located in Massachusetts) an Colorado College (located in Colorado Springs). She was inspired by the great plains of America's hearland in Kansas, and the majestic views sight-seeing atop Pikes Peak.
Samuel Ward was an organist at the Grace Episcopal Church in Newark, New Jersey where he also composed a number of hymns and melodies. He composed a tune titled "O Mother Dear, Jerusalem", and initially re-titled it 'Materna' before it was later combined with Bate's poem to become 'America the Beautiful.'