Entering the Economic Nexus: Proceed with Caution

A recent motivator has left states clamoring to collect more in sales tax. The motivator? $24 billion in uncollected sales tax from ecommerce retail sales. Those states are also collectively facing $19 billion in budget shortfalls over the next year and a half. These are huge concerns for states, forcing them to become more creative and crack down over revenue source, and they’re now looking towards nexus.
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Defining Service Tax For Your Business

In the first part of this series, we discussed how states that previously relied on a sales taxes are turning to service taxes to make up for a decreased buying power in specific goods. Consumers are now investing their hard earned dollars into services, like hair styling, dining out, personal training or streaming movies. As this trend continues, businesses need to know how and whether they will be affected. In this second part of the series, we will be looking at how states determine and define a tax on service.
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Is Your Business Affected By Service Tax?

American spending trends have been changing over the years, moving away from paying for material goods and instead choosing to indulge on services. Increasingly more Americans choose to eat out rather than buy the groceries to prepare food at home. Thanks to advances in technology, we choose to stream music and movies rather than purchasing a CD or DVD. We even are paying people to helps achieve our ideal bodies, and then turning to someone to make those worn out bodies feel better.
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The Ripple Effect of the Marketplace Fairness Act (MFA)

Marketplace Fairness Act2015 flew by with no federal action on remote sales tax. There were three new bills of remote sales tax legislation passed around the hill, however the subject wasn’t an action item for lawmakers. And yet, it’s an issue that can’t be ignored given action at the state level.
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What Sales Tax Changes to Expect in the New Year

Like each New Year, 2016 will bring numerous sales tax changes. Rates will increase or decrease, there will be new rules on product taxability, exemptions will lapse or take effect, and there will be changes to reporting. The main thing certain with regards to sales tax is that change happens. What’s more, it regularly happens without warning.

A New Year is an opportunity to reflect on the past — what went well and what you wish you’d done better. It’s an opportunity for resolutions. This new year, have no regrets with regards to sales tax. Make plans to streamline your sales tax consistence. You’ll see that it’s simpler than getting in shape.

Resolution: Streamline sales tax compliance.

Rates. About twelve states, including Illinois, Maine and Minnesota, have reported local sales tax rate changes for 2016. More will come as January 1st approaches. What’s more, there is talk of rising the state sales tax rate in both Oklahoma and Florida. State revenue departments regularly, but don’t always, report rate changes in time for businesses to account for them. Nonetheless, in complicated home rule states like Colorado and Louisiana, resident governments may not advise state revenue departments of such changes in a timely manner, if they even do it at all.

Resolution: Be certain you have a dependable system set up to oversee sales tax rate changes.

Product taxability. Organizations need to account for changes in product taxability. Sales tax can be extended to services or slapped onto already absolved unmistakable tangible personal property. States for the most part report changes in time for sellers to represent them; yet undesirably, that is not generally the situation. For instance, on June 30, 2015, Governor Jay Inslee of Washington signed legislation that transformed the regulation and taxation of the marijuana market. It took effect the next day.

Product taxability coming in 2016 incorporate the following:

  • Martial arts classes and numerous other physical wellness services will be subject to sales tax in Washington State
  • North Carolina will extend sales tax to installation, maintenance and repair services
  • Retail sales of prepaid wireless communications access will be subject to retail sales tax in Wyoming
  • The list of foods thought to be prepared food (and taxable) will be expanded in Homer, Alaska

Resolution: Successfully process changes in item taxability and do it quickly.

Exemptions. Changing sales tax exemptions are a bear, whether at the local or state level. While several make headlines, like the exemption for firearm safety devices as recently approved by the Michigan Senate, numerous others slip into law essentially unnoticed.

Some exemption changes being considered or set to take effect in 2016 incorporate the following:

  • California’s partial tax exemptions will diminish
  • Florida’s exemption for college textbooks is set to expire, however its manufacturing exemption might be extended
  • Iowa’s machinery and equipment sales tax exemption might be expanded
  • North Carolina will give a sales tax exemption for electricity used in qualifying datacenters
  • Senior sales tax exemptions will be scaled down in Juneau, Alaska

Resolution: Have a failsafe solution for overseeing sales tax exemptions, exemption and reseller certificates.

Reporting. Last to be considered here (but certainly not the last issue sellers want to deal with) are changes to the way sales tax is accounted for. Some of the changes for 2016 include:

  • New reporting requirements for exempt entities in Alabama (this is a big deal)
  • New reporting requirements for sales of consumable vapor items in Alabama
  • Colorado will cease mailing sales and use tax forms for businesses

Resolution: Get reporting and filing correct.

Be prepared.
Sales tax changes are coming in 2016. There will be new rates, item taxability guidelines, exemptions and filing requirements, and the responsibility is on you — the seller — to conform to those changes. Inability to do as such can prompt negative audit findings, penalties, interest, and a ton of hassle. So what’s your plan?

Resolution: Make sales tax less taxing with Avalara AvaTax.

For more details, including a state by state analysis of what’s changing in the coming year, download Avalara’s 2016 Sales Tax Changes guide.

Pumpkins, Piercings and the Paranormal: 10 Scary Ways States Apply Sales Tax

Bwaahahaha! Is that the ghostly laugh of a Halloween haunt — or the auditor reviewing your sales tax returns? Dealing with sales tax can be a ghoulish task. And for businesses with compliance obligations in multiple states, it can be frighteningly difficult to know which rules apply.

Take pumpkins, for example. Nothing says fall quite like overflowing cornucopias, evil-grinned jack-o’-lanterns and (yep) pie. But be warned: not all pumpkins are created equal. In New Jersey and Pennsylvania, taxability depends on if your pumpkin is tricked-out or treat-worthy. Pumpkins to be used for decoration (painted, varnished or carved) are taxed while pumpkins used for food (like pie) are tax-exempt. In Iowa, all pumpkins used to be taxed, but farmers complained, so now the state only applies sales tax to inedible gourds.
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Services Sales Tax Spreads Through States

In most states, services are exempted from sales tax unless explicitly made taxable by law.  So why are the governors of at least two states, as well as legislators in another, fighting to change that? Sales taxation used to focus exclusively on physical goods.  As the United States moved toward a service economy, states started to realize that not taxing services meant giving up billions of dollars in potential revenue.
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Time to Go Back to School on Sales Tax

August is traditionally a big sales month for retailers who reap revenue from back-to-school shoppers. To help out local businesses and encourage consumer spending, several states provide sales tax holidays on essential items like clothing and supplies. Yet, despite being the second biggest retail event of the year, and with 17 states on board in 2015, sales tax holidays aren’t always an easy sell.
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What a Genius Idea! For Dummies Book Series Tackles Sales Tax

avalara sales taxLife lessons. They’re never ending. There’s the stuff that you’d like to learn like paddle boarding, pasta rolling, conversational Spanish, and there’s the stuff that you have to learn, like web design, drywall hanging, and programming the DVR. We’re guessing sales tax falls into the latter category. Because, let’s face it, unless you’re a member of Mensa (or a masochist), sales tax is hard. And boring.

But now it doesn’t have to be. Avalara wrote the book on making sales tax easy. No seriously, we did. Okay, we had a little help on the “easy” part from the folks at For Dummies. Yes! That’s right; those massively popular bright yellow and black books that that offer useful instruction on, well, everything.
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The Down Low on Downloads: Dealing with Tricky Tax Rules on Digital Goods & Services Delivery

The Internet has become a convenient way to shop for goods and services; it’s also become a popular way to deliver them. Consumers and businesses can now conduct online transactions for everything from books to movies to software programs and have these delivered digitally or even stored in the Cloud versus physical media. While convenient and cost-effective (no shipping, packaging, etc.) the virtual marketplace can also be confusing when it comes to tax compliance.
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5 Reasons Your Rapid Company Growth Might be Increasing Your Sales Tax Liability

Sales Tax

Nexus —the connection between a company and taxing jurisdictions that triggers a sales tax liability—gets thornier the faster your company grows. Surprisingly, more revenue can mean more complexity and potentially greater risk of sales tax audit (more money, more problems?). Here are 5 areas of sales tax risk relating to business growth and what you can do to address them:
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Sales Tax Risks Manufacturers Face Along The Supply Chain (Part 2)

Manufacturers face sales tax risks at many points along the supply chain. Whether selling to retailers, directly to consumers, or supplying wholesalers and distributors, the unseen costs of errors in sales tax management can decimate the bottom line.

In Part 1 of this article, we looked at how selling to retailers can pose sales tax risk and what manufacturers can do to address this. Now, we’ll look at the sales tax risks manufacturers face when selling directly to customers and what they can do about it.
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Charging Sales Tax on Services – Rule of the Road

Sales TaxThink that just because you don’t sell services instead of tangible goods you don’t owe sales tax? Think again. More and more traditionally non-taxable transactions are being taxed all over the US. If you’re not up to date, you could have been charging wrong rates (or not charging at all) all this time. And that can add up to an audit that could potentially cripple your business.

But it doesn’t end there. Continue reading

The #1 Sales Tax Issue That Could Cost you $$$

Do you know what the term “nexus” means and how it impacts your business? If not,you could be in for a world of trouble if you get audited.

In simple terms, nexus means “a connection.” It’s the connection you have with where you do business.That might be where you sell, where you have salespeople, where you source materials… More specifically, it’s what triggers your obligation to pay transactional tax in a given jurisdiction. And it’s rarely simple. There are MANY ways nexus can be triggered, some obvious and some you’d never guess, and what creates nexus varies depending on the jurisdiction. Continue reading