States are suffering from a $23 billion deficit annually in uncollected use tax. It is the unknown companion of sales tax, but that makes it no less important. With only 2 percent of taxpayers reporting it, businesses are losing out in the long run.
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.
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.