2021 Sales and Use Tax Technical Update

Arizona

Gratuities – The Arizona Department of Revenue recently amended code section 15-5-1708. The amendment allows restaurants to deduct the full amount of gratuity from the tax base, regardless if the amount distributed to relevant employees is reduced by the credit card fees associated with processing the gratuity. Historically, the full amount of gratuity was not permitted to be deducted from the tax base unless the full amount of the gratuity was distributed to relevant employees.

Idaho

Disaster Relief – The Idaho State Tax Commission extended deadlines to file and pay taxes for victims of recent Texas and Oklahoma winter storms. Texas taxpayers now have until June 15, 2021 to file returns and pay taxes originally due February 11, 2021 through June 14, 2021. Oklahoma taxpayers now have until June 15, 2021 to file returns and pay taxes originally due February 8, 2021 through June 14, 2021. Specific information may be found here.

Manufactured Home – Effective July 1, 2021, the sale of a newly manufactured home, by a licensed manufacturer to a licensed retailer, is now exempt so long as the retailer provides a valid resale certificate. Any items incorporated into the newly manufactured home as component parts should be taxed at the same rate as the newly manufactured home.

Kansas

Manufacture Rebate – Effective June 30, 2021, the Kansas Department of Revenue confirmed all vehicle manufacturer rebates are now taxable. Previously, rebates paid directly to a dealership were exempt from sales tax. More details behind the change can be found in Kansas Publication 1526.

Maryland

Digital Products – Effective March 14, 2021, Maryland sales and use tax now applies to digital products and digital code. Business Tax Tip #29 includes updated definitions of digital products, tax base, clarifies bundled transactions and discusses specific industry guidance for those who use digital products as a routine part of their business.

Filing Extension – The Comptroller of Maryland recently issued Tax Alert 03-11-2021 advising taxpayers the deadline for March, April and May 2021 sales and use tax returns is extended to July 15, 2021. The extension is due to several changes included in the RELIEF Act and the need to modify the standard sales and use tax return. Penalty and interest are automatically waived so long as all payments are received by July 15, 2021.

New York

Point of Sale Device – The New York State Department of Taxation and Finance (NYS DTF) issued a recent advisory opinion regarding a taxpayer’s contract with Company X. The taxpayer was a casual dining company who paid a monthly license to use Company X’s mobile point of sale devices to allow customers to access the restaurant menu, place an order and pay their check. The devices also allow online access to news, sports, social media, music and games for an additional fee to the customer. The NYS DTF concluded the taxpayer’s monthly license fee to use the mobile point of sale device as taxable rentals of tangible personal property. The additional charges to customers for online access were also taxable as charges for entertainment at a restaurant.

Tennessee

Professional Membership Fee – In a recent Letter Ruling #21-02, the Tennessee Department of Revenue (TN DOR) confirmed a taxpayer’s sales of membership fees as exempt from sales and use tax. The taxpayer is a nonprofit organization, falling under IRC Section 501(c)(6) and is exempt from federal income tax. A membership fee is charged to customers in exchange for a membership. However, the membership also includes specific offerings such as certification status tracking, a free copy of a downloaded guide, discounts on certifications, online job postings, publications and certain in-person and virtual events. The TN DOR noted professional memberships are exempt from sales tax regardless of the additional items accessible through the membership fee. The additional items, which may be subject to tax in a normal course of business, are considered incidental to the sale of the membership fee and do not alter the taxability of the underlying sale.

Software – The Tennessee Department of Revenue (TN DOR) recently issued sales and use tax guidance around remotely accessed software. The guidance reaffirms the TN DOR’s position that remotely accessed software is taxable when accessed by a user in the state. The guidance also provides procedures for the determination of tax rates, collection of sales tax for customers with users located inside and outside of Tennessee, taxability of customized prewritten canned software, tax treatments of long term contracts and more. To view the full update provided, click here.

Special Events – The Tennessee Department of Revenue provided guidance around sales and use tax for special events. A special event held within Tennessee typically lasts for a short period of time, features a specific theme and includes multiple vendors in a concentrated area. The TN DOR clarifies the specific events definition, special event promotor responsibilities, the obligation to collect and remit applicable sales tax and information for recurring special event vendors. Full detail can be found here.

Texas

Manufacturer – The Texas Comptroller of Public Accounts recently released an updated Manufacturing Exemptions overview. Publication 94-124 clarifies the exemptions available to taxpayers who manufacture, fabricate or process tangible personal property for future sale. The publication identifies taxpayers who qualify for these exemption, specific industry nuances, the process to claim an exemption and more.

Motor Vehicle Rentals – The Texas Comptroller of Public Accounts recently released an updated Motor Vehicle Rental Tax Guide. Publication 96-143 assists in identifying permits, tax collection responsibilities, appropriate tax rates, available exemptions, proper documentation of an exemption, deductions for bad debts and reporting responsibilities.

Virginia

Personal Protective Equipment – Virginia House Bill 2185 recently passed and provides a sales and use tax exemption for personal protective equipment. The bill confirms the exemption is available to any business which has eligible COVID-19 safety measures in place complying with the Emergency Temporary Standard issued by the Virginia Department of Labor and Industry. The sales tax exemption is valid until the first day following the expiration of the last executive order issued by the Governor terminating the Emergency Temporary Standard mentioned above.

Washington

Business and Occupations Taxable Base – The Washington Governor recently signed a law excluding COVID-19 relief loans from both excise and sales and use tax. Effective February 29, 2020, financial assistance provided to address the impact of conditions due to the national or state emergency may be excluded from the Washington tax base. The law provides limitations to the exemption and clarifies tax obligations for items purchased by financial assistance recipients. For more information around COVID-19 related assistance in Washington, click here.

West Virginia

Marketplace Facilitators – Effective June 7, 2021, the West Virginia State Tax Department (WV STD) confirmed marketplace facilitators are now required to collect and remit hotel occupancy tax, in addition to the statewide sales tax, on behalf of the hotel or hotel operator. The WV STD reminded taxpayers a marketplace facilitator with $100,000 or more in gross receipts or 200 separate transactions in the prior calendar year is considered to be engaged in business within the state.

 

 


Previous Updates

March 2021 Updates

New Mexico

Marketplace Facilitators – The New Mexico Taxation and Revenue Department issued publication FYI-206 describing the imposition of gross receipts tax upon marketplace providers and the threshold for determining whether an out of state seller is “engaging in business” in New Mexico. Marketplace providers with $100,000 or more of taxable gross receipts in the prior calendar year are considered to be engaging in business within the state.

New York

Usage Agreement – A decision was issued in a New York hearing concluding a taxpayer’s sales under a “usage agreement” as exempt from sales tax. The taxpayer manufactured products for the treatment of dermatological disorders, including a laser used by physicians to treat certain skin disorders. The taxpayer did not collect sales tax on its usage agreements, which entitled physicians to a suite of services. The state ruled the usage agreement did not constitute a lease for sales tax purposes because the agreement did not contain lease language, was not structured as a lease, did not identify the model of the equipment the physician received and could be removed at any time. The true object of the usage

agreement or its primary function was the provision of a nontaxable integrative therapy service and not the transfer of the laser. The full determination may be viewed here.

Ohio

Gross Receipts Taxable Base – The Ohio Department of Taxation updated its Frequently Asked Questions (FAQs) to provide guidance around the Paycheck Protection Program (PPP) loan for gross receipts purposes. The FAQs state any amount of the loan which is forgiven under the Coronavirus Aid, Relief and Economic Security (CARES) Act is also excluded from a taxpayer’s gross receipts for purposes of the Ohio Commercial Activity Tax.

Tennessee

Data Analytics Service – The Tennessee Department of Revenue (TN DOR) recently issued Letter Ruling #21-01 confirming taxability for different types of data analytics services. Collection of customers’ data for processing, compiling information and storing the information on leased servers are all services which are not specifically enumerated as taxable under the TN DOR statute. However, remotely accessed software is a taxable sale of software in Tennessee.

Virginia

Lodging – The Virginia Tax Commissioner reminded taxpayers a hotel room occupied for more than 90 continuous days is exempt from the short term hotel occupancy tax. In order to qualify for the exemption, any additional charge for food must be separately stated on the invoice. The short term hotel occupancy exemption only applies to charges for rooms, lodgings or accommodations.

Use Tax Obligation – In a recent letter ruling, VA Ruling of Commissioner P.D. 20-190, the Virginia Department of Taxation (VA DOT) confirmed the sales and use tax assessment resulting from a taxpayer’s audit. The taxpayer made purchases from an online vendor who did not include sales tax on the purchase. Although the taxpayer claims the burden of self assessing use tax should not fall on the taxpayer, the VA DOT confirmed the Department “may seek payment of the tax from either the seller or the purchaser of tangible personal property” and upheld the audit findings. This is an important reminder for taxpayers to ensure proper procedure is put in place to review untaxed purchase invoices.

Washington

Manufacturing Equipment Mixed Use – Generally, sales to a manufacturer or processor for machinery and equipment used directly in a manufacturing operation are exempt from tax. However, in Determination No. 18-0295, the Washington Department of Revenue confirmed a logger’s purchase of a bulldozer did not qualify for the machinery and equipment exemption because the bulldozer was also used for nonmanufacturing purposes as well. The bulldozer therefore failed to satisfy the majority use requirement.

Renewable Energy Incentives – The Washington Department of Revenue recently posted an updated list of available incentives related to renewable energy. Incentives include anaerobic digesters, clean fuel and hybrid vehicles, marine propulsion systems, solar energy systems and more. For the full list of incentives and specific details around qualifications and criteria, click here.

January 2021 Updates

California

COVID-19 Relief – California tax returns originally due between December 15, 2020 and April 30, 2021 are extended for taxpayers reporting less than $1 million in tax on a single return. The relief is granted automatically for any qualifying taxpayer. In addition, interest and penalty related to the amount due will be waived, provided returns are filed and payments are made within three months of the original due date.

Colorado

COVID-19 Relief – In an effort to provide relief to businesses impacted by COVID-19, Colorado House Bill 20B-1004 allows qualifying restaurants, bars and mobile food service retailers to retain the 2.90 percent state portion of sales tax collected, up to $70,000 of taxable sales, which equates to roughly $2,000 a month. HB 20B-1004 allows the credit for the November 2020, December 2020, January 2021 and February 2021 periods. Any city, county or special district sales tax collected must be remitted to the appropriate jurisdiction. The credit is only allowed for the state portion. In order to qualify, the taxpayer account must be on a monthly filing frequency. For additional detail and instructions on how to claim the credit on the CO DR 0100 state return, click here.

Small Business ReliefColorado Senate Bill 20B-001 provides funding to support small businesses impacted by capacity restrictions imposed to address the COVID-19 pandemic.

Florida

Economic Nexus – Florida House Bill 15 and Florida Senate Bill 50 were recently introduced for review. Both bills require remote sellers, surpassing a set threshold of sales into Florida, to collect sales tax beginning July 1, 2021. There are a few differences between the two bills however both aim to require remote sellers to begin collecting sales tax on behalf of sellers. Florida will follow the common economic nexus threshold of $100,000 in sales. The bills will also require marketplace providers to collect sales tax on behalf of marketplace sellers. DHG will continue to monitor these bills closely and provide updates as the bills progress through the legislative process.

Illinois

Marketplace Facilitators – The Illinois Department of Revenue issued Information Bulletin No. FY 2021-5 advising effective January 1, 2021, auctioneers will be considered marketplace facilitators if the gross receipts from sales of tangible personal property to purchasers in Illinois are $100,000 or more, or if they make at least 200 sales to Illinois purchasers. Auctioneers meeting these thresholds are required to collect retailer occupation taxes.

New Mexico

Sourcing Methodology – Effective July 1, 2021, New Mexico will begin imposing the gross receipts tax based on the location property is delivered to, rather than the location of the seller. This is a change from the current origin based sourcing methodology.

Pennsylvania

Medical Mask Taxability – The Pennsylvania Department of Revenue issued Sales and Use Tax Bulletin 2021-01 indicating medical supplies, including medical and disposable surgical masks, are exempt from Pennsylvania sales tax. Prior to the COVID-19 pandemic, medical supplies, including medical and disposable surgical masks, were subject to sales tax.

Rhode Island

Software – The Rhode Island Division of Taxation (RI DOT) concluded a sale of software accessed remotely as taxable vendor hosted prewritten computer software. The taxpayer provides electronic marketing analytic services through an online dashboard. The service provides customer assistance developing advertising strategies and evaluating the effectiveness of the proposed strategies. Customers access the software through the internet. The taxpayer claims the sale of software should be considered exempt as data processing and information services which allow data to be generated, acquired, stored, processed, retrieved and delivered by an electronic transmission. The taxpayer states the primary purpose of the software is the processed data and information, claiming the software is incidental to the true object of the transaction. However, the RI DOT classified the sale as vendor hosted prewritten computer software, thus taxable.

South Dakota

Leases and Rentals – The South Dakota Department of Revenue provided industry guidance for auto dealers related to leases and rentals. The guide includes details around extensions of leases and identifies when additional tax may be due. It also provides clarification when a lessee purchases a vehicle at the end of the lease term and tax calculation. The guide identifies a potential credit for any vehicles destroyed to the extent they are considered a total loss.

Vermont

Lodging – In December 2020, the Vermont Department of Taxes published a fact sheet providing details around businesses renting rooms and collecting tax. The fact sheet is a continuation of the Vermont meals and rooms tax and should be used in combination when identifying the correct taxable base and tax to collect. Any establishment which offers sleeping accommodations for a charge is subject to the 9.00% Vermont rooms tax.

Taxability General Guidelines – The Vermont Department of Taxes provides general guidelines around taxability of common items sold within the state. The guidelines highlight certain items including clothing, clothing accessories, clothing equipment, protective equipment, sports equipment, over the counter drugs, grooming and hygiene products, medical supplies, medical equipment and more. Click here for the full detail.

Washington

Aerospace – The Washington Department of Revenue identified an additional incentive program available to aerospace businesses for computer hardware, software and various peripherals. The exemption is available to: (1) manufacturers and processors for hire of commercial airplanes or component parts of commercial airplanes; (2) non-manufacturers engaged in the business of aerospace product development; (3) certified FAR repair stations; and (4) aerospace tooling manufacturers. Any item must be used primarily in the development, design or engineering of aerospace products or in providing aerospace services. The exemption expires July 1, 2040.

Airplanes – In January 2021, the Washington Department of Revenue (WA DOR) issued information around available exemptions for construction of new facilities utilized for airplane repair or maintenance. The WA DOR clarified the exemption is available until January 1, 2027, identifies qualifying activities, and details the reporting and documentation obligation to claim the exemption. For more information, click here.

Drop Shipments for B&O Tax – The Washington Department of Revenue recently provided guidance around the applicability of sales and use tax and business and occupations (B&O) tax for drop shipments. A drop shipment occurs when a customer orders an item from a seller who does not have the item in stock. The seller then orders the item from another business and instructs the business to ship the item directly to the customer. The customer is not aware a separate vendor is filling their order. The wholesaler is not obligated to collect sales and use tax as it is conducting a wholesale sale to the seller. However, the wholesaler must document the sale by obtaining an exemption certificate from the seller for the items shipped directly to the customer. The wholesaler is obligated to pay wholesale B&O tax on the items shipped to the customer. If the customer is located outside of Washington, the same process listed above remains in place however, the wholesaler is allowed a B&O interstate sales deduction for the total amount thus would not owe any wholesale B&O tax.

December 2020 Updates

New York

Digital Advertising Management Platform – The New York Department of Taxation and Finance (NY DTF) issued an Advisory Opinion concluding the taxpayer's receipts from its digital advertising management platform as taxable sales of pre-written software. The taxpayer's platform allows customers to access a package of software tools to create, deliver and manage digital advertisements. The NY DTF determined the taxpayer's services to be categorized as sales of pre-written software which allow customers to create and deliver their own digital advertisements. The software is not customized to the specifications of a particular customer. The NY DTF also determined the total charge from the taxpayer to its customers as subject to tax since the consulting services and advertisement placement services were not separately stated on the invoice.

Tennessee

Automobiles and Boats – The Tennessee Department of Revenue issued County Clerk Sales and Use Tax Guide for Automobiles and Boats. The guide includes information regarding the taxability of automobiles and boats, identifies elements to be included in the sales price, sales tax exemptions, single article application, sales tax on transfers, three day affidavit, certificate of interstate delivery, interstate commerce motor vehicle exemption and the affidavit of a nondealer transfer.

Texas

Boats – The Texas Comptroller of Public Accounts released Publication 94-170 related to the application of sales and use tax on the sale of boats, boat motors and boat trailers. The publication also details out of state and new resident purchases and sales and use tax exemptions.

Online Sales – The Texas Comptroller of Public Accounts issued Publication 94-171 detailing guidance regarding online sales. The guidance clarifies the sales and use tax liability for online buyers, liability for out of state purchases shipped into Texas and potential credits for tax paid to other states. The publication also identifies taxability of online purchases from remote sellers, general taxability of sales to customers located within and outside of Texas and taxability of marketplace sales.

Washington

COVID-19 Relief – The Washington Department of Revenue provided business relief to taxpayers affected by the COVID-19 pandemic. Businesses will receive an automatic waiver of interest from February 29, 2020 until the termination of the Washington COVID-19 State of Emergency or December 7, 2020 – whichever comes first. Additional relief is also available for business licenses, estate tax, excise tax and property tax.

Facilitator Inventory Creates Nexus - In Determination 18-0255, the Washington Department of Revenue (WA DOR) concluded a marketplace seller taxpayer established substantial nexus in Washington for business and occupation (B&O) tax purposes when the marketplace facilitator digitally transferred inventory of the taxpayer from outside the state to inside the state before delivering the inventory to the marketplace facilitator’s customer. Specifically, the taxpayer agreed to use the marketplace facilitator’s inventory management system and transferred inventory to marketplace facilitator’s warehouse outside of Washington. As part of the agreement to use the inventory management system, the taxpayer also agreed to allow the marketplace facilitator to digitally reassign equivalent or exact inventory between sellers when inventory for selling party is not located near the customer. The digital inventory reassignment process allows the marketplace facilitator to deliver items to the customer efficiently. As part of the sales process, the marketplace facilitator transferred ownership of inventory located in Washington to the taxpayer before the marketplace facilitator delivered the inventory to the taxpayer’s customer. The WA DOR determined the ownership of inventory in the state, even for a brief period of time, is sufficient to create substantial physical presence and thus nexus for B&O tax purposes. This case highlights the necessity to track inventory stored with marketplace facilitators. Holding inventory in a state, even for a brief period of time, is generally sufficient to create nexus with the state.

Fundraising – Effective November 21, 2020, the Washington Department of Revenue amended WAC 458-20-169 to eliminate the expiration date on the use tax exemption for items purchased or received as a prize at a qualifying event. Fundraising sales carried out by nonprofit organizations and libraries may include items as prizes. The current exemption in place excludes the items from the use tax obligation. The exemption cap for 2020 is listed as $12,400 and is calculated each year in December based on the consumer price index for the area.

Prepared Food – The Washington Department of Revenue (WA DOR) published guidance around taxability of prepared food. The WA DOR reminded taxpayers grocery type foods are exempt from retail sales tax however, not all categories of food fall under the grocery category. Soft drinks, prepared food and dietary supplements are all examples of categories which are fully taxable in the state. The WA DOR defines prepared food and beverages which fall into the soft drink category. They also detail whether restaurants are allowed to segregate sales and charge sales tax on the taxable portion only. For more details on prepared food, click here.

Wisconsin

Educational Products – The Wisconsin Department of Revenue provided guidance related to taxability of educational products, goods and services. Sales of tangible and digital books and videos are taxable in the state. However, live in person and live digital online educational services are not taxable. If a taxable and nontaxable product, good or service is sold for a single price, is not itemized on the receipt and the value of the taxable item is more than ten percent of the total sale price, the entire sale should be treated as taxable.

Marketplace Seller – The Wisconsin Department of Revenue (WI DOR) recently issued guidance around sales and use tax liability for marketplace sellers. The WI DOR clarified a marketplace seller is not required to register for sales and use tax purposes if all taxable sales are facilitated by a marketplace provider. The marketplace seller is not liable for sales tax on sales facilitated by a marketplace provider unless the marketplace provider is granted a waiver from collecting the applicable tax or the marketplace provider does not have sufficient information to collect the appropriate amount of tax. The marketplace provider must notify the marketplace seller of the collection and remittance of sales and use tax. Full details around marketplace sellers can be found here.

November 2020 Updates

Indiana

Medical Purchase – The Indiana Department of Revenue issued Information Bulletin #48 identifying sales tax changes to the medical profession. Changes include the following: (1) a licensed practitioner is able to purchase both legend and non-legend drugs exempt from sales tax if consumed in the rendering of their professional service; (2) the exemption for licensed practitioners also applies to health care facilities; and (3) blood glucose monitoring supplies are defined to be supplies furnished without charge.

Maine

Nexus Relief As a result of teleworking due to COVID-19, Maine Revenue Services (MRS) announced they will not consider the presence of one or more employees who commenced working remotely from Maine during the state of emergency and due to the COVID-19 pandemic, to constitute substantial physical presence for sales and use tax registration and collection duty purposes. MRS is also allowing tax relief with regard to other tax types including income tax and withholding tax. The full guidelines can be found here.

Massachusetts

Lodging The Massachusetts Department of Revenue reminded taxpayers short term rental properties are required to be registered through MassTaxConnect. If an individual property will be rented for fourteen days or less in a calendar year, the taxpayer should claim the fourteen day exemption and tax should not be collected on the rental. The exemption must be filed annually. Effective November 1, 2020, renewals can be completed through MassTaxConnect.

Michigan

Leases and Rentals The Michigan Department of Treasury issued Revenue Administrative Bulletin 2020-16 which revised a 2015 bulletin regarding the sales and use tax treatment of tangible personal property acquired for lease or rental and offers potential relief for lessees when the lessor did not charge sales tax on the transaction. This document explains in detail when lessees and lessors are liable for sales and use tax on lease transactions.

Missouri

Sales Tax vs. Vendor Use Tax The Missouri Department of Revenue released a Letter Ruling regarding the online sales of a taxpayer with multiple retail locations in Missouri and an out of state warehouse shipping merchandise related to the online sale. Online sales by the taxpayer, a retail store with multiple retail locations in Missouri and an online sales presence and shipped from the taxpayer's warehouse located outside Missouri are not subject to Missouri state and local sales tax. However, such sales are subject to Missouri state and local vendor use tax. The full text of the Letter Ruling can be found here.

South Carolina

Restitution Payment The South Carolina Administrative Law Court (SC ALC) denied the South Carolina Department of Revenue's (SC DOR) motion to dismiss a contested sales and use tax case. The taxpayer protested a Proposed Notice of Assessment after the deadline and asked the SC DOR to extend the protest period due to COVID-19. The SC DOR refused the protest as untimely and the taxpayer filed a request for a contested case hearing with the SC ALC. Although the taxpayer's protest was untimely, the SC ALC ruled significant restitution was made prior to the assessment being issued. Since these payments should be applied to the sales and use tax liability of the taxpayer, the proposed assessment was not accurate. SC ALC removed the assessment and remanded the matter to the SC DOR to give credit to the taxpayer for the restitution payment and issue a corrected Proposed Notice of Assessment.

Texas

Advertising“Tax Free” Sales The Texas Comptroller of Public Accounts amended a regulation on criminal offenses and penalties related to sales and use tax advertising. The rule provides it is a criminal offense for a seller to state in an advertisement the sales or use tax payable by the customer is not part of the sale price. In addition, a new paragraph is added to provide the conditions under which a seller can indicate in an advertisement when the seller will pay the tax for the customer.

Garage Sales The Texas Comptroller of Public Accounts clarified guidance around garage sales. Individual taxpayers selling items through the internet or other advertisement need to obtain a sales tax permit and collect sales tax unless they qualify for an occasional sales tax exemption. The occasional sales tax exemption is based on number of sales or total value of sales made in a year. Click here for more detail on the occasional sales tax exemption.

Resale Certificate The Texas Comptroller of Public Accounts amended a regulation on sales and use tax resale certificates and sales for resale. The rule includes measures: (1) adding marketplace providers in the definition of "seller" and conforming the definition to the statutes; (2) clarifying a sale for resale includes the sale of tangible personal property or a taxable service acquired for the purpose of transferring it as part of a contract for the sale, other than lease or rental, of tangible personal property with an exempt organization under the tax code; and (3) providing an independent organization certified under the state Utilities Code is not required to collect a resale certificate from a person who purchases electricity solely for the purpose of resale.

Well Site Equipment The Texas Comptroller of Public Accounts issued Memorandum 202009002L providing guidance on the taxability of equipment supplied at a well site to manage flowback and transition an oil or gas well to production after a frac job.

Vermont

Various Updates The Vermont Department of Taxes enacted various updates during their 2020 session. These changes include adjusting the use tax table, effective date of market based sourcing, taxability of paper bag charges to consumers and other updates. For the full detail on all changes, click here.

Virginia

Delinquent Sales and Use Tax Bills The Virginia Department of Taxation (VA DOT) reminded taxpayers to pay unpaid tax bills to avoid accruing additional penalty and interest and to avoid further collection action. The VA DOT acknowledges the economic hardships taxpayers face and encourages those taxpayers who are unable to pay outstanding sales and use tax bills in full to contact the VA DOT to set up a payment plan.

Washington

Construction The Washington Department of Revenue provided industry guidance for contractors engaged in custom construction. The WA DOR clarified contractors renting equipment for construction projects are deemed to be the consumer of the rented equipment and thus owe sales tax to the rental company. The applicable sales tax rate for the rented equipment depends on two factors: (1) whether the contractor picks up the rental equipment at the rental company location or has the rental equipment delivered to the construction location; and (2) whether the rental equipment is paid for in a single or multiple payment option. The complete set of details around custom construction can be found here.

Gratuities The Washington Department of Revenue published information on the tax treatment of gratuities. Voluntary gratuities are exempt from retail sales tax and retail business and occupations tax. Required gratuities are part of the selling price and both retail sales tax and retail business and occupations tax apply to the entire gratuity amount.

Independent Contractor Independent contracts include individuals who work for a business, individual or any other organization and receive a 1099-MISC for the work they completed during the year. The Washington Department of Revenue (WA DOR) confirms these individuals are considered to be engaging in business within the state and are required to register with the WA DOR. The individuals may also owe taxes if their gross income equates to $12,000 or more per year, are required to collect sales tax or are required to pay other taxes or fees to the WA DOR. Small business tax credits are available for the business and occupation tax liability.

Leases and Rentals The Washington Department of Revenue provided industry guidance for auto dealers related to leases and rentals. The guide includes definitions, terminology, specific transaction examples, sales tax rates, brokered lease agreements, trade in agreements, lease options, exemptions and more.

Package Retrieving Business Many Canadian residents order tangible personal property from United State businesses and ship the items to a package receiving business located in Washington. The Canadian resident crosses the border and retrieves the packages to avoid international shipping fees and lengthy wait time at customs. The Washington Department of Revenue reminds Washington businesses these sales do not qualify as export sales. Both retail sales tax and retail business and occupations tax apply to the sale regardless of the Canadian resident taking the tangible personal property back to Canada.

Vehicle License Fees On October 15, 2020, the Washington Supreme Court found Initiative 976 as unconstitutional. Initiative 976 requested a thirty dollar cap on annual motor vehicle license fees. The Court confirmed sellers of motor vehicles should continue to collect the 0.3 percent motor vehicle tax on any sale or lease of a motor vehicle.

West Virginia

Voluntary Disclosure Agreement The West Virginia State Tax Department provided updated guidance related to the voluntary disclosure agreement (VDA) program for taxpayers to report previously unpaid or underpaid taxes. The program provides a taxpayer the opportunity to pay taxes voluntarily with relief from penalties and in some cases interest. Statutory penalties and interest will be waived, except interest on taxes collected and not remitted. For more information on the VDA program, click here.

Wisconsin

Lodging The Wisconsin Department of Revenue provided guidance around lodging marketplace facilitators. Any party who provides a platform offering short term residential lodging and collect consideration from renters must register for a lodging marketplace license. The facilitator must also register for a Wisconsin seller’s permit and begin to collect and remit sales and use tax, both at the state level and applicable local level as well. Lodging facilitators must notify the owner of the short term rental and inform the owner of the collection and remittance of sales and use tax.

Wyoming

Lodging Effective January 1, 2021, all Wyoming lodging vendors should collect the three percent statewide assessment on lodging services. The three percent statewide tax is in addition to any local lodging tax already in place. The Wyoming News Letter provides additional clarification.

October 2020 Updates

STATE UPDATE

Alabama

Natural Disaster Relief – The Alabama Department of Revenue is offering tax relief to taxpayers in jurisdictions designated as disaster areas affected by Hurricane Sally. Due dates for returns originally due between September 15, 2020 and January 15, 2021 are now extended to January 15, 2021. Penalty relief will be provided during the extension period.

California

Natural Disaster Relief – The California Department of Tax and Fee Administration is offering tax relief for taxpayers who have been directly affected by disasters declared as state of emergencies, both within California and nationally. Available relief includes extension of tax return due dates, relief of penalty and interest and replacement copies of records lost. Full guidance around tax relief can be found here.

Connecticut

New Online Portal – The Connecticut Department of Revenue Services created a new online portal called myconneCT to file tax returns, make payments and view filing history. Effective September 21, 2020, businesses are required to use the myconneCT portal to file their Sales and Use, Business Use, Withholding, Room Occupancy, Prepaid Wireless E911 Fee, Admissions and Dues, Tourism Surcharge, Rental Surcharge and Dry Cleaning Surcharge fees and taxes.

Illinois

Marketplace Seller – The Illinois Department of Revenue (IL DOR) adopted a new rule implementing provisions governing collection of use tax by marketplace facilitators for sales made through its marketplace on behalf of marketplace sellers. Effective January 1, 2020 through December 31, 2020, a marketplace facilitator which has either 200 transactions or $100,000 of gross receipts is considered to be the retailer for all sales made through its marketplace on behalf of marketplace sellers, provided the resulting liability for the marketplace seller to be a use tax collection liability. The marketplace facilitator must collect use tax for these sales and remit it to the IL DOR.

Louisiana

Natural Disaster Relief – The Louisiana Department of Revenue is offering tax relief to taxpayers affected by Hurricane Laura. Due dates for returns originally due between August 24, 2020 and November 2, 2020 have been extended to November 30, 2020. Taxpayers who are eligible for these extensions may also request relief for audit and litigation matters.

Mississippi

Third Party Food Delivery – The Mississippi Department of Revenue released Notice 72-20-09 stating effective July 1, 2020, the sale of food made through third party delivery services is no longer included in the definition of a retail sale. Therefore, Mississippi sales tax will no longer be due on the sale of food made through such services where the delivery service allows customers to order food for delivery from a restaurant of the customer’s choice and pay for the food through the delivery service application or website.

Nebraska

Aggregate Production – The Nebraska Supreme Court issued a decision concluding aggregate production qualified for an exemption. Aggregate production incudes extracting raw slurry from a lake and cleaning the slurry to segregate the sand and gravel from the mud, waste and debris resulting in finished sand and gravel aggregate products. Although the activities do not constitute manufacturing, the aggregate production constitutes processing.

Agricultural Machinery and Equipment – The Nebraska Department of Revenue released an Information Guide detailing the qualifications for sales tax exemptions available related to agricultural machinery and equipment.

New Mexico

Retail Food Stores – The New Mexico Taxation and Revenue Department issued Bulletin B-200.34 addressing the application of the gross receipts tax deduction provided to retail food stores when groceries are delivered to a customer location.

North Carolina

Construction – In a recent Private Letter Ruling dated August 20, 2020, the North Carolina Department of Revenue determined sales tax applied to retail sales of items sold to real property contractors even when the items sold to the contractor fulfilled a real property construction contract with the federal government and its agencies.

Ohio

Aircraft Purchase – The Ohio Board of Tax Appeals affirmed the use tax assessment on an aircraft purchase made by a taxpayer because it was not "engaging in business" as required by the resale exemption. The taxpayer did not pay sales or use tax on the original purchase of the aircraft. It leased the aircraft to its owner and the owner's firm. The taxpayer argued the lease of the aircraft should constitute a resale. The Ohio Board of Tax Appeals disagreed for several reasons. In a similar case, a resale exemption for an aircraft purchase, leased to a related entity, was also disallowed. In addition, the taxpayer failed to establish the rentals were "an arm’s length transaction with economic substance" because there was no evidence the rental rate was commercially reasonable. The taxpayer did not market the aircraft to other users, and the aircraft was leased almost exclusively to the company's owner. Consequently, the taxpayer's activities did not exemplify a for profit business, therefore, the taxpayer was not engaging in business as required by the statute.

Internet Services Equipment – The Ohio Department of Taxation released an update around equipment used primarily to provide internet services. Updated guidance allows telecommunications service vendors, mobile telecommunication service vendors and satellite broadcasting service vendors to qualify for an exemption. In order for these vendors to qualify, property must be “used directly and primarily in transmitting, receiving, switching or recording any interactive, one or two way electromagnetic communications, including voice image, data and information, through the use of any medium including, but not limited to, poles, wires, cables, switching equipment, computers and record storage devices and media and component parts for the tangible personal property.” Additional emphasis is placed on “primarily” as such equipment must be used primarily in order to quality for the exemption.

South Dakota

Cellular Late Fees – The South Dakota Department of Revenue recently updated their telecommunication services guidelines to list late fees associated with cellular phones as exempt from both sales tax and wireless gross receipts tax.

Tennessee

Marketplace Seller – The Tennessee Department of Revenue (TN DOR) provided clarification marketplace sellers should contact the TN DOR to request an application for waiver if they have a contractual agreement with a marketplace facilitator whereby the marketplace seller will collect Tennessee sales tax. This is a departure from other states who require a certain course of action rather than an election by the marketplace seller. Taxpayers should continue to monitor each marketplace facilitator laws closely as states have different approaches to which party collects and remits the tax. More information can be found here.

Online Educational Course – The Tennessee Department of Revenue (TN DOR) provided guidance related to taxability of pre-recorded online instructional material. The TN DOR clarified sales of pre-recorded video accessed by subscribers or consumers is taxable as a digital product. Regardless if the video is offered on demand, as a webcast or livestreamed, all methods are taxable. Even if a live instructor is available for questions while the pre-recorded video is viewed, a nontaxable event, the true object of the transaction falls under access to a digital product, which is taxable in Tennessee.

Texas

Educational Tax Free Event – The Texas Comptroller of Public Accounts published guidance around tax free sales for school districts, public schools, qualified exempt private schools and bona fide chapters within a qualifying school. These entities may allow two single day tax free sales or auctions per calendar year. A tax free fundraising event may include selling items such as wrapping paper, gifts, candles, candy or coupon books. For more details on the tax free sale or auction, click here.

Grocery and Convenience Store – Due to the wide variety of items sold at a grocery or convenience store, Texas provided clarification around taxability of items and services provided. Within Texas Publication 96-280, Texas addresses taxability of bakery items, drugs, medicine, dietary supplements, nonfood items and services, including examples of items which fall within these categories. Any taxable items purchased with Supplemental Nutrition Assistance Program benefits are legally exempt from sales tax.

Natural Disaster Relief – Taxpayers affected by state and national natural disasters may claim certain exemptions and temporary filing extensions. The Texas Comptroller of Public Accounts identified the process to request a temporary filing extension, tax exempt services and products such as repair labor, and taxability of items purchased for assistance. The complete set of details around natural disaster relief can be found here.

Services – The Texas Comptroller of Public Accounts recently issued a publication further describing examples of several broad categories of taxable services. Categories include amusement services, cable television services, credit reporting services, data processing services, debt collections services, information services, insurance services, laundry services, motor vehicle parking services, real property services, personal property services, personal services, security services, telecommunication services, telephone answering services, utility services and other labor services.

Washington

Business and Occupations Tax Incentives – Certain taxpayers may qualify for a variety of tax incentives offered by the Washington Department of Revenue. Incentives may include exemptions, reduced Business and Occupations tax rates, credits, as well as tax deferrals. In order to claim a tax incentive, taxpayers are required to file an Annual Tax Performance Report by May 31 of each year. Failure to file the Annual Tax Performance Report may result in a loss of 35 to 50 percent of the incentive claimed. For more details around tax incentives and taxpayers who qualify for these incentives, click here.

Data Centers – The Washington Department of Revenue provided guidance on data center sales and use tax exemptions. Excise Tax Advisory 3221.2020 clarified there are twelve data center exemptions allowed by law dependent on when construction occurs. Eight of the exemptions extend to periods July 1, 2015 to July 1, 2019, while the remaining four exemptions extend to periods July 1, 2019 to July 1, 2025.

Wisconsin

Manufacturing Equipment – The Wisconsin Department of Revenue deemed equipment used to clean production equipment as taxable regardless if the cleaning equipment is required by law in order to produce a final product. The taxpayer manufactures various types of cheese among multiple plants located within Wisconsin. According to food safety laws, cheese production equipment is required to be cleaned regularly. The cleaning cycle runs multiple times a day with a thorough process and all equipment used to complete the cleaning cycle is physically attached to the manufacturing equipment. Although the equipment was essential to manufacture cheese and the process could not be completed without the cleaning equipment, Wisconsin stated the cleaning equipment did not fall under manufacturing equipment. Instead, the equipment should be treated as taxable as it does not cause a physical change to occur with the manufactured product.

September 2020 Updates

STATE UPDATE

California

Diapers and Feminine Products – Effective January 1, 2020 through December 31, 2021, California enacted a sales and use tax exemption for diapers for infants, toddlers and children. California also enacted a sales and use tax exemption for feminine products.

State Holds CEO Liable – The California Office of Tax Appeals (OTA) upheld an assessment against the CEO of an online retailer. The OTA confirmed the original notice of determination totaling close to $270,000 was issued timely within the statute of limitations. Sufficient evidence proves the taxpayer had knowledge of the unpaid liabilities. The OTA confirmed the CEO would be held liable for the outstanding sales and use tax liabilities of the company. A link to the formal opinion can be found here.

Michigan

Breast Pumps – Effective August 1, 2020, the Michigan Department of Treasury updated its streamlined taxability matrix to list the sale of breast pumps, breast pump storage supplies and breast pump kits as taxable.

Nebraska

Utilities – Effective August 16, 2020, Nebraska excludes the following from the definition of gross receipts: gross income received by an electric cooperative, an electric membership association or by a contractor for construction or services provided on electric generation, transmission, distribution, street lighting or facilities owned by the cooperative or electric membership association.

Ohio

CARES Act – The Ohio Department of Taxation updated its frequently asked questions (FAQs) to reflect economic injury disaster loan advance grants authorized by the CARES Act are included in gross receipts for purposes of the Commercial Activity Tax. However, employee retention tax credits authorized by the CARES Act are excluded from gross receipts. The full list of FAQs can be found here.

Pennsylvania

Accelerated Payments – The Pennsylvania Department of Revenue (DOR) is reminding businesses required to make Accelerated Sales Tax (AST) prepayments that they should resume making AST prepayments by July 20, 2020. Previously, the DOR forgave the prepayment requirement during March, April, May and June 2020 in order to provide relief to business taxpayers during the COVID-19 pandemic.

South Carolina

COVID-19 Fees – South Carolina released an Information Letter on August 5, 2020 reminding taxpayers a COVID-19 surcharge or fee is taxable as part of the sales price.

South Dakota

Telecommunications – In August 2020, the South Dakota Department of Revenue issued a fact sheet explaining the application of sales and use tax related to telecommunication and ancillary services. The fact sheet can be found here.

Tennessee

Breast Pumps – Effective August 1, 2020, the Tennessee Department of Revenue updated its streamlined taxability matrix to list the sale of breast pumps, breast pump storage supplies and breast pump kits as taxable unless the items are prescribed by a doctor and paid for directly by Medicaid.

Texas

On Highway Vehicles – In August 2020, the Texas Comptroller published guidance on the application of tax for the sale of motorcycles, autocycles and off highway vehicles based on whether the vehicle is designed for on highway use or off highway use. The full guidance can be found here.

Resale vs. Exemption Certificates – The Texas Comptroller of Public Accounts published the Tax Policy News for August 2020, which includes information on the sales and use taxability of bakery items. The policy also provides information regarding differences between a sales tax resale certificate verse an exemption certificate.

Remote Seller – Remote sellers have collection and reporting obligations if they create economic nexus within the state. A remote seller includes any out of state seller whose sole activity within the state includes shipping products to customers located in Texas. Remote sellers outside of Texas may create economic nexus if they surpass $500,000 in sales. Instructions on how to register as a remote seller, as well as details on local tax that must be collected can be found on the Texas Comptrollers website here.

Voluntary Disclosure Agreement – The Texas Comptroller of Public Accounts provided updated guidance related to the voluntary disclosure agreement (VDA) program for taxpayers to report previously unpaid or underpaid taxes. The program provides taxpayers the opportunity to pay taxes voluntarily with relief from penalties and, in some cases, interest. Statutory penalties and interest will be waived, except interest on taxes collected and not remitted. For more information on the VDA program, click here.

Utah

Electronic Filing – Effective November 1, 2020, the Utah State Tax Commission announced all businesses must file their sales and use tax returns electronically using the Taxpayer Access Point.

Vermont

Breast Pumps – Effective August 1, 2020, the Vermont Department of Taxes updated its streamlined taxability matrix to list the sale of breast pumps, breast pump storage supplies and breast pump kits as taxable.

Virginia

BPOL – The Virginia Circuit Court determined Chesapeake’s business, professional and occupational license (BPOL) tax is a tax on internet access and is preempted by the Internet Tax Freedom Act.

Complimentary Meals – The Virginia Tax Commissioner provided guidance surrounding taxability of complimentary meals served at a restaurant. If a restaurant provides complimentary meals to employees as part of the employee benefit, the meals are exempt from tax under state law. However, if a restaurant provides complimentary meals to employee family members as part of the employee benefit, the meals are considered taxable withdraws from inventory and use tax must be accrued on the cost of the meal. If a customer receives a free meal due to poor quality or visit, use tax must be accrued on the cost of the meal.

Photo Booths – The Virginia Tax Commissioner deemed rentals of photo booths used for entertainment as taxable tangible personal property regardless if the fee is combined with other nontaxable fees, such as a DJ fee. The taxpayer claimed the photo booth fell under the primary objective of entertainment services and should not be considered taxable since the main interest of the contract was to provide entertainment services. The taxpayer felt the photo booth would be considered incidental under this view. Under the true object test, the state confirmed the photo booth would not fall under entertainment services as it was separately stated on the customers contract. Thus, the rental of the photo booth would be taxable.

Washington

Resale Certificates – The Washington Department of Revenue issued guidance related to reseller permits for sales and use tax purposes. Guidance includes details around permit numbers, effective dates, expiration of permits, misuse of the reseller permit, penalties associated with misuse of the reseller permit and steps to follow when receiving a permit from a vendor. For additional guidance on resale certificates, click here.

Wisconsin

Breast Pumps – Effective August 1, 2020, the Wisconsin Department of Revenue updated its streamlined taxability matrix to list the sale of breast pumps, breast pump storage supplies and breast pump kits as taxable unless the items are prescribed by a doctor and paid for directly by Medicaid or Medicare.

Garage Sales and Flea Markets – The Wisconsin Department of Revenue (DOR) provided information on the taxability of garage sales, flea markets, rummage sales and swap meets. The DOR clarified any personal household items sold are not taxable provided the total sales are less than $2,000 for the entire calendar year. If sales are greater than $2,000 in a calendar year, the taxpayer is engaged in business or the taxpayer is required to hold a seller’s permit, sales tax must be included on the sale of taxable products and services. Additional details can be found here.

August 2020 Updates

STATE UPDATE

Alaska

Remote Seller - Additional Alaska localities have adopted the Remote Sellers Sales Tax. The updated list of localities can be found on the Alaska Remote Seller Sales Tax Commission website here. There is currently no statewide sales tax in place in Alaska, however, localities may still impose a local sales tax. Remote sellers outside of Alaska may create economic nexus if they surpass either $100,000 in sales or 200 transactions into the state.

Arkansas

Services - In a recent letter ruling, the State of Arkansas Department of Finance and Administration clarified services of bookkeeping, project management, business analysis, email management, research and customer service are not specifically enumerated services subject to sales tax regardless of whether they are performed virtually or in person.

Georgia

Medical Records - The Georgia Department of Revenue released a letter ruling providing guidance on the application of sales and use tax for charges to maintain and distribute medical records. Charges for medical records delivered in any tangible format are subject to Georgia sales and use tax, while charges for the production of records that are delivered electronically are not subject to sales and use tax. Charges for coding, formatting, data storage and abstraction services are exempt from sales and use tax, however, tangible personal property purchased for use in performing these services are subject to sales and use tax.

Signage - The Georgia Department of Revenue released Letter Ruling SUT-2019-05 providing guidance on the application of sales and use tax for sales of signs and sign installation. This ruling illustrates the difference between a sale of tangible personal property and real property. The Department states "a sign held in place only by the force of gravity remains tangible personal property after installation. A sign that is attached to real property and is intended to remain in place is deemed to be used in performance of a real property contract." If an item remains freestanding after installation, the item will be classified as tangible personal property after being installed on land, building or structure attached to the land. An item which remains tangible personal property includes those held in place only by force of gravity and not otherwise constrained from moving. Further, attaching an item to real property purely for the purpose of preventing theft does not cause the item to lose its identity as tangible personal property.

Leased Equipment - The Georgia Department of Revenue released a letter ruling providing guidance on the application of sales and use tax of leased equipment that is lost in a casualty event. The taxpayers contract stipulates in the event of a total loss, the lessee must pay to the taxpayer/lessor the total amount due under the contract. In exchange for such payment, the lessor will convey all rights, title and interest in the property to the lessee. The taxpayer/lessor must charge tax or absorb the tax on the sales price (i.e., the proceeds received from the customer as part of a loss event).

Iowa

Hospitality - Effective July 1, 2020, Iowa House File 760 increased the number of consecutive days the same person must rent lodging for the sales price to be exempt from state and local hotel and motel taxes. The new law increases the requirement to 90 days of a stay, whereas it was formerly 30 days. The law also creates a sales tax exemption for the sales price of lodging furnished to the guests of an Internal Revenue code (IRC) Section 501(c)(3) nonprofit lodging provider for friends and family of a hospital patient during a time of medical need of the patient with the exempt length of stay based upon the needs of the friends, family or patient.

Indiana

Bundled and Unitary Transactions - In Indiana Informational Bulletin No. ST94, dated June 1, 2020, the Indiana Department of Revenue issued guidance concerning recent updates to bundled and unitary transactions legislation. Indiana sales tax is measured by the “gross retail income” received by a retail merchant in a retail unitary transaction. A person is a retail merchant making a retail transaction when the person sells tangible personal property as part of a bundled transaction. If a transaction involving personal property and services (or some other combination of taxable and nontaxable goods or services) sold for a single price met one of the exceptions, it would not be considered a taxable transaction. If a transaction otherwise meets the definition of a unitary transaction but also meets one of the exceptions to a bundled transaction, it will not be considered a taxable unitary transaction. If a transaction meets the definition of a unitary transaction, also meets the definition of a bundled transaction and does not meet one of the exceptions to a bundled transaction, then the transaction is subject to sales tax as both a bundled transaction and a unitary transaction. A transaction that is a combination of services and tangible personal property and meets the definition of a unitary transaction and does not meet the definition of bundled transaction will still be taxable as a unitary transaction.

Louisiana

Cable Equipment - Effective July 1, 2020, Louisiana provides a sales tax exemption on certain fiber optic cable equipment. A winning bidder that is awarded a census block by the Federal Communications Commission in the Rural Digital Opportunity Fund Auction will be eligible for a rebate of sales and use tax paid by the winning bidder on fiber optic cable equipment used to distribute fixed and mobile broadband networks to eligible rural unserved areas in Louisiana. The rebate amount will be 50 percent of the sales and use tax paid by the winning bidder on fiber optic cable equipment. Each item of fiber optic cable equipment will be eligible for only a single rebate and that subsequent sale or resale of the item will not be eligible for the rebate. The rebate will not be allowed for purchases of fiber optic cable equipment that are paid for with state or federal funds, unless the state or federal funds are reported as taxable income or are structured as repayable loans.

Maine

Various State Updates - Maine Revenue Services issued a tax bulletin on July 14, 2020, which includes a new exclusion of oxygen delivery equipment from retail sales for sales tax purposes. Additional items noted in the bulletin include changes in hospitals taxable years and a new pesticide container fee. An exemption from sales tax for purchases made by nonprofit youth camps, pet food assistance organizations and community-based worldwide charitable organizations. Lastly, the repeal of the payment voucher submission with a health care provider's estimated monthly payment.

Mississippi

Marketplace Facilitator - The Mississippi Marketplace Facilitator Act of 2020 is effective July 1, 2020. The bill defines a marketplace facilitator as any person who facilitates a retail sale by (1) listing or advertising for sale by the retailer in any forum, tangible personal property, services or digital goods that are subject to tax under Mississippi sales tax law and (2) either directly or indirectly, through agreements or arrangements with third parties, collecting payment from the customer and transmitting that payment to the retailer regardless whether the marketplace provider receives compensation or other consideration in exchange for its service. Marketplace facilitators who facilitate sales into Mississippi that exceed $250,000 in any consecutive 12-month period are required to register for a Mississippi use tax account and begin collecting and remitting use tax on Mississippi sales of taxable services, tangible personal property and specified digital products.

Telecommunications - The sales tax exemption of half the sales tax on sales of equipment to telecommunications enterprises that is installed in tier one areas and used in the deployment of broadband technologies was set to expire on July 1, 2020, and has now been extended until July 1, 2025.

North Carolina

Various State Updates - House Bill 1080 in North Carolina provides for several changes. Nonprofit and governmental entities may apply for a state and local sales tax refund for sales tax paid on certain digital property, applicable to purchases made on or after July 1, 2020. In addition, for sales occurring on or after July 1, 2020, the legislation replaces the economic nexus threshold requirement with a requirement that the marketplace facilitator be “engaged in business” in North Carolina. Further, effective June 30, 2020, clarification is provided that a digital code is taxed in the same manner as certain digital property for which the digital code relates. Lastly, for sales occurring on or after July 1, 2020, retailers who are required to remit the state and local sales and use tax to the Department of Revenue must remit the local meals tax on prepared food and beverages to the taxing county or city on and after the effective date of the levy of the local meals tax. To read more about these changes, click here.

South Carolina

Electric Charging Stations - The South Carolina Department of Revenue issued a private letter ruling related to the sale of electricity to a company who owns and operates electric vehicle charging stations. Sales of electricity to the taxpayer by a utility company are classified as wholesale sales and are not subject to sales tax. Sales of electricity by the taxpayer to its customers are classified as retail sales, which are subject to sales tax. Any additional fees associated with the sale, such as idling fees, are included in the tax base and subject to sales tax should the sale be considered a retail sale.

Tennessee

Digital Products - The Tennessee Department of Revenue provided Revenue Ruling #20-03 related to on-hold messaging (OHM), overhead music and videocast programming (VCP) services. The state ruled the OHM and VCP services as taxable as they fell under licensing for specified digital products. The state ruled the overhead music as taxable as it fell under access to specified digital products. All findings were determined based on the fact the taxpayer provided the equipment at no charge to its customers, therefore the taxpayer was determined to be the user and consumer of the equipment.

Economic Nexus - The Tennessee Department of Revenue issued new guidance on the sales threshold required to establish economic nexus within the state. Previously, out-of-state dealers with $500,000 or more in sales to Tennessee crossed the threshold and created economic nexus. Beginning October 1, 2020, the threshold will reduce from $500,000 to $100,000 in sales.

Out of State Dealer FAQs - The Tennessee Department of Revenue provided clarification on frequently asked questions (FAQ’s) related to the sales and use tax obligation by out of state dealers and marketplace facilitators. The various FAQ’s can be found here. Tennessee also issued an additional notice #20-24 for marketplace facilitators with further detail on qualifications, thresholds and requirements.

Virginia

Various State Updates - The Virginia Department of Taxation issued a list of new tax laws taking effect July 1, 2020. Cigarette and tobacco product tax will double from $0.30 to $0.60 per pack. Gun safes with a selling price of $1,500 or less are now exempt from sales tax. The litter tax will double to $20 per business location with an additional $30 for specific sellers. The late payment penalty related to the litter tax is increasing by $100 as well. The complete list of changes can be found here.

Washington

Solar and Renewable Energy - The exemption provided by the Washington Department of Revenue for certain solar and other renewable energy systems has been extended to January 1, 2030. This exemption applies for any qualifying items purchased or installed after January 1, 2020. If a buyer paid tax on these items, they may request a refund directly from the Department of Revenue if they meet certain qualifications. In order to qualify for the exemption the seller must be registered with the Department of Labor and Industries as a contractor, possess a current state unified business identifier number, possess proof of industrial insurance coverage, possess an Employment Security Department number and have no findings of violations of federal or state wage and hour laws and regulations in the past 24 months.

Voluntary Disclose Agreement - The Washington Department of Revenue has temporarily expanded eligibility criteria related to the voluntary disclosure agreement program. This program includes an avenue for both sales and use tax and business and occupation tax. The temporary expansion is valid July 15, 2020 through November 30, 2020. The temporary expanded eligibility includes certain instances where a taxpayer was previously registered with Washington, as well as businesses that may have received some level of enforcement notices in prior years. For more information on the expanded eligibility, click here.

Wyonming

Breast Pumps - Effective August 1, 2020, the Wyoming Department of Revenue updated its streamlined taxability matrix to list the sale of breast pumps, breast pump storage supplies and breast pump kits as taxable.

July 2020 Updates

STATE UPDATE

Arkansas

The Arkansas Department of Finance and Administration issued a letter opinion stating a seller who transacts entirely as a marketplace seller is not required to obtain a sales tax license. Specifically, a marketplace seller in this scenario would not have any sales to report. The marketplace seller “is not required to obtain a gross receipts tax permit or file the sales tax returns that are typically required of taxpayers” who sell tangible personal property in Arkansas. Click here to view the opinion.

District of Columbia

The District of Columbia Office of Tax and Revenue (OTR) has issued a notice regarding the sales tax treatment of restaurant sales of food, drinks or alcohol made through a marketplace facilitator. If a marketplace facilitator takes orders and accepts payment for delivery or pick-up at a restaurant of food, drinks or alcohol, the marketplace facilitator is required to collect sales tax from customers at the proper rate and remit sales tax to the OTR. Marketplace facilitators are required to collect and remit DC sales tax on restaurant sales at the rate of 10% (10.25% for alcoholic beverages to be consumed off premise).

Nevada

The Nevada Department of Taxation announced additional fees attributed to COVID-19 charged by businesses are subject to Nevada sales tax.

Ohio

Effective April 1, 2020, the Ohio Department of Taxation announced sales and use tax exemptions for feminine hygiene products and sales of diapers or incontinence underpads sold by a Medicaid provider for the benefit of a Medicaid recipient with a diagnosis of incontinence and pursuant to a prescription.

South Carolina

Amazon filed its final opening brief with the South Carolina Court of Appeals on June 11, 2020. In relation to the Amazon Services LLC v. South Carolina Department of Revenue case, Amazon asserted it does not sell third-party sellers’ products on its online marketplace, rather it receives compensation only for services provided to the sellers, which are not taxable. Amazon is requesting the Court reverse its decision, arguing that taxing Amazon’s marketplace facilitation service is unconstitutional.

Tennessee

On May 20, 2020, the Tennessee Department of Revenue issued a response to a Frequently Asked Question (FAQ) clarifying a car wash facility that offers both taxable and tax exempt car washes should separately examine the application of sales and use tax to each type of car wash sold and only collect sales tax on the taxable car wash. As noted in Notice 19-12, which provides guidance on the taxability of car washes, a car wash is subject to sales tax if the service provider takes custody of the vehicle at any time or performs the majority of the cleaning activities for the customer. In contrast, a car wash is not subject to sales tax if the customer remains in custody of the vehicle and the majority of the wash and related cleaning activities, such as rinsing, drying, polishing and vacuuming are completed by the customer or automated equipment.

Texas

Telecommunications – Although Texas state law provides that telecommunications services are subject to sales and use tax but are exempt from local taxes, the city, county or transit authorities may vote to impose sales tax on intrastate telecommunications services. Publication 96-339, revised in June 2020, lists all cities, counties, transit authorities and other special purpose districts imposing sales tax on telecommunications services. The updated list can be found here.

Equipment Rentals – In a Texas Private Letter Ruling dated May 5, 2020, the Texas Comptroller of Public Accounts determined the sales and use taxability of charges for equipment rentals and bypass pumping services. Taxpayer deployed pump equipment and accessories for a flat weekly or monthly fee, as well as certified pump operators if requested. Taxpayer also provided trucks, trailers and crews to deliver and temporarily install the equipment at the customers job site. The comptroller determined the charges for equipment, including delivering, installing, dismantling and removing the equipment, were subject to the tax as a rental or lease of tangible personal property when the taxpayer did not provide the pump watch service. However, the charges for the equipment and the service are not subject to tax when the taxpayer provides the pump watch service.

Data Center FAQs – The Texas Comptroller published Qualifying Data Centers Frequently Asked Questions (FAQs) in relation to sales and use tax, including the various qualifications and rules. These FAQs can be found here. Similar to other states, qualifying occupants may also claim the sales and use tax data center exemption, and the certification requirements may be met by including the qualifying occupant’s job creation and capital spend. The certification requirements can be found here.

Washington

Nexus-Creating Activities – The Washington Department of Revenue clarified physical presence is a nexus-creating standard, and even the slightest bit of activity within the state may create physical presence for a taxpayer. The expanded list of nexus-creating activities can be found here.

Feminine Hygiene – As of July 1, 2020, the Washington Department of Revenue declared feminine hygiene products exempt from sales and use tax. Sellers may claim a deduction for feminine hygiene products from their retail sales; however, no correlating deduction is available for the Business and Occupations tax.

Wisconsin

The Wisconsin Department of Revenue issued a list of repeals, amendments and new tax laws taking effect July 1, 2020. Changes include the following:

  • Building materials that become an integral part of a facility for a non-profit or government organization are now exempt.
  • All receipts from a self-service laundry machine are exempt, including coin and credit card- operated machines.
  • Music sold to be played in a jukebox is now exempt.
  • The taxable sales price of heavy trucks and trailers no longer includes the federal excise tax in the tax base.
  • Building materials, supplies or equipment used during the development or construction of a sports or entertainment arena facility are now exempt.
  • Diabetes equipment used to inject insulin qualifies for an exemption so long as the equipment meets the definition of durable medical equipment.

The complete list of changes can be found here.

West Virginia

The West Virginia State Tax Department published general information around sales and use tax exemptions for medical goods. The publication confirmed the “purchases of drugs, durable medical equipment, mobility enhancing equipment and prosthetic devices to be dispensed upon prescription and intended for use in the diagnosis, cure, mitigation, treatment or prevention of injury or disease” are exempt from WV sales and use tax. The tax exemption also applies to the sale and installation of mobility enhancing equipment to be used in vehicles by the physically disabled.

June 2020 Updates

STATE UPDATE
Alabama In a recent Alabama case, the sale of coffee and brewing equipment by a manufacturer was found to be subject to the reduced manufacturing sales and use tax rate of one percent. The products qualified as machinery used to process tangible personal property.
District of Columbia, Georgia, Indiana, Maryland, Massachusetts, Minnesota, Mississippi, New Jersey, North Dakota, Pennsylvania, South Carolina Potential Nexus Relief: Due to the COVID-19 pandemic, many employees are working remotely from their homes instead of working from their respective offices. Given the hopeful temporary nature of this remote environment, certain states have recently published guidance to alleviate concerns for businesses on changes in their Nexus footprint. Further guidance on state specific rules can be found here.
Rhode Island In a recent Rhode Island case, penalties associated with a delinquent prepaid wireless 911 charge, also known as an E911 tax, could not be imposed due to the absence of state statute to support such penalty. The court determined the taxpayer owed the delinquent E911 tax, as well as interest associated with the unpaid taxes. However, the tax division ruled the taxpayer did not owe penalties associated with failure to file or pay the respective E911 tax as there is currently no RI statute to support such penalty for the specified tax.
Tennessee The Tennessee Department of Revenue clarified the taxability of sales, installation and repair of restaurant equipment for sales and use tax purposes. The sale, installation and repair of restaurant equipment is taxable so long as the equipment remains tangible personal property even after installation is complete. Restaurant equipment that is intended to be removable, capable of being easily relocated or used elsewhere should a restaurant relocate is classified as tangible personal property after installation. The sale, installation and repair of restaurant equipment is exempt if the equipment becomes part of realty upon installation. Any parties installing or repairing restaurant equipment that becomes part of realty upon installation must pay sales tax as they purchase property being installed or repair parts.
Virginia
  • In a recent Virginia case, the court determined that the business, professional and occupational license tax was a tax on internet access, which is a violation of the Internet Tax Freedom Act (ITFA). An internet service company sought a refund of tax paid on gross receipts from internet access services. The court ruled in the taxpayer’s favor, noting that this was indeed a tax on gross receipts from providing internet access, which is in violation of the ITFA.
  • Virginia approved a bill to authorize counties to impose admission tax, transient occupancy tax and food and beverage tax, all subject to certain limits. The effective dates vary by county.
Vermont The Vermont Department of Taxes clarified the taxability of common seasonal items. Food purchased from a retail store is exempt from sales and use tax. Ice is not considered food and therefore is taxable, even when the ice is intended to keep food cold or will be incorporated into beverages for sale. Business purchasing ice to be used in beverages, napkins, cups and straws must pay sales tax on those purchases even though they will ultimately be used by the consumer. Propane sold in a free-standing container is taxable, even when the consumer purchases a new container prefilled or exchanges an empty container for a full one. On the other hand, sales tax is not due if the consumer purchases propane to refill its own container.
Washington
  • Related to the COVID-19 pandemic, Washington clarified sales of alcohol used for sanitizing purposes and sold to hospitals, clinics and first responders are subject to both Washington retail sales tax as well as the business and occupations tax. Any sale of alcohol to a free hospital is exempt so long as the free hospital does not charge patients for health care provided. Donations of alcohol are also exempt.
  • The Washington Department of Revenue published guidance for restaurants and similar businesses. Taxpayers are advised that meals sold directly to the American Red Cross or to the U.S. Government are exempt from retail sales tax if supported by proper documentation but are still subject to the retail B&O tax. However, sales made to employees of the American Red Cross or U.S. Government are subject to retail sales tax. In addition, sales to state and local governments, the National Guard and first responders are subject to retail sales tax unless the buyer is reselling the meals and has a reseller permit, in which case the restaurant would be subject to B&O tax under the wholesaling classification. Free meals provided by any restaurant to non- employees are not subject to retail sales tax but use tax must be paid by the restaurant on any soft drinks, beer or wine that is given away. Sales tax on delivered meals should be applied based on where the customer receives the meal. Although uncooked meal kits sold by restaurants are typically subject to sales tax, certain exceptions apply. Washington’s full guidance can be found here.

May 2020 Updates

STATE UPDATE
Alaska As of January 6, 2020, the Alaska Remote Seller Sales Tax Commission approved a uniform Remote Sellers Sales Tax Code, which allows local municipalities in Alaska to require out of state sellers with $100,000 or more in statewide gross sales or 200 or more separate transactions to register to collect and remit local sales tax.
Arizona As of January 1, 2020, businesses with an annual transaction privilege tax or use tax liability of $5,000 or more in Arizona must file and pay returns electronically. The threshold has decreased from $10,000 in 2019. In 2021, the threshold will decrease again to $500. Failure to file electronically will result in a penalty of five percent of the tax due ($25 minimum penalty) and five percent of the payment amount made by cash or check.
Georgia As of April 1, 2020, marketplace facilitators are required to collect and remit sales tax on behalf of third party sellers. A marketplace facilitator is defined as a person who contracts  with a seller for consideration, to make available or facilitate a taxable retail sale on the seller’s behalf by directly or indirectly facilitating the retail sale in any manner. This includes advertising, marketing, promoting, taking orders or providing the physical or electronic infrastructure that brings purchasers and marketplace sellers together and collecting, charging, processing or otherwise facilitating payments for such retail sales on behalf of the marketplace seller.
Hawaii, New Mexico, Ohio, South Dakota, Texas and Wisconsin As of July 1, 2020, internet access fees will be exempt from sales and use tax, as mandated by the Internet Tax Freedom Act.
Idaho As of July 1, 2020, Idaho will exempt certain server equipment and new data center facilities based on certain qualifications. Eligible server equipment includes “new server equipment that is maintained and operated in an Idaho data center for the sole purpose of data transmission and storage services, providing data and transaction processing services, information technology services or computer colocation services. The term includes servers, rack servers, chillers, storage devices, generators, cabling and enabling software integral to or installed on the equipment. In order to qualify for the exemption, the business must make capital investments of at least $250 million in at least one Idaho data center after July 1, 2020, within the first five years after construction begins and create and maintain at least thirty new jobs at the data center within two calendar years after operations begin.”[1]
Louisiana The Louisiana Supreme Court denied local taxing authority from claiming a marketplace facilitator is liable for local sales tax on third party retailer online sales. The court found the online marketplace facilitator did not have an obligation to collect and remit local sales tax from end customers who purchased merchandise available on the online platform via third party retailers.[2]
Maryland Maryland issued an updated list of tangible personal property and services subject to sales and use tax. The complete list can be viewed in the online publication here.
New Jersey As of January 21, 2020, the sale or use of energy utility services to qualified recovered material manufacturing facilities are exempt from sales and use tax in New Jersey if used directly in the production of tangible personal property. Providers must collect and remit the tax and the tax will be refunded to the purchaser after the purchaser files a claim. The exemption applies for seven years and the beginning date must be in calendar year 2020, 2021 or 2022. A recovered material manufacturing facility is a facility that receives service under an electric public utility rate. Applied only to the facility owner on January 1, 2004, manufactures products made from recovered materials, completed a comprehensive energy audit within the past 48 months or within 90 days after January 21, 2020 and employs 250 or more employees in New Jersey effective January 1, 2019.
North Carolina As of February 1, 2020, an auctioneer who meets the definition of a marketplace facilitator must collect and remit sales and use tax on taxable marketplace facilitated sales when the auctioneer meets certain criteria. These criteria include directly or indirectly listing or otherwise making available for sale a marketplace seller’s items through a marketplace owned or operated by the marketplace facilitator. In addition, the auctioneer would collect the sales price or purchase price of a marketplace seller’s items or otherwise process payment or make payment processing services available to purchasers for the sale of a marketplace seller’s items.
South Carolina Based on a recent private letter ruling, the South Carolina Department of Revenue (DOR) deemed online software services associated with managing durable medical equipment taxable. The associated taxpayer provided a cloud based software platform billed as a monthly subscription fee, which tailored to durable medical equipment suppliers, where no transfer of tangible personal property occurred in the transaction. Since the taxpayer provided customers access and use to the software online, the South Carolina DOR deemed the access and use of software to be communication services, which are subject to tax in South Carolina.
South Dakota As of July 1, 2020, a seller now has 120 days post sale to obtain a sales tax exemption certificate or all relevant required information from their customers in order to exclude sales tax from the invoice. Any certificate received after the 120 day mark will not be considered valid  by the South Dakota DOR.
Tennessee As of October 1, 2020, marketplace facilitators are required to collect and remit sales tax on behalf of third party sellers. A marketplace facilitator is defined as a person who contracts  with a seller for consideration, to make available or facilitate a taxable retail sale on the seller’s behalf by directly or indirectly facilitating the retail sale in any manner. This includes advertising, marketing, promoting, taking orders or providing the physical or electronic infrastructure that brings purchasers and marketplace sellers together and collecting, charging, processing or otherwise facilitating payments for such retail sales on behalf of the marketplace seller.
Texas As of April 1, 2020, remote sellers must combine sales made through all mediums with delivery into Texas to determine whether the safe harbor provision applies. This includes sales made via a marketplace facilitator where the marketplace facilitator collected sales tax on behalf of the remote seller.
Washington Related to the COVID-19 pandemic, Washington clarified sales of alcohol used for sanitizing purposes and sold to hospitals, clinics and first responders are subject to both Washington retail sales tax as well as the business and occupations tax. Any sale of alcohol to a free hospital is exempt so long as the free hospital does not charge patients for health care provided. Donations of alcohol are also exempt.

References:
[1] House Bill No. 217, Legislature of the State of Idaho
[2] Normand vs Wal-Mart.com, Case Number: 2019-C-00263

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Matt Brown
Senior Manager, Tax

Michelle Moore
Manager, Tax

Debbie Anderson
Manager, Tax

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