Sales and Use Tax Technical Update

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.

Previous Updates

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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