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The Sales Tax Institute reviews numerous sales tax publications to monitor state activity on various topics related to sales and use tax. A summary of selected, recent news items organized by topic can be obtained by choosing a category listed below.
The available summaries are not intended to represent a comprehensive listing of all law changes, court decisions, and helpful tips but are offered as a source of information of a general nature to aid you in staying current in the dynamic area of sales and use tax. By checking updates routinely, you may be alerted to an impending tax law change critical to your business. The information listed here is high level summary and background material. It omits many details and special rules, and cannot be regarded as legal or tax advice.
For more information, be sure to contact your tax advisor.
Some of the information sources monitored include: CCH State Tax Day, Sales and Use Tax Alert, State Tax Notes, Vertex, Inc. Reference Manuals, Westlaw, and other miscellaneous state tax newsletters and Department of Revenue notices.
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To search all items by keyword or jurisdiction, please visit our news search page.
New Items for July 2008
Delaware Temporarily Increases Gross Receipts Tax Ratesprior percentages. (H.B. 513, Laws 2008, effective as noted above) Effective for taxable periods January 1, 2009 through March 31, 2012, gross receipts tax rates will be temporarily increased. After the effective period, the rates will return to the prior percentages. (H.B. 513, Laws 2008, effective as noted above) (07/08) Louisiana Lowers Direct Payment Threshold A recent Louisiana law enables taxpayers who purchase or lease an annual average of $5 million (previously $15 million) of tangible personal property and taxable services to obtain a Direct Payment Number, enabling them to purchase materials without paying tax to the vendor. To qualify, the taxpayer must have had a $5 million average for the previous three calendar years, and must maintain the average for each subsequent three-year period. In addition, taxpayers who have entered into a tax exemption contract with the Department of Economic Development will be issued a Direct Payment Number for the duration of the contract, which will remove the taxpayer’s responsibility to remit use taxes on exempt purchases when filing monthly sales and use tax returns. (Act 456 (S.B. 445), Laws 2008, effective August 15, 2008) (07/08) Iowa Increases State Sales Tax Rate to 6% Effective July 1, 2008, the state sales and use tax rate will increase from 5% to 6%, and the School Local Option Sales Tax (SILO) will cease to exist as a separate tax. These changes will be represented on the July-September quarterly tax return due in October. The additional 1% replaces SILO, and will continue to be apportioned to school districts and used for property tax relief. Because of this, businesses will continue to report sales by county to provide for correct distribution to school districts. The state rate for hotel and motel lodging, certain construction equipment, and the short-term auto rental tax will remain at 5%. (Notice, Iowa Department of Revenue, June10, 2008) (07/08) Seller Who Relied on Invalid Tax Certificate Not Liable in Alabama An Alabama court determined that a taxpayer who relied on an invalid Uniform Multi-Jurisdiction Sales and Use Tax Certificate and sold repair parts tax-free to a service contractor was not subject to Alabama use tax on the sales because the taxpayer knew the contractor was in the business of reselling repair parts to its service customers. Therefore, a seller who acts in good faith and reasonably believes a tax-exempt purchase is legal is not liable for sales or use tax later determined to be due on a sale for which the purchaser provides an exemption certificate (Coca-Cola Co. d/b/a The Minute Maid Co. v. Alabama Department of Revenue, Alabama Department of Revenue, Administrative Law Division, No. S. 06-1261, August 29, 2007) (06/08) Canada GST/HST Rate Reduction in 2008 Effective January 1, 2008, the GST rate and the federal component of the HST rate was reduced from 6% to 5%. The provincial component of the HST will remain at 8%. This means that the rate of HST is reduced from 14% to 13%. The HST applies to purchases made in or imported into New Brunswick, Nova Scotia, and Newfoundland and Labrador (the participating provinces). The GST does not apply to basic groceries, most medical services and devices, prescription drugs, residential rents and exports. (Canada Revenue Agency, Notice 226 - Proposed GST/HST Rate Reduction in 2008) (04/08) Vermont Proposes To Withdraw From SST Agreement & Reduce Tax Rate Legislation introduced in the Vermont House of Representatives, H.B. 564, on January 8, 2008, proposes to withdraw the state from the Streamlined Sales Tax Agreement, effective January 1, 2009. Vermont became a full member on January 1, 2007. In addition, the bill also proposes to repeal most sales and use tax exemptions, including the repeal of food exemption, extend the sales tax to services and groceries, exempt items priced at $10.00 or less, lower the rate from 6% to 1%, and require a supermajority vote to increase the rate. (H.B. 564, as introduced in the Vermont House of Representatives on January 8, 2008) (04/08) North Carolina Combined General Rate Increased Effective April 1, 2008, the combined general rate of North Carolina sales and use tax is increased from 6.75% to 7%. The combined general rate (to include county rates) applies to the gross receipts derived from providing telecommunications service, ancillary service, and video programming and to sales of spirituous liquor other than mixed beverages. Legislation provides that for an increase in the authorization for North Carolina local sales and use taxes, the effective date of a rate change for an item taxed at the combined general rate is the date on which local sales and use taxes authorized for every county become effective in the first county or group of counties to levy the authorized taxes. The increased rate applies to sales in all North Carolina counties and is not limited to such sales in only those counties that adopted the additional 0.25% local tax. (Important Notice: Increase in Combined General Rate of Tax, North Carolina Department of Revenue, February 2008) (03/08) Indiana Sales and Use Tax Rate Increased to 7% Governor Mitch Daniels signed HB 1001 which will increase the state sales and use tax rate from 6% to 7%, effective April 1, 2008. In addition, other provisions added to the new legislation include caps on the following: homeowners’ property tax bills at 1.5% of their assessed value in 2009 and 1% in 2010 then thereafter. The plan would cap rental and agricultural property at 2.5% in 2009 and 2% in 2010 and business property at 3.5% in 2009 and 3% in 2010. (H.B. 1001, Laws 2008, Indiana General Assembly, March 14, 2008) (03/08) Maryland Sales and Use Tax increased to 6% Governor O’Malley signed HB 5 which will increase the state sales and use tax from 5% to 6%, effective January 3, 2008. In addition, other provisions added to the new legislation include: tax holiday provisions, taxes to vending machines sales, admission and amusement tax, and a rate increase exemption for contractors and builders. (H.B. 5, Laws 2007, Maryland Governor's Office, November 19, 2007 (01/08) 2008 Tax Holidays See attached link for chart:
Click here (06/08) Inserts Sold as Components of Newspapers Not Taxable in Florida According to Florida Statute Section 212.08(7)(W), inserts sold as a component of newspapers are not subject to sales tax. To satisfy the requirements, the inserts must be printed by the publisher as part of the newspaper or delivered directly to the publisher by any other printer for inclusion in a distributed newspaper and labeled as part of the designated newspaper to which they were inserted. (Technical Assistance Advisement, No. 07A-033, Florida Department of Revenue, October 5, 2007)
(01/08) Internet Advertising Fees Not Taxable in Missouri Monthly fees paid for advertising services are not subject to Missouri sales or use tax. While the state imposes tax on the sale, storage, use or consumption of any article of tangible personal property and certain enumerated services, sales of advertising by legal newspapers, advertising agencies, broadcast stations, and standardized outdoor billboard advertising are considered services and such services are not specifically enumerated as taxable. (Letter Ruling No. LR3995, Missouri Department of Revenue, August 16, 2007, released October 19, 2007) (01/08) Direct Mail Exception Offered in Kansas Effective July 1, 2007, charges for delivery of direct mail are not subject to Kansas sales or compensating use tax when the delivery charge is separately-stated on the invoice. “Direct mail” means printed material delivered or distributed by United States mail or other delivery services to a mass audience or to addressees on a mailing list provided by the purchaser at the direction of the purchaser when the cost of the items are not billed directly to the recipients. This legislative change is an exception to the general rule that requires sales/compensating use tax to be paid on delivery charges. (Notice 07-06, Kansas Department of Revenue) (01/08) Illinois Appellate Court Upholds the Tax Amnesty Act’s Retroactive Double Penalties and Interest The Illinois Appellate Court has agreed with the Department of Revenue and the Circuit Court by upholding a prior decision to subject eligible delinquent taxpayers who did not pay all outstanding taxes during the amnesty period to penalties and interest at twice the statutory rate. A taxpayer subject to the double penalties and interest challenged the Amnesty Act by alleging that it violated the Illinois Statute on Statutes and the Uniformity clauses of the Illinois Constitution. The Appellate Court determined that the Act did not violate the Uniformity Clause because it drew a real and substantial difference between those who paid their liabilities during the amnesty period and, as a result received a waiver of penalties and interest, and those who did not and, thus, were subject to double penalties and interest. Further, the Court found that the Statute on Statutes was not violated because the imposition of double penalties and interest was not truly retroactive but, rather, applied prospective by reason of neglecting to take advantage of the amnesty window. (Advanced On-Site Concrete, Inc. v. Illinois Department of Revenue, No. 1-06-3426, May 22, 2008) (06/08) Nevada Tax Amnesty Program Approved Governor Jim Gibbon’s tax amnesty proposal has been unanimously approved by the Nevada Tax Commission. Effective July 1, 2008 through September 30, 2008, the program will apply to sales and use tax, modified business tax and business license fees. Taxpayers will have the opportunity to pay taxes they owe to the state without penalties or interest. The Governor is scheduled to sign the emergency regulation later this month. (Press Release, Office of the Governor, June 2, 2008) (06/08) Virginia Sales of Software to Manufacturers Deemed Taxable In a recent Ruling, Virginia sales of computer software to a manufacturer were considered taxable and did not qualify for the manufacturing exemption. The software was used by the manufacturer as an administrative tool to collect and analyze production data in order to reach optimal performance. This administrative use did not qualify for the manufacturing exemption and the taxpayer failed to provide evidence that the software was used to direct or control production line and/or quality control operations. (Ruling of Commissioner, P.D. 07-202, Virginia Department of Taxation) (03/08) Maryland Taxes Computer Services, Then Repeals It The Tax Reform Act of 2007 was signed Maryland Governor Martin O’Malley on November 19, 2007. As a result, the definition of “taxable services” under the sales and use tax law had been altered to include certain computer services. “Computer services” includes such transactions as custom computer programming, data processing, computer disaster recovery, and hardware or software installation, maintenance or repair. The definition does not include charges for computer training. The provisions under the new legislation were set to become effective July 1, 2008. UPDATE: Before the law change had a chance to take effect, however, legislation to repeal the taxation of computer services was passed in a special session and signed by the governor on April 8, 2008. (S.B. 46, Laws 2008) (04/08) Load and Leave Software Reclassified in Arkansas In a recent law change, Arkansas has altered their definition of computer software to explicitly exclude “load and leave” software delivery. The new definition of “computer software” now states that “computer software does not include software delivered electronically or by load and leave.” Load and leave is defined as delivery “by use of a tangible storage media in which the tangible storage media is not physically transferred to the purchaser.” (Arkansas Sec. 24-52-304, Effective January 1, 2008) (04/08) California Court Rules on Computer Service Contracts The California Court of Appeals concluded that optional computer service contracts sold with computers for a single lump-sum price were not subject to California sales and use taxes. These mixed transactions were bundled in which goods and services are inextricably intertwined in a single sale. While the computers and service contracts are sold together for an aggregate price, they are distinct consumer items and each is a significant object of the transaction. The service contracts have readily ascertainable values, even without itemized invoices. In addition, there is no state statute or regulation that requires service contract charges to be separately stated on an invoice in order to avoid taxation. The appellate court held that it was proper to tax the computer (i.e., the tangible personal property) but not the service contract (i.e., the service or intangible property). (Dell, Inc. v The Superior Court of the City and County of San Francisco, California Court of Appeal, First Appellate District, No A118657) (04/08) Kansas Taxability of Computer and Internet-Related Products & Services Discussed The Kansas Department of Revenue issued an Information Guide detailing guidelines on the application of sales and use tax on charges for computer and internet-related products and services. The sale or use of computer hardware is treated as tangible personal property subject to tax. Moreover, Kansas taxes the services of installing, applying, altering, repairing, servicing, or maintaining tangible personal property. Sales of canned (prewritten) computer software” are also taxable, including charges for modifying, altering, updating, or maintaining prewritten software. However, charges for separately-stated software modification services are not subject to tax. Mandatory maintenance agreements for prewritten software are taxable, but optional maintenance agreements for prewritten software are exempt when charges for technical support services are separately-stated or when the agreement is only for technical support services. Maintenance agreements for custom software are also exempt. Destination-based sourcing applies to sales of prewritten software, software maintenance agreements, and computer hardware. Additional rules and regulations apply. (Information Guide No. EDU-71, Kansas Department of Revenue, February 15, 2008) (03/08) Florida Customized Software Taxable If Sold with Hardware A contract for the sales/lease of customized software together with hardware to implement the software licensed by a software provider to a Florida client was subject to sales tax because the software was sold in conjunction with tangible personal property. If the customized software had been sold separately, it would not have been subject to sales tax. However, the contract between the taxpayer and its client was taxable because the contract stated that the hardware was provided to implement the software and, as such, the software would not be usable by the Client without the tangible personal property. In addition, the taxability of any associated warranty contract follows the taxability of the underlying product – taxable in this situation since the software was bundled with the hardware. (Technical Assistance Advisement, No. 07A-040, Florida Department of Revenue) (03/08) South Dakota Products Transferred Electronically Subject to Tax Effective July 1, 2008, South Dakota revised provisions apply sales and use tax to all sales, leases, or rentals of any product transferred electronically if (1) the sale is to an end user, (2) the sale is to a person who is not an end user, unless otherwise exempted, (3) the seller grants the right of permanent or less than permanent use of the products, or (4) the sale is conditioned or not conditioned upon continued payment. (2008 SD H 1017, Enacted, February 20, 2008). (03/08) Missouri Computer Software Taxability Discussed In response to a taxpayer’s inquiry, the Missouri Department of Revenue issued a private letter ruling detailing the taxability of various computer software charges. The taxpayer’s (an out-of-state corporation) sales of canned computer software were subject to Missouri sales or use tax. The ruling differentiated between the applicability of use tax versus sales tax. Sales of canned software are subject to use tax if the order is taken and approved outside Missouri and the software is shipped by common carrier to clients in Missouri, whereas if the order is taken and approved in Missouri or delivered by the seller in Missouri, the sale is subject to sales tax. The ruling also explained that sales of customized software are exempt from sales or use tax. However, charges for custom work on canned software which the taxpayer purchased and installed for the client are subject to sales or use tax if the custom work makes the software compatible with the customer’s equipment. (Letter Ruling No. LR3759, Missouri Department of Revenue) (01/08) Idaho Amends Rules on Optional Software Maintenance Contracts Specifically, the Rule states that if the maintenance contract is optional to the purchaser of canned software, then the portion of the contract fee representing upgrades or new software is subject to sales tax if the fees are separately-stated. If the fees are not separately-stated, 50% of the charge for the maintenance contract is subject to sales tax. The gross sales price for maintenance contracts required as a condition of the sale, lease, or rental of canned software, continue to be subject to tax whether or not the charge for the maintenance contract is separately- stated from the charge for software. Additional rules and regulations apply. (Rule 35.01.02.027, Idaho State Tax Commission, effective March 30, 2007 (01/08) Licensing of Software Source Codes and Specifications Exempt in Texas In a decision hearing, the Texas Comptroller of Public Accounts found that charges for a license or software specifications to a customer in Nebraska were not subject to tax. A Texas transaction processing company shipped a CD containing electronic communication specifications to a customer located in Nebraska. The Comptroller found that the license was for specifications and codes that would allow the purchasing company to interface with the taxpayer’s system and allow the two parties to securely transmit data between them. The Comptroller ruled that the transaction was not the sale of a computer program, but a non-taxable license. (Texas Decision Hearing No. 45,878, December 20, 2006) (01/08) Idaho Issues Advice for Contractors Effective October 1, 2008, the Tax Commission will no longer allow contractors to substitute sales tax charged to the customer on improvements to real property for the tax owed on the purchase of building materials. Since jobs such as laying carpet, installing windows, doors, wallboard, built-in appliances and furnaces are not retail sales of goods, the contractor should not charge sales tax to its customers or purchase materials tax exempt. Instead, the contractor should pay sales or use tax when it purchases materials, and charge customers a total price that includes all costs of doing business, including sales tax paid. (News, Idaho State Tax Commission, June 2008) (07/08) Vermont Taxes Warehouse Racking Systems In a Formal Ruling by the Vermont Department of Taxes, specially designed warehouse racking systems were found to be subject to Vermont sales and use tax. In this circumstance, a racking system was designed and manufactured by an out-of-state company and then installed in a Vermont warehouse by an installation company. The state found that the installer was a contractor making improvements to real property and the installer was subject to use tax on the basis of the materials used to make the racking system. (Vermont Formal Ruling 2007-02, March 5, 2007) (04/08) Kansas Construction That Alters Building’s Use Is Subject to Tax Construction services performed on a warehouse to alter its use were subject to tax, according to a Letter Ruling released by the Kansas Department of Revenue. A contractor was hired to perform work on a space that was formerly used as a warehouse. The contractor was directed to install new walls, flooring and ceilings in the space in such a manner that it would alter the use of the building. The state found that these services did not qualify as “original construction” under Kansas law and the contractor performing the services should charge tax on its labor and services when it bills the owner of the building. (Kansas Private Letter Ruling No. P-2007-003, April 5, 2007) (04/08) Labor and Materials Used in Real Property Improvements Taxable to Contractor, Not Owner in Missouri The Missouri Director of Revenue has issued a letter ruling to a taxpayer in regards to charges for labor and materials used in improving real property. The Director stated that when materials were integrated into real property, they were no longer considered to be tangible personal property and were not subject to tax. The contractor performing the work is considered to be the final user and consumer of the materials used in the improvements and is responsible for paying appropriate sales and use tax on the items used in the fulfillment of the real-property improvement contract. (Missouri Letter Ruling No. LR3685, March 12, 2007) (04/08) Virginia Alters Treatment for Landscaping and Real Property Contractors Virginia has changed its treatment of landscaping contractors. Previously, these contractors were viewed as retailers of the course of their business and collected sales tax from the purchasers of these items at the time of sale. Under the Virginia Tax Commissioner’s changes, landscaping contractors are now viewed as providers of real property services. Landscaping contractors are now responsible for the sales and use tax on their purchases of items such as trees, sod, silt, shrubbery or other items that become real property upon installation. (Virginia Ruling of the Commissioner, P.D. 07-171, 11/07/2007) (04/08) Florida: Supplies and Materials in Real Property Improvement Contract Taxable The Florida Department of Revenue issued a Technical Assistance Advisement indicating that a taxpayer engaged in a lump sum real property improvement contract is considered the ultimate user of the tangible personal property used in completing the contract and is liable for Florida use tax on the cost of supplies and materials used for the contract. Furthermore, the freight, delivery and start-up charges included on an invoice for the sale of tangible personal property are taxable because the taxable sales price is the total amount paid including any services that are a part of the sale. (Technical Assistance Advisement, No. 07A-035, Florida Department of Revenue) (03/08) Installation of Door Locks are Florida Real Property Improvements The Florida Department of Revenue has issued a Technical Assistance Advisement clarifying that the replacement and re-keying of door locks are properly classified as improvements to real property for sales and use tax purposes. An invoice that separately states the items and services purchased as well as the tax constitutes a time and materials contract. Sales tax should not be charged as a separate line item in any amount on the contract. Instead, the contractor should have accrued tax on its purchases of the materials that it used and installed in the performance of the contract. The tax should have been included in the contract price, rather than separately-stated. (Technical Assistance Advisement, No. 07A-045, Florida Department of Revenue) (03/08) Contractor Labor Now Exempt in Nebraska The Nebraska Department of Revenue recently mailed a notice to nearly 6,500 contractors, building and trade associations, and others involved in the construction industry, explaining the sales and use tax changes relating to contractor labor. Effective October 1, 2007, the following changes will be in effect: 1) contractor labor charges that are separately stated on the billing invoice will not be taxable, 2) contractor labor charges will not be taxable, and 3) the sale of warranties, guarantees, and service agreements that only cover the repair of buildings or fixtures such as hot water heaters, garbage disposals, and central heating and air conditioning units, will not be taxable. (Release, Nebraska Department of Revenue) (03/08) Mississippi Amends Regulation Concerning Concrete and Asphalt Purchases by Contractors The Mississippi sales and use tax regulation concerning construction contractors has been amended to reflect that any individual with a valid sales tax number who is buying concrete or asphalt to use in the performance of a taxable service is considered the consumer and must pay tax to the vendor at the time of purchase. Additionally, any individual purchasing or producing concrete or asphalt outside the state of Mississippi for delivery and use in the state is required to remit use tax on the purchase price of the products. (Sales Tax Regulation 41, Mississippi State Tax Commission, effective June 1, 2007) (01/08) Illinois Offers Credit for Eligible Purchases of Production-Related Tangible Personal Property Beginning on July 1, 2007 and ending on June 30, 2008, the purchase of eligible production-related tangible personal property is eligible for a manufacturing and assembling machinery and equipment exemption in Illinois. Eligible purchases made within the stated period are entitled to a credit memorandum equal to 5% of the purchase price, with an aggregate maximum award to all taxpayers of $10,000,000.
To qualify, the tangible personal property must be used or consumed in a production- related process by a manufacturer in a manufacturing facility. Eligible purchases include property that is purchased for incorporation into real estate within a manufacturing facility or used in activities such as research and development, preproduction, material handling, receiving, quality or inventory control, storage, staging, or packaging for shipping and transportation. Tangible personal property that transferred to a customer, registered or titled with a government agency, or used in sales, purchasing, accounting, fiscal management, marketing, personnel recruitment or selection, or landscaping does not qualify. Purchases otherwise eligible for the manufacturing and assembling machinery and equipment exemption are not eligible for a credit memorandum, nor can purchases earn a Manufacturer’s Purchase Credit if a credit memorandum is received.
A Production Related Tangible Personal Property Exemption Report must be filed no later than September 1, 2008. The Report must state the total purchase price of all production-related tangible personal property purchased within the period and the amount of the exemption claimed. In addition, purchasers must maintain records identifying the vendor or supplier, date of purchase, purchase price, and description of the property. If the Department does not approve the full amount claimed, it will notify the taxpayer and explain the basis for its decision. The taxpayer has 30 days after the date of the notice to submit a corrected Exemption Report or provide evidence that the original Report is correct. If the taxpayer does not respond to the notice, or if the Department does not agree with the revised amount, the Exemption Report will be approved only for the amount the Department initially determined eligible. If the aggregate amount of claims exceeds $10,000,000, the Department shall reduce the amount of each taxpayer’s credit on a pro rata basis. If this occurs, the Department will notify each purchaser within 30 days of its final decision that the Report was approved and the pro rata amount of the exemption claimed was allowed. (Title 86, Part 150, Section 150.340, Illinois Department of Revenue)
(07/08) IL Regulation Amended on Medicines and Medical Appliances Effective September 21, 2007, the Illinois Department of Revenue has amended the regulation on the Illinois retailers’ occupation (sales) and use tax treatment of medicines and medical appliances to clarify that the low rate of tax applies only to medicines and medical appliance for human use. The regulation now defines a medicine or drug as “any pill, powder, potion, salve, or other preparation intended for human use (previously, intended by the manufacturer for human use) that purports on the label to have medicinal qualities”. Furthermore, a medical appliance is now defined as an item that is intended by its manufacturer for use in directly substituting for a malfunctioning part of the human body (previously, the body). Although, human medicines and medical appliances are taxed at a low rate, medicines prescribed by veterinarians for animals are still subject to the high rate of tax. (86 III. Adm. Code Sec. 130.310, Illinois Department of Revenue) (01/08) President Bush Signs Continuation of Ban on Internet Access Tax On October 31, 2007, President Bush signed into law a seven-year extension of the moratorium on state and local taxes on internet access. The measure will amend the Internet Tax Freedom Act Amendments Act of 2007, includes a new definition of “internet access” which means a service that enables users to connect to the Internet to access content, information, or other services. The grandfather clause that permits Internet access taxes that were generally imposed and actually enforced prior to October 1, 1998, is also extended until November 1, 2014. However, the grandfather clause will not apply to any state that has, more than 24 months prior to the enactment of this legislation, repealed its tax on Internet access or issued a rule that it no longer applies such a tax. [H.R. 3678, as agreed to by the U.S. House of Representatives, October 30, 2007] (03/08) Cranes With Operators Constitute an Exempt Service in Florida A Technical Assistance Advisement was issued by the Florida Department of Revenue clarifying that when a Florida taxpayer provides a crane to a customer on an operated and maintained basis, a lifting service is being provided and control of the crane is never transferred to the customer. The operation of a crane is a dangerous activity and an operator/employee cannot shift the control or operation to its customers. The customer has no right or authority to even enter the crane cab and the operators are solely responsible for the operation and safety of the crane. Therefore, the rental of a crane with an operator is a non-taxable service. An indemnity clause in the service contract stated that the equipment and operator were under the lessee’s exclusive supervision and control did not change the character of the contract from a service to a lease or transfer control of the crane to the lessee for sale and use tax purposes. Since the crane company was using the cranes to perform a nontaxable service, a use tax would be due from the crane company on its purchase or lease of the cranes. This ruling revises a Technical Assistance Advisement issued in 1995. (Technical Assistance Advisement, No. 95A-0220R, Florida Department of Revenue, October 25, 2007) (03/08) Tennessee Leases & Rental Change Discussed Effective January 1, 2008, Tennessee has amended the definition of a lease or rental for sales and use tax purpose in accordance with requirements under the Streamlined Sales and Use Tax Agreement. The amended definition does not include transfers of property under an agreement that requires the transfer of title upon completion of all payments and the payment of an option price that does not exceed the greater of $100 or 1% of the total payments. The new definition applies to leases entered into on or after January 1, 2008, and will have no impact on existing leases or rentals. The prior definition applies to options to purchase or extend included in agreements entered into prior to January 1, 2008. (Important Notice No. 07-15, Tennessee Department of Revenue) (03/08) Missouri Exempts Dealership on Loaner Vehicles The Missouri Administrative Hearing Commission concluded that a Missouri car dealership was not liable for sales tax on loaner vehicles that it provided to its customers. Since the car dealership never owned or leased the loaner vehicles, there was no basis on which to charge sales tax. The loaner vehicles were provided pursuant to rental agreements between the customers and a separate rental company. The taxpayer’s argument, that it leased the loaner vehicles in order for them to be re-leased to its customers, and therefore, not subject to tax, was rejected. However, in this case, there was only one lease transaction and in order for the resale exemption to apply, a “sale” and a subsequent “resale,” is required. The lease agreement was between the rental company and the customer. Therefore, the taxpayer was not liable for sales tax. (Major Cadillac Co., Inc. v. Director of Revenue, Missouri Administrative Hearing Commission, No. 04-1521 RS, December 6, 2007) (03/08) Louisiana Leases or Rentals of Pallets Exempt Effective July 1, 2008, A Louisiana state and local sales and use tax exclusion has been enacted for the lease or rental of pallets used in packaging products produced by a manufacturer. In addition, the term “manufacturer”, for the purposes of the exclusion, has been defined as a person whose primary activity is manufacturing and who is assigned by the Louisiana Department of Labor a North American Industrial Classification System (NAICS) code within manufacturing sectors 31-33 as they existed in 2002. (Act 419, H.B. 916, Laws 2007) (03/08) Texas Proposed Lease of Aircraft Subject to Tax An aircraft owner’s proposed agreement to lease its aircraft to an air carrier to provide flight services to the owner and third parties was not exempt as an operating lease by the Texas Comptroller of Public Accounts. The agreement does not give exclusive control and possession of the aircraft to the lessee over the life of the agreement since the agreement permits the owner to take operational control of the aircraft during owner flights. Furthermore, during these flights the owner hires and pays the flight crews as independent contractors and agents, and thus the aircraft would be under the operational control and possession of the owner at times during the agreed contract period. Absent a valid (exempt) operating lease, the owner would be liable for use tax in the event the aircraft is brought into the state within one year of the aircraft’s purchase. Use tax would be based on the price originally paid for the aircraft. (Letter No. 200702945L, Texas Comptroller of Public Accounts) (01/08) Mississippi Defines the Term “Hotel” for Sales Tax Purposes Recently, Mississippi defined the term “hotel” for sales tax purposes to mean any entity or individual engaged in the business of furnishing or providing one or more rooms intended or designed for dwelling, lodging, or sleeping purposes to accommodate transient guests. This includes any building that is used, maintained, or advertised as a place for temporary guests to use as a sleeping accommodation. (H.B. 1248, Laws 2007, effective April 18, 2007) (01/08) Georgia Amends Manufacturing Exemption Language Effective January 1, 2009, Georgia has expanded its manufacturing sales and use tax exemption to include all machinery, equipment, and replacement parts which are “necessary and integral to” the manufacture of tangible personal property. Previously, eligible items had to be “used directly in” the manufacturing process to qualify for the exemption. As before, the purchase must replace or upgrade existing machinery or equipment, or be used as additional machinery or equipment for the first time in a manufacturing plant presently located in Georgia in order to qualify. (H.B. 237, Laws 2008, Effective January 1, 2009) (07/08) Missouri Determines Priming Service Included in Steel Fabrication Taxable According to a recent Missouri Letter Ruling, a steel fabricator who primes residential steel products prior to sale must collect sales tax on the entire selling price, even if the priming service is stated separately from the fabrication process on the invoice. However, the priming service is not taxable if a customer brings in its own steel product and requests that the fabricator prime it. When the priming is part of a transaction whose true object is the purchase of tangible personal property, the entire transaction is taxable. However, when the customer provides its own steel, the fabricator is merely providing a service and therefore does not need to collect tax. (Letter Ruling No. LR4781, Missouri Department of Revenue, May 14, 2008) (07/08) Missouri Includes Some Paper, Toner, and Ink in Manufacturing Tax Exemption A Missouri Letter Ruling determined that a metal fabrication and precision machining firm’s purchases of printing supplies that are directly used in the firm’s manufacturing process are included in the exemption from state sales and use tax and local use tax for “machinery, equipment, and materials used or consumed in the manufacturing process”. Examples of exempt purchases are paper, toner, and ink cartridges used for route sheets, prints, packing slips, jobs on floor, and manuals. Supplies used in the firm’s accounting office, or those used in printing payroll, purchase orders, shipping reports, quotes, and shipping list speedline are not directly used in the manufacturing process, and therefore are not exempt. All purchases are still subject to local sales tax. (Letter Ruling No. LR4744, Missouri Department of Revenue, May 14, 2008) (07/08) Illinois Manufacturing Machinery and Equipment Regulation Updated An Illinois sales and use tax statute has been amended to include production-related tangible personal property in an exemption covering manufacturing and assembling machinery and equipment. The emergency amendment applies to property purchased on or after July 1, 2007, and on or before June 30, 2008 (Title 86 Part 130 Section 130.330, Illinois Department of Revenue) (06/08) Georgia Enacts Temporary Fuel and Electricity Exemption for Manufacturers Georgia has enacted a temporary, partial exemption from state sales and use tax with respect to the sale or use of natural or artificial gas, certain fuel oil, propane, petroleum coke, and coal used directly or indirectly in the manufacture or processing of tangible personal property primarily for resale. The exemption also applies to the fuel cost recovery component of retail electric rates used directly or indirectly in the manufacture or processing of tangible personal property primarily for resale. To be eligible, the manufacturing or processing must occur in a manufacturing plant located in Georgia, and an exemption certificate must be used. The exemption begins July 1, 2008 and ends December 10, 2010. (H.B. 272, Laws 2008, Enacted May 14, 2008) (06/08) Returnable Pallets Taxable in Minnesota The Minnesota Department of Revenue issued a Revenue Notice concerning the taxability of returnable skids and pallets used for the storage and transport of food and beverage products. The Department ruled that skids and pallets are used primarily for storage and transport and not, necessarily, in the industrial production process. As they are not used in the production process and don’t qualify as packaging, they are subject to tax at the time of purchase. (Minnesota Revenue Notice No. 07-03, March 19, 2007)
(04/08) Florida Exemption Qualify for Replacement Industrial Machinery and Equipment Replacement industrial machinery and equipment qualify for a Florida sales and use tax exemption as repairs, with the exception of the electrical substation (owned by a local utility company). The production of steel is an integrated process beginning with the melting of scrap steel and concluding with the coiling or bundling of the finished steel products. There are no breaks in the production process once the melting of the scrap steel has commenced. In addition, the exemption applies to replacement industrial machinery and equipment for the steel manufacturing process and constitutes repairs under the provisions of Section 212.08(7) (xx).(Technical Assistance Advisement, No 07A-030, Florida Department of Revenue). (03/08) Carbon Dioxide Used in Alabama Chicken Processing Plant Taxable Alabama sales tax was due on carbon dioxide used in a chicken processing plant to cool the chicken immediately after it was cooked, so that it could be efficiently cut into pieces. Despite the fact that the carbon dioxide remained in the chicken, its function was to cool the chicken. Its subsequent presence in the chicken was merely incidental to that function and there was no evidence that the carbon dioxide served any other purpose than to cool the chicken. Therefore, it did not qualify for an exemption as an ingredient or component part. (Wayne Farms LLC d/b/a/ Dutch Quality House v. Alabama Department of Revenue, Alabama Department of Revenue, Administrative Law Division, NO. S. 06-797, January 14, 2008) (03/08) New York Exemption Applies to Conveyor Used to Move Concrete Aggregate In New York, a conveyor system used by a company to transport concrete aggregate products to stockpiles qualifies for the state’s sales and use tax exemption for equipment used directly and predominately in the production process under section § 1115(a) (12) of the Tax Law. Furthermore, under sections 528.13(b) and (c)(1)(iii) of the Sales and Use Tax Regulations provides that production continues up until the product is finished and packaged for sale that includes all distribution operations subsequent to production. In this situation, the aggregate product continues the drying process while on the conveyor system – considered part of the production process. A-08(9) S, Advisory Opinion - New York Commissioner of Taxation and Finance, February 14, 2008, ¶405-994). (03/08) Louisiana Manufacturing Phase-Out Tax Accelerated The current manufacturing phase-out of Louisiana sales and use tax on certain manufacturing machinery and equipment has been accelerated to exclude 100% of the purchase, lease, or rental of qualifying manufacturing machinery and equipment for all periods beginning on or after July 1, 2009. The phased-in (complete phase-out of the tax) exclusion was originally scheduled to extend over a seven-year period that began on July 1, 2004, and was to have ended July 1, 2010. Previously, only 82% was to be excluded on July 1, 2009, and 100% on July 1, 2010. Furthermore, the exclusion of machinery and equipment used by a manufacturer in a plant facility predominately and directly in the actual manufacturing for agricultural purposes or the actual manufacturing process of an item of tangible personal property has been modified to include rubber tired farm tractors, can harvesters, cane loaders, cotton pickers, combines, haybalers, attachments and sprayers, clippers, cultivators, discs, plows, and spreaders. Additional regulations apply. (Act 12, S.B. 12, Laws 2008, 2nd Extraordinary Session, effective July 1, 2008) (03/08) Tennessee Crates Not Exempt As Packaging Materials The Tennessee Department of Revenue issued Revenue Ruling No. 08-19, in response to a taxpayer’s inquiry as to whether or not leases or rentals of crates used for transporting packaged food products are subject to sales and use tax. The crates did not qualify for the packaging materials exemption because they only satisfied one out of three requirements stated under Tenn. Code Ann §67-6-102(34)(E)(ii). The crates, considered containers, did not meet the second requirement: used for “packaging” tangible personal property (“TPP”). To be considered “packaging,” the item in question should be used to enclose, wrap, or otherwise fully contain TPP. In this case, the crates do not enclose, wrap or otherwise fully contain the food products. The crates are lidless trays with two metal bars across the top and handles on two sides. Even if the crates had met this requirement, they would have still failed to satisfy the third requirement: requiring either 1) that the TPP be sold directly to the consumer in the packaging, or 2) that the use of the packaging be incidental to the sale of the TPP for resale. In the taxpayer’s case, the food products were not sold directly to the consumer in the crates (while the retail store sometimes use the crates to display the food products, the consumer never purchases a crate along with the food products) and are not incidental to the sale of the food products for resale. (Revenue Ruling No. 08-19, Tennessee Department of Revenue, February 29, 2008) (03/08) Tax Applies to Chemical Used in Paper Manufacturing Process in Virginia In a recent ruling, the use of Immunol, a chemical used to clean the calendar stacks that smooth the paper by compressing it between two large metal rollers, was deemed taxable since it was used on calendar stack rollers prior to or after paper had been processed - not during actual production. In order for an exemption to apply, the chemical must have been used during production. Cleaning agents used prior to or after production are considered general maintenance items and are not exempt. (Ruling of Commissioner, P.D. 07-168, Virginia Department of Taxation, November 7, 2007) (02/08) Materials Consumed in Treatment of By-Products Exempt in Kansas Purchases of tangible property consumed in the treatment of by-products or wastes during the production, manufacturing, processing, mining, drilling, refining or compounding of tangible personal property are exempt from sales tax. The exemption is provided regardless if the production process is for ultimate sale at retail within or outside the state. (Private Letter Ruling No. P-2007-005, Kansas Department of Revenue, July 26, 2007) (01/08) Colorado Expansion of Manufacturing Equipment Exemption Discussed Effective May 23, 2007, the exemption on manufacturing equipment was expanded to include machinery and machine tools, or parts for such machinery, used in the production of electricity from a renewable energy source, including, but not limited to, wind. This exemption applies whether the purchases are capitalized or expensed. The exemption is also applicable to purchases used in the production of electricity in a facility for which a long-term (ten years or more) power purchase agreement was fully executed between February 5, 2001, and November 7, 2006. Other requirements apply. (FYI Sales 10, Colorado Department of Revenue, August 2007). (01/08) Expanded Exemptions for Farmers announced in Wisconsin Silviculture, defined as the business of raising trees for timber, lumber and other wood products, including the logging of timber when it is performed, now qualifies for tax exemption because of a new expanded definition of farming. Tractors, machines, other equipment, directly used in the business of farming would be tax exempt. This exemption became effective July 1, 2007. (Tax Release, Wisconsin Department of Revenue, July 2007) (01/08) Florida Sale of Property Used to Make Finished Product Taxable A Technical Assistance Advisement (TAA) was issued concerning Florida sales tax stating that a Florida dealer must collect and remit Florida sales tax on the sale of tangible personal property to a nonresident customer when the property is shipped to another Florida dealer who uses the property to manufacture a finished product. Generally, all sales of tangible personal property in Florida are subject to sales tax, unless specifically exempt by Chapter 212, F.S. Section 212.06(5). (Technical Assistance Advisement, No. 07A-018, Florida Department of Revenue, June 18, 2007) (01/08) Tennessee Exemption for State and Federally Chartered Credit Unions A notice has been released by the Tennessee Department of Revenue to provide clarification regarding the sales and use tax exemption applicable to purchases made by state and federally-chartered credit unions. Purchases of tangible personal property and services by federally-organized credit unions and Tennessee chartered credit unions are exempt from Tennessee sales and use tax. The exemption is not available to credit unions chartered in other states. Qualification requirements and rules apply. (Sales and Use Tax Notice NO. 07-09, Tennessee Department of Revenue) (02/08) Overstock.com Contests New York Tax on Internet Sales Overstock.com has filed a lawsuit in New York Supreme Court, claiming that a recent New York statutory provision, which requires Internet retailers with no physical presence in the state to collect and pay sales and use tax on purchases made by New York residents, is unconstitutional. The provision presumes a retailer “solicits” business in New York if it compensates any in-state entity for directly or indirectly referring customers to the retailer. Under this statute, Overstock is presumed to “solicit”, due to its relationship with independently operated, New York-based Web sites that earn a commission by posting advertisements containing links to Overstock.com on their own sites. Overstock asserts that no solicitation actually exists and it does not have substantial nexus with the state and, therefore, seeks a declaratory judgment that the provision is invalid and unconstitutional. A similar lawsuit has been filed by Amazon.com. (Overstock.com, Inc. v. New York Department of Taxation and Finance, New York Supreme Court, New York County, No. 107581/08) (06/08) Retailer with Substantial Nexus in Idaho Defined This legislation amends section 63-3611 of the Idaho Code to provide that a “retailer engaged in business in this state” be defined as any retailer with substantial nexus in this state, and creates a new section 63-3615A of the Idaho Code. A retailer has “substantial nexus” with Idaho if both of the following apply: (1) the retailer and an in-state business maintaining one or more locations within Idaho are related parties; and (2) the retailer and the in-state business use an identical or substantially similar name, trade name, trademark, or goodwill to develop, promote, or maintain sales, or the in-state business provides services to, or that inure to the benefit of, the out-of-state business related to developing, promoting, or maintaining the in-state market.
In Summary, the amendment provides that a retailer engaged in business in this state be defined as any retailer with substantial nexus in this state; provides that any retailer having a franchisee or license operating under its trade name or owned by the same entity or corporation in the State of Idaho be required to collect sales and use taxes from its customers. If two entities are related parties, a determination by applying several tests that incorporate provisions from the Internal Revenue Code. (IRC 63-3004). Also, the above provisions do not apply to a retailer that had less than $100,000 in sales in Idaho in the previous year. (2008 ID H 360, Enacted, March 3, 2008).
(03/08) Washington Rule on Delivery Charges Amended Washington has amended its sales and use tax rule on delivery charges, which states that the measure of the tax is the “selling price”, including all delivery charges such as transportation, shipping, postage, handling, crating, and packing. Effective July 21, 2008, when a sale consists of both taxable and nontaxable personal property, retail sales tax will only apply to the delivery charges associated with the taxable portion of the sale. No tax is due on the delivery charges allocated to the nontaxable personal property. (WAC 458-20-110, Washington Department of Revenue, effective July 21, 2008). (07/08) Wisconsin Tax on Symphony Tickets to Be Reexamined A Wisconsin Circuit Court remanded to the Wisconsin Tax Appeals Commission a case of whether a nonprofit’s symphony tickets are subject to the state’s sales tax on admissions. The court determined that the Commission incorrectly interpreted the taxing statute by relying on an administrative rule that was not supported by the statute, to create, in effect, an unsupported exemption for educational events. Furthermore, the Commission has inconsistently interpreted and applied the provision in other cases. The court remanded the case to allow the Commission to develop a standard based on the taxing statute and related exemptions, which would be applied to determine whether an event is considered entertainment. The Commission may maintain its previous conclusion that the symphony concerts are taxable entertainment events, as long as the determination is supported by the statutorily-based standard. (Milwaukee Symphony Orchestra, Inc. v. Wisconsin Department of Revenue, Wisconsin Circuit Court for Dane County, Branch 2, April 23, 2008, No. 401-100). (06/08) Certain Florida Delivery Charges Exempt Florida sales tax and local discretionary sales surtax may be avoided on certain charges for the delivery, inspection, placement, or removal of packaging or shipping materials of furniture, appliances, or similar items by the seller at the location of the buyer. In order for the charges to be exempt, they must be separately-stated and avoidable at the option of the purchaser. The Tax Information Publication defines “option of the purchaser” to mean that the purchaser has the option to pick up the appliance or furniture from the dealer, have someone pick it up on his/her behalf, or instruct the seller to make the delivery of the appliance or furniture. However, if any charge for the above transaction includes the modification, assembly, or construction of such furniture or appliances, then all of the charges are taxable. The sales price of the appliances and furniture remain subject to sales tax and surtax even when the separate charges for delivery qualify for exemption. (Tax Information Publication, NO. 07A01-09, Florida Department of Revenue) (03/08) Soft Drinks, Candy Sold through Vending Machine in Missouri Subject to Reduced Food Tax Rate Provided they qualify as food items which may be purchased with food stamps, soft drinks and candy sold through vending machines are subject to the reduced food sales tax rate. Except for vending machine sales, the term "food" does not include food or drink sold by any establishment where the gross receipts derived from the sale of prepared food for immediate consumption (on or off the premises of the establishment) constitutes more than 80% of the total gross receipts of that establishment, regardless of whether such prepared food is consumed on the premises. ( Missouri Department of Revenue, MO --Letter Ruling No. LR3809) (03/08) Washington Amends Rule on Food and Food Ingredients The Washington Department of Revenue amended the sales and use tax rule on food and food ingredients, effective December 31, 2007. The amended rule reflects that in a combined sale of taxable and exempt items, the entire transaction is exempt provided the sales price of the taxable items represents 50% or less of the combined price. (WAC 458-20-244, Washington Department of Revenue) (03/08) New Jersey Food Items Sold at Kiosks Taxable Sales tax assessments on food items sold by certain New Jersey vendors operating kiosks and free-standing carts at a sports complex and mall were upheld in a recent court case. The Court indicated that the interpretation of “premises” includes the area in which customers had to enter to make their food purchases and that “for consumption on the premises” was based on their suitability for immediate consumption at the particular location. Also, the definition of “premises” focused on the location from which customers could make their purchases, rather than on whether particular areas within a larger facility were under the vendor’s exclusive control (as the taxpayers argued). (Campo Jersey, Inc. v. Division of Taxation, New Jersey Superior Court, Appellate Division, No. A-5384-04T5) (03/08) Tennessee Food Rate Reduced Effective January 1, 2008, the Tennessee Department of Revenue has reduced the sales and use tax rate on sales of food and food ingredients from 6% to 5.5%. (Important Notice No. 07-14, Tennessee Department of Revenue (02/08) Clarification on Ohio Delivery Charges as Part of Price of Sale An Ohio Information Release clarifies the treatment of delivery charges that became part of a sales price effective August 1, 2003. For sales and use tax purposes, these “delivery charges” are specifically included as part of the “price” of a sale and are not a separately enumerated taxable service. Vendors and sellers are required to charge tax on both the amount associated with the property sold and the “delivery charges” as defined in R.C. 5739.01(H)(1)(a)(iv). It is not relevant whether the charge for the property sold is separately-stated on the invoice from the delivery charge or whether the delivery charge is included in the line item price on the invoice for the property. (Sales and Use Tax Information Release ST 2007-02, Ohio Department of Taxation) (01/08) California Food Combination Packages Taxability Discussed In a California Tax Information Bulletin, the state explains the taxability for food packaged to include both food and non-food items – combination packages. Effective April 2007, pursuant to Regulation 1602, Food Products, which was recently amended to include combination packages, non-food items are taxable if they constitute more than 10% of the retail value of the package (excluding the container) and the retailer has records verifying the cost of the individual items in the package. If there are no records to establish the cost of the individual items and the non-food items exceed 10% of the cost of the entire package (excluding the container), the retail sales price of the entire package is taxable. The sale price of the package is nontaxable if the retail value of the nonfood products is 10% or less (excluding the container) and the container’s retail value is at most 50% of the entire package value. (Tax Information Bulletin, California State Board of Equalization, June 2007) (01/08) North Carolina Cost-Per-Copy Optional Maintenance Fees Exempt A North Carolina taxpayer who entered into optional maintenance agreements with customers on a cost-per-copy basis was not liable for sales tax. Since the cost-per-copy optional maintenance fee charged by the customer did not represent the sale of tangible personal property, the State concluded that there was no substantial difference in the traditional maintenance agreements and the cost-per-copy agreement, and therefore exempt from tax. The Department also concluded that the optional maintenance agreements used by the taxpayer constituted the furnishing of turnkey services for consideration based upon the number of copies produced. However, the taxpayer was liable for tax on the cost of the parts, supplies and materials used by the taxpayer in fulfilling the maintenance agreements. (Secretary of Revenue Decision, No. 2007-14, North Carolina Department of Revenue) (04/08) Missouri Rules on Vehicle Service Contracts The Missouri Department of Revenue has issued a Letter Ruling addressing the taxability of automobile service contracts. The state found that a business that leased vehicles that included the cost of the service contract in their leases was subject to tax when the service contract amount was not separately stated. When the cost of the service contract was separately stated on the lease agreement and monthly statement, the charge for the maintenance contract was not subject to tax. (Missouri Letter Ruling No. LR4609, Missouri Department of Revenue, March 20, 2008) (04/08) Parts Used in Warranty Fulfillment Taxable as Retail Sale in Kentucky A Kentucky court found that parts and supplies used in the fulfillment of maintenance contract obligations were subject to sales and use tax as a retail sale. The court stated that since no tangible personal property is transferred at the time of the sale of the maintenance contract, it is not subject to tax. When parts are used in the fulfillment of the maintenance contract obligations and transferred to the purchaser of the contract, the parts are subject to tax. (Department of Revenue v. Duplicator Sales and Service, Inc. Kentucky Court of Appeals, August 17, 2007) (04/08) Maine Revises Rules Applying to Vehicle Repair Shops Beginning September 20, 2007, the sale of extended service contracts on automobiles is a taxable sale. Parts associated with the fulfillment of repairs under the contract will not be taxable to the servicer or the customer as the parts are seen as being included in the original price of the extended warranty. Prior to this date, optional extended warranties were not taxable, but parts used when fulfilling the obligations of the contracts were taxable. (Sales and Use Tax Instructional Bulletin No 1, Maine Revenue Services, December 4, 2007) (04/08) Personal Trainer Fees Paid to Missouri Fitness Center Taxable A Missouri fitness center was liable for sales tax on its personal trainer fees because the fitness center was considered a place of recreation. The Missouri Hearing Commission rejected the taxpayer’s argument that the personal trainer fees were rent and therefore not subject to tax. The entire facility was available to the personal trainers, including office and floor space – not just personal property, and the clients, not the trainers, had the use of the facility’s equipment. The clients had to wait to use a machine that was being used by someone else because the personal trainers never had the right to dictate who used what machine. Therefore, the personal trainers’ use of the fitness center to perform a service could not have been characterized as a rental of tangible personal property. Furthermore, the personal trainer fees were not paid for a rental of real property. There never was a written rental agreement and the personal trainers did not have exclusive use of the building. (GM Fitness, Inc. v. Director of Revenue, Missouri Administrative Hearing Commission, No. 06-1071RS). (01/08) Texas Clarifies Tax Treatment of Gratuity Charges The Texas Comptroller of Public Accounts has amended the State’s regulation on the taxation of gratuities. Reasonable mandatory gratuities are not subject to tax as long as they are separated from the price of the meal, identified as a tip or gratuity and are disbursed to qualified employees. Any amount of mandatory gratuity that is retained by the employer is subject to sales tax. The employer must retain records that show that mandatory gratuity charges have been disbursed to qualified employees. If a mandatory gratuity charge exceeds 20% of the original sales price of the meal, the entire gratuity charge is subject to tax. Voluntary gratuities remain exempt from taxation, regardless of amount. (34 TAC Sec. 3.337, November 28, 2007) (01/08) Texas Letter Addresses Landman Services In a letter release, the Texas Comptroller of Public Accounts addressed the taxability of landman services. Landman services are considered to be “services necessary to negotiate or secure land and or mineral rights for acquisition or trade.” This includes acquiring leases, drafting contracts and agreements and ensuring that all transactions fall inline with governmental regulations. The Texas Comptroller found that these services were non-taxable services, but the Landman service providers were required to pay tax on all supplies including on 80 percent of any data processing and information services that were purchased to perform their services. If a Landman were to only gather and compile information, they would be considered to be providing a taxable information service (and not a non-taxable services) and would be required to charge tax on 80% of their charge. If the Landman subcontracts information gathering services out to another Landman, it is considered a purchase of taxable information services and not a subcontract. (Letter No. 200703984L, Texas Comptroller of Public Accounts, March 29, 2007, Released Nov 2007 (01/08) Virginia Commissioner Finds Tax Applied to Printed Materials In response to a taxpayer inquiry, the Virginia Tax Commissioner ruled on the taxability of goods/services purchased by an advertising agency. The Commissioner found that the agency’s purchases of photographic tangible property and related services were fully subject to tax. The agency contended that the services should not be subject to the tax; however, the Commissioner found that the photographic tangible personal property, not the services, was the true object of the transaction, so the entire charge was taxable. The Commissioner also upheld an assessment on purchases of brochures made by the agency that were used in an advertising campaign on behalf of their clients. Since the brochures were used by the agency, the agency was deemed to be the consumer of the materials and was subject to the tax. (Ruling of Commissioner, PD07-185, Virginia Department of Taxation, November 21, 2007) (01/08) Michigan Use Tax on Select Services Repealed Governor Jennifer Granholm signed HB 5408 on December 1, 2007. This law creates a business tax surcharge that replaces the service tax originally set under HB 5198. The law to repeal the use tax on select services was signed just hours after the original law went into effect. Services originally targeted included: consulting services, office administration services, business service center services, investment advice services, landscaping services, travel and reservation services, carpet/upholstery cleaning services, warehousing and storage services, packaging and labeling services, specialized design services, courier and messenger services, janitorial services and certain personal and personal care services. The new law, effective December 1, 2007, provides that businesses that charged and collected the 6% use tax on services, before the law was repealed on December 1st, can either refund that money to the purchaser/user of the service or remit the revenue to the State of Michigan when the first Use Tax payment is due. (H.B. 5408, December 1, 2007, Michigan Department of Revenue) (12/07) Vermont Proposes To Withdraw From SST Agreement & Reduce Tax Rate Legislation introduced in the Vermont House of Representatives, H.B. 564, on January 8, 2008, proposes to withdraw the state from the Streamlined Sales Tax Agreement, effective January 1, 2009. Vermont became a full member on January 1, 2007. In addition, the bill also proposes to repeal most sales and use tax exemptions, including the repeal of food exemption, extend the sales tax to services and groceries, exempt items priced at $10.00 or less, lower the rate from 6% to 1%, and require a supermajority vote to increase the rate. (H.B. 564, as introduced in the Vermont House of Representatives on January 8, 2008) (04/08) Iowa Amends Good-Faith Standard to Conform to SST Agreement In order to comply with the Streamlined Sales and Use Tax Agreement (“the Agreement”), the Iowa Department of Revenue has amended a rule regarding the determination of a sale and sale price. Previously, if an exemption certificate was not taken in good faith by a retailer, both the seller and the buyer who presented the certificate could be held liable for the tax if that buyer used the purchased good or service for a purpose that was taxable. Under the new rule, the “good faith” requirement on the part of a seller is replaced by a different standard, a “relaxed good-faith standard.” A seller can accept a properly completed exemption certificate, but does not need to follow up with the buyer to ensure that the claimed exemption applies to the buyer. A retailer who accepts a properly completed exemption certificate with an absence of fraudulent intent and who has not solicited a buyer to unlawfully claim an exemption is protected by the certificate in the event that a buyer makes a taxable use of a purchase. (Rule 701-15.3, Iowa Department of Revenue, effective January 9, 2008) (04/08) Washington Compliance of SST – Local Tax Washington has amended several of its local tax and license provisions to provide that a business’s mere registration under or compliance with the Streamlined Sales and Use Tax Agreement does not constitute nexus for purposes of the local government’s authority to impose Washington business and occupation tax on the business. Under the Agreement, destination-based sourcing is required for products that are delivered by vendors to the buyer. Transactions will be coded to the location of the buyer rather than the point from which the goods were shipped; therefore, cities will be receiving reports of local sales tax receipts from vendors located outside their jurisdiction. If a firm is merely registered or in compliance with the Agreement, the business does not need to be licensed for city business tax purposes. Also, remote sellers are not liable for city business taxes merely for reporting local sales taxes to the jurisdictions. However, if a firm actually has nexus within the city, it is still potentially subject to registration for local business tax purposes. (H.B. 3126, Laws 2008, effective June 12, 2008; Senate Bill Report, March 3, 2008) (04/08) Indiana Adds/Amends Definitions To Conform To SSTP, Delays Changes to Floral Sourcing Effective January 1, 2009, unless noted otherwise, Indiana has added and amended several sales and use tax statutory definitions in order to comply with the Streamlined Sales and Use Tax Agreement, including “specified digital products”, “end user”, and “durable equipment”. For example, the definition of “durable medical equipment” has been amended to include repair and replacement parts for the equipment, that 1) can withstand repeated use; 2) is primarily and customarily used to serve a medical purpose; 3) generally is not useful to a person in the absence of illness or injury; and 4) in not worn in or on the body. The term does not include mobility enhancing equipment. This particular change is effective March 3, 2008. In addition, changes to destination-based sourcing for certain retail floral sales have been delayed from January 1, 2008 to January 1, 2010. (S.B. 233, Laws 2008) (04/08) Nebraska Rules on Taxability of Telecommunications Services The Nebraska State Tax Commissioner has ruled on a taxpayer’s question regarding the taxability of services associated with the installation or repair of telecommunications structures such as telephone, telegraph, mobile telephone or community television antennas. The Commissioner found that the contract amount charged to perform these services was taxable as construction services if the property is on the telecommunications service provider’s side of the “demarcation point.” Under Nebraska law, the demarcation point is the point where the equipment that is owned by the telecommunications service provider is connected to the equipment dedicated to their customer’s use. (Nebraska Department of Revenue, Revenue Ruling 1-07-02, December 14, 2007) (04/08) New York Telecommunications Services Purchased by ISPs Exempt A memorandum has been issued by the New York Department of Taxation and Finance regarding the state and local sales tax liabilities of telecommunications services purchased by an Internet Service Provider (“ISP”). As a result of a Tax Appeals Tribunal decision, line access services purchased by an ISP and used for transmission between the ISP point of presence and the Internet for the purpose of connecting the ISP’s customers to the Internet are purchases of interstate or international telephony and, therefore, are not subject to sales tax. A telecommunications service provider must collect sales tax on intrastate telephony unless it receives a timely and properly completed exemption document from an ISP. Additional rules and regulations apply. (TSB-M-07(2)S, Technical Services Bureau, Taxpayer Services Division, New York Department of Taxation and Finance) (03/08) Kentucky Tax Due by Pay Phone Operator The Kentucky Board of Tax Appeals held that a company that operated pay phones was providing communications services subject to Kentucky sales tax. The company’s products, including: 1) a dialing mechanism to allow consumers to direct signals of their voices to a specific location, 2) a device that could transmit and receive voice communications, and 3) an outlet for the dial tone, were taxable intrastate telephonic communication services. The fact that the company did not provide the entire service, because it had to obtain dial tones from a phone company and might route calls to an operator or through a long distance company’s computers, did not change the fact that the company was providing communication service. (Phone-Tech, Inc. v. Finance and Administration Cabinet, Department of Revenue, Kentucky Board of Tax Appeals, File NO. K05-R-33) (03/08) Clean Energy Project Electricity Exempt in Texas Texas Governor, Rick Perry, signed into law H.B. 3732, making the sale of electricity generated by an advanced clean energy project exempt for the Texas public utility gross receipts tax. An “advanced clean energy project” is a project for which a Texas Clean Air Act permit application has been received by the Texas Natural Resources Conservation Commission on or after January 1, 2008, and before January 1, 2020. The project must: 1) involve the use of coal, biomass, petroleum coke, solid waste, or fuel cells using hydrogen derived from such fuels, in the generation of electricity, or the creation of liquid fuels outside of the existing fuel production infrastructure while co-generating electricity; 2) meet specified emission standards; and 3) render carbon dioxide capable of capture, sequestration, or abatement if any carbon dioxide is produced by the project. Additional rules and regulations apply. (H.B. 3732, Laws 2007, effective September 1, 2007) (03/08) Florida Provisions of Light Poles and Light Pole Fixtures Discussed In response to a taxpayer’s inquiry, the Florida Department of Revenue issued a Technical Assistance Advisement (“TAA”) clarifying three issues: 1) the taxability of electricity provided by light poles, 2) the taxability of purchases of light poles and pole fixtures, and 3) payment received for delivery of electricity for light, heat or power. The TAA stated on the first issue that the provision of light poles and light pole fixtures under contract for limited duration by utilities that provide electricity to retail customers is exempt as sales of electric power or energy. Such transactions are leases of tangible personal property and are not subject to sales tax as sales of electric power or energy because the charge for leasing the poles and fixtures is separate from the charge for the provision of electric power or energy. However, sales tax is due on the charge for the leasing of light poles and light pole fixtures to customers and on the separately-stated charge for the provision of electric power or energy. Also, the TAA exempts from Florida sales tax the purchases of light poles and light pole fixtures by utility companies to provide those poles and fixtures to their customers under contract for limited duration as purchases for resale. Furthermore, Florida gross receipt tax does not apply to amounts received as payment for separately stated charges that are exclusively for the leasing of light poles and light fixtures. Additional regulations and rules apply. (Technical Assistance Advisement, NO. 07A-025, Florida Department of Revenue) (03/08) Missouri Utilities Used to Raise and Sell Cattle Not Taxable The Missouri Department of Revenue has issued a Letter Ruling regarding the consumption of electric utilities used to raise and sell beef cattle. Under this ruling, the non-personal amount of electricity used is not subject to Missouri sales taxes. However, electric utilities used for personal consumption located on a farm are subject to sales tax. Furthermore, the utility company must be notified by the property owner as to what amount of electricity consumed is exempt from sales tax when there is only one utility meter located on a farm. (Letter Ruling No. LR4371, Missouri Department of Revenue). (03/08) Idaho Processing Materials Used in Energy Production Exempt Effective July 1, 2008, Idaho HB 561 amends existing law to provide that the production exemption from sales and use tax shall be available to a business or separately operated segment of a business engaged in the business of processing materials, substances or commodities for use as fuel for the production of energy. The exemption is available regardless of 1) business type, 2) ownership of the materials being processed, or 3) ultimate sale within or outside of Idaho. (2008 ID H.B. 561, Effective July 1, 2008) (03/08) |
