Welcome to “Sales Tax Policy – Tales & Trends.” This blog will look at existing sales tax rules, various state and federal proposals, as well as rulings, primarily from a policy perspective. Tax policy considers appropriate design of tax laws. I'll make observations where existing laws or legislative proposals do or do not meet principles of good tax policy, such as simplicity, equity, transparency and neutrality. I'll also point out areas where sales and use tax rules are out of date with 21st century ways of living and doing business.
In addition, I'll comment on selected rulings from state tax agencies and state and federal courts that raise interesting nexus or tax base issues or that perhaps indicate a need for legislative action.
There is plenty of material for discussing trends and tales for many aspects of sales tax. For example, just in the past few months, we've seen the following "tales" dealing with nexus:
- The New York State Department of Taxation and Finance issue a ruling (TSB-A-12(1)C) on a new payment processing service aimed at enabling "unbanked" or "under-banked" customers to purchase online even though they do not have a credit card. The Department ruled that the service was not subject to sales tax. Also, the in-state store helping with the payment process does not cause the service provider or merchant to be considered vendors for sales tax collection purposes. The ruling is a good example of a state responding timely to a new way of doing business. It also points out that many of today's sales tax rules do not clearly address new ways of doing business leaving taxpayers with uncertainty and the need to perhaps seek a ruling.
- A Pennsylvania Department of Revenue ruling (SUT-12-001) is a reminder of the tax confusion often created by cloud computing activities that don't neatly fit within today's rules that were mostly written in the 20th century. The PA ruling held that sale and use of software is not subject to sales tax if the end user is located outside of PA, even though the server is in PA.
- Another 21st century business approach is affiliate advertising. An Illinois court found that state's affiliate nexus law unconstitutional. The lack of a rebuttable presumption in the Illinois statute and its limitation to web-based transactions likely means that this ruling won't have much bearing in other states that enacted affiliate nexus (so-called "Amazon" tax rules) similar to the New York provision enacted in 2008. For more on this issue and case, I have a short article in the 6/14/12 AICPA Tax Insider.
- State appeals courts in Connecticut and Tennessee reached conclusions that Scholastic Books had nexus in the state due to the presence and actions of school teachers that enable orders to be made in the state. The rulings are reversals of lower court decisions. The cases are a reminder that nexus determinations are not always easy and the physical presence standard continues to be interpreted and clarified 20 years after the Quill decision was issued by the US Supreme Court.
That's just a sampling of some recent nexus "tales." I will delve into some of them further in future posts. I will also explore sales tax topics of broadening the base such as to include personal services, narrowing the base, rate changes, and administrative matters.
I welcome your comments and participation. Thank you.
Other recent “Sales Tax Policy - Tales & Trends” posts by Annette Nellen, CPA, ESQ:
- With Sales Tax Software, Are Sales Tax Discounts Still Appropriate?
- Idaho Keeps Sales Tax On Groceries
- Sales Tax Policy Outlook for 2017
- Would Broader Sales Tax Base Deliver Simplification - and Savings?
- Trailing Nexus - When Does It End?