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NEWS & TIPS
The Sales Tax Institute reviews numerous sales tax publications to monitor state activity on various topics related to sales and use tax. By checking updates routinely, you may be alerted to an impending tax law change critical to your business.
Browse recent and archived news items by searching relevant categories, states or descriptions at right
The information listed here is high-level summary and background material intended to help you stay current in the dynamic area of sales and use tax. Sources include CCH State Tax Day, Sales and Use Tax Alert, Sales Tax Notes, Vertex, Inc. Reference Manuals, Westlaw, and other miscellaneous state tax newsletters and Department of Revenue notices.
Please note that these summaries omit many details and special rules, and cannot be regarded as legal or tax advice. For more information, be sure to contact your tax advisor.
HOT NEWS UPDATES:
Effective June 1, 2016, South Dakota’s sales and use tax rate increases from 4% to 4.5%. The new rate applies to: the sale, lease, or rental of tangible personal property, products transferred electronically, and services; excise tax on the purchase of farm machinery; the amusement device tax; and special jurisdiction tax rates on Indian Country where there is a tax collection agreement.(H.B. 1182, Laws 2016, effective June 1, 2016; Release, South Dakota Department of Revenue, March 14, 2016)
Louisiana’s state sales and use tax rate on sales and leases of tangible personal property and sales of certain services increases from 4% to 5%, effective April 1, 2016 through June 30, 2018. A new provision lists 65 items that are exempt or excluded from the additional 1% tax. For the entire list of items, visit the Louisiana Department of Revenue website. The transactions that are exempt from the additional 1% tax do not completely match the transactions that were exempt from the previous 4% tax.(Act 26 (H.B. 62), Laws 2016, First Extraordinary Session)
On March 22, 2016, South Dakota Governor Dennis Daugaard signed into law economic nexus legislation. The legislation, effective May 1, 2016, adds sales and use tax collection requirements for remote sellers who meet certain sales thresholdsand makes sales of tangible personal property, products transferred electronically, and services for delivery into South Dakota. It is important to note that virtually everything is taxable in South Dakota including professional services like legal and accounting services.
A retailer would be presumed to be liable for the collection of sales and use tax in South Dakota, even if the seller does not have a physical presence in state, if the seller meets either of the following criteria in the previous or current calendar year:
- The seller’s gross revenue from the sale of tangible personal property, any product transferred electronically, or services delivered into South Dakota exceeds $100,000; or
- The seller sold tangible personal property, any product transferred electronically, or services for delivery into South Dakota in 200 or more separate transactions.
In anticipation of a challenge and really following Justice Kennedy’s advice in the Direct Marketing Association decision, the legislation provides an expedited appeals process for any challenges to the constitutionality of the law. The legislation also provides that enforcement of the law will be “stayed by the courts until the constitutionality of this law has been clearly established by a binding judgment, including, for example, a decision from the Supreme Court of the United States abrogating its existing doctrine, or a final judgment applicable to a particular taxpayer.” All remote sellers should evaluate their South Dakota sales activities and determine their position on this new law. (S.B. 106, effective May 1, 2016)
The Puerto Rico Department of Treasury has announced that the Commonwealth’s transition from sales and use tax to VAT has been pushed to June 1, 2016. The transition was originally slated to take place on April 1, 2016.
UPDATE: Puerto Rico's transition from sales and use tax to VAT has been vetoed. In May 2016, the legislature passed a bill repealing the changes that would have created the VAT. Governor Padilla vetoed that repeal, and the legislature overrode his veto.
On February 22, 2016, the U.S. Court of Appeals for the Tenth Circuit issued its opinion in Direct Marketing Association v. Brohl and reversed the district court’s order granting summary judgment. The Court of Appeals held that Colorado’s use tax reporting requirements legislation for out-of-state retailers did not violate the Commerce Clause because the reporting requirements neither discriminated against, nor unduly burdened, interstate commerce. Additionally, the Court of Appeals held that the application of Quill v. North Dakota is narrowly limited to sales and use tax collection. The court held that the law does not discriminate against interstate commerce because it imposes differential treatment based on whether the retailer collects Colorado sales or use taxes, not whether the vendor is located in-state or out-of-state. The court also considered whether the reporting requirements law unconstitutionally discriminated by favoring in-state economic interests over out-of-state interests. The court stated that the party claiming discrimination must show that the state law benefits local actors and burdens out-of-state actors, and the result must alter the competitive balance between in-state and out-of-state firms. The court noted that the reporting requirements for out-of-state sellers do not violate the Commerce Clause because Colorado customers are required to pay sales or use tax when they purchase goods from a collecting or non-collecting retailer. As a result, the reporting requirements do not give in-state sellers a competitive advantage. The court also noted that equal treatment requires that those similarly situated be treated alike. Out-of-state retailers and in-state retailers are not similarly situated because the in-state retailers are required to comply with tax collection and reporting requirements. It is expected that DMA will appeal the decision. Questions that we will monitor include will Colorado continue its stay on the reporting requirement until a final decision, if Colorado is successful at the end of the process will it change the effective date to a current or prospective date or are companies at risk going back to 2010 when it was first enacted. Many in the state tax community are expecting other states to introduce similar legislation in the current sessions – we’ll watch for these and bring them to your attention.
For our previous news item on this case, see U.S. Supreme Court Rules that Federal Court has Jurisdiction Over Challenge to Colorado Reporting Requirements Law.
(Direct Marketing Association v. Brohl, Case No. 12-1175 (10th Cir. Feb. 22, 2016))