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Effective April 26, 2017, Tennessee has enacted legislation authorizing local governments to levy a local option transit surcharge on the following local privilege taxes, provided the underlying local privilege tax is being collected at the time a transit improvement program is adopted:

 

  • local option sales tax;
  • business tax;
  • motor vehicle tax;
  • local rental car tax;
  • tourist accommodation/hotel occupancy tax; and
  • residential development tax.

 

A "transit improvement program" is a program that consists of specified public transit system projects and services. A "public transit system" is any mass transit system intended for shared passenger transport services to the general public and includes related property and equipment as well as infrastructure for the system to operate such as roads, highways, alleys and sidewalks.

 

Any surcharge so imposed will be a separate charge in addition to local privilege taxes. A "local government," is defined as any county in Tennessee, including a county with a metropolitan or consolidated form of government with a population in excess of 112,000 and any city in Tennessee with a population in excess of 165,000. This includes Chattanooga, Knoxville, Nashville and Memphis as well as a number of counties. If approved by a majority of the number of registered voters of the local government voting in an election on the question, the surcharge will remain in effect until a specific date or condition of termination specified in the ordinance or resolution adopting the surcharge, or until the surcharge is repealed in the same manner in which it was adopted.

 

In general, the transit surcharge is administered in the same manner as the underlying local tax and subject to the same conditions, limitation, exemption, credits and returns. However, the following items are exempt from the local option transit surcharge in regardto the local option sales and use tax:

 

  • water sold to or used by manufacturers that is taxed at the state rate of 1%;
  • sales of tangible personal property to a common carrier for use outside the state;
  • video programming services;
  • telecommunication services;
  • specified digital products; and
  • sales of tangible personal property when obtained from any vending machine or device and taxed at the local rate of 2.25%.

 

Any surcharge on the local option sales and use tax will apply only to the first $1,600 on the sale or use of any single article of personal property.No local government can impose a surcharge that exceeds the maximum rate for the underlying local option sales and use tax.  The surcharge on the local option sales and use tax will not apply to sales made by dealers with no location in Tennessee who choose to pay local tax.The earliest a transit surcharge can be effective is October 1, 2017. (H.B. 534, Laws 2017)

(06/05/2017)

Effective July 1, 2017, Tennessee will reduce the state sales and use tax rate on food and food ingredients from 5% to 4%. Note that the applicable local sales and use tax rate (up to 2.75%, depending on the locality) also applies to these sales. “Food and food ingredients” are defined as substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value. “Food and food ingredients” does not include alcoholic beverages, tobacco, candy, dietary supplements or prepared food, which continue to be subject to the general state sales and use tax rate of 7%, plus the applicable local tax rate. (Important Notice No. 17-07, Tennessee Department of Revenue, April 2017)

(06/05/2017)

An Illinois appellate court has determined that online travel companies (OTCs) were not liable for Chicago’s hotel accommodations tax on facilitation and service fees charged to customers reserving hotel rooms through the OTCs, since the fees were not rent. For the tax years at issue in the case, a Chicago ordinance imposed a hotel accommodations tax on the "gross rental or leasing charge" made by every owner, manager, or operator of hotel accommodations. In general, rent is paid for the use of property. As a result, "gross rental or leasing charges" are sums paid by customers to use or occupy hotel rooms. The charges imposed by the OTC included the rental rate paid by the OTCs to the hotels plus the facilitation and service fees – which were not for the use of hotel rooms - imposed on the OTCs’ customers. The rate also included a tax recovery amount which represented the amount of tax that the hotels remitted to the City on the price charged the OTC for the room.  Although the tax and service charges were included in the price charged, they were not separately stated on the invoices or documentation to the customers.  The court reversed a lower court’s summary judgement in favor of the City of Chicago and remanded the case. The Court’s finding was based on the definition of gross rents and the determination that the service fees do not constitute gross rents.  Due to this, they did not rule on whether the OTC’s were considered owners, managers or operators of hotel accommodations.  Since the tax years at issue, the Chicago Hotel Accommodations Tax ordinance has been amended to define "operator" as "any person who has the right to rent or lease hotel accommodations to the public for consideration," including "persons engaged in the business of selling or reselling to the public the right to occupy hotel accommodations, whether on-line, in person or otherwise."  In 2014, the City added to that definition "persons engaged in the business of facilitating the rental or lease of hotel accommodations for consideration, whether on-line, in person or otherwise."(Chicago v. Expedia, Inc., Appellate Court of Illinois, First District, No. 1-15-3402, April 26, 2017)

(06/05/2017)

Effective June 1, 2017, the South Carolina Department of Revenue will no longer mail Admissions Tax Returns (L-511) to taxpayers. Admissions tax must be collected by all places of amusement when an admission fee has been charged. The tax is 5% of the paid admissions. Failure to properly complete the L-511 Admissions Tax Return will result in a $500 Failure to Comply penalty.The tax returns are due by the 20th of the month following the period covered by the return. For more information, click here. (Notice, South Carolina Department of Revenue, May 5, 2017)

(06/05/2017)

Annual membership fees that allow members to receive benefits associated with online shopping are subject to South Carolina sales and use tax since they allow members to receive tangible personal property (streaming video and audio) that are subject to sales tax as a benefit of membership. Additionally, the fees are subject to sales and use tax because they entitle members to receive discounts on the purchase price and the cost of delivery of items that are subject to sales and use tax, and these benefits are not available to nonmembers. South Carolina imposes sales tax on the total proceeds of sale, without any deduction for the cost of goods sold, cost of materials, labor, service, transportation costs, or other expenses. The fees remain taxable regardless of the fact that they also entitle members to receive benefits that may not be subject to sales and use tax. The one-month trial membership offered by the taxpayer is not subject to tax since there is no consideration for the membership and therefore, no retail sale.(Private Letter Ruling #16-1, South Carolina Department of Revenue, July 6, 2016)

(05/24/2017)

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