No region of the United States is immune from sales tax updates…
Regions across the U.S. experience a continuous stream of sales tax updates each and every week. The Northeast is no exception. One of the biggest challenges sales tax professionals face is keeping up with all these changes.
Because states are often influenced by their neighbors’ approaches to sales tax, it can be helpful to look at regional trends to get a handle on your sales tax obligations and to predict which states might adopt a similar policy next.
To help those with business operations in the Northeast or those who make sales into Northeastern states keep up, we’re putting a magnifying glass on some of the key recent Northeastern sales tax changes.
Over the past year, states have been looking for ways to provide the average taxpayers some relief due to price increases due to inflation and supply chain challenges. For example, in attempts provide relief to taxpayers at the pump, there was a growing trend in 2022 of states passing temporary gas tax holidays to combat inflation and surging fuel prices.
Maryland was at the forefront of this trend, being one of the first to get legislation passed quickly to provide a 30-day gas tax holiday – taking place March 18, 2022, through April 16, 2022. Their qualifying fuels were gasoline, other than aviation gasoline; special fuels other than turbine fuel; and the gasoline equivalent gallon of clean burning fuels, excluding electricity.
Connecticut took a different route to providing relief at the pump. Using emergency legislation, the state suspended its 25 cents per gallon excise tax on gasoline from April 1, 2022, to June 30, 2022. This required each retailer to reduce the per-gallon price of fuels or gasohol sold in an amount equal to the amount of the reduction. In addition, Connecticut suspended fares on public buses statewide during that same period.
The gas tax holidays are just one example of ways states have used surplus revenue to provide relief to individuals. However, the gas tax holidays might not be as visible to the average taxpayers because it is typically not separately stated from the price of the gas itself, making it harder to see.
States are always looking for new ways to bring in additional streams of revenue, and the legalization of recreational marijuana has provided an easy opportunity for this tax source. In most states, cannabis is highly taxed and has generated significant additional revenue.
The taxation of recreational marijuana is one of the hottest topics for the United States’ policymakers. It has become legal in almost half of the states, and we are seeing it on ballots across the country. Tax Foundation wrote in their article, “22 states (Alaska, Arizona, California, Colorado, Connecticut, District of Columbia, Illinois, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, and Washington) have implemented legislation to legalize and tax recreational marijuana sales.”
Maryland voted to implement a legal marijuana market with a 6 percent excise tax on retail sales in 2022. But states like New York, with more cumbersome regulatory processes, are targeting to begin legal sales in the year of 2023. While the timelines for states all vary, there are trends once the product sales begin. Many states levy an ad valorum tax on the retail sale price, ranging from 6 to 37 percent. But northeastern states such as New York and Connecticut are the first states to implement a potency-based tax per milligram of THC, according to Tax Foundation.
The legalization of cannabis for recreational use is more than a tax policy issue – it is a social policy issue. Most, but not all, states have already legalized medical use of marijuana. As the push for legalization of recreational use continues, the tax revenue impact becomes a desirable outcome. States have taken advantage of this trend and opportunity to raise revenues through these “sin taxes.”
As you’ve probably noticed, interest rates across the country have been on the upswing. The Northeast is no exception. Interest rate changes for 2023 include New York jumping from 8 to 11 percent and Pennsylvania from 3 to 7 percent.
As interest rates increase, the cost of non-compliance rises. It is important for every business to be aware of the impact of interest rates increases on the total liability. Although states typically don’t compound interest in their calculations, the rates add up when the look back period is 36 months or more.
Sales tax rule changes reflect changes happening in the world. A few years ago, how states treat marijuana for sales tax purposes would not have mattered as intensely as it does now.
When you work in sales tax, you have to be agile in order to quickly accommodate the many updates and changes states throw your way on a weekly basis.