The Western region of the U.S. is full of natural wonder and beautiful destinations that make you want to pause, slow down, and enjoy them.
As it turns out, the West has a sales tax landscape to match – full of “wonders” and a constant stream of updates that are best kept track of if you… well, pause, slow down, and enjoy them!
Let’s explore some important sales tax updates coming out of Western states so you can get caught up and make any changes as necessary to keep your company compliant.
The memorable acronym “NOMAD” for states with no state level sales tax (New Hampshire, Oregon, Montana, Alaska, and Delaware) may be going out the door. Under a new bill introduced in the Alaska House of Representatives, Alaska would adopt a new two percent state sales and use tax and enter the Streamlined Sales and Use Tax Agreement.
The bill hasn’t made much traction since its introduction in August. However, given the creation of the Alaska Remote Seller Sales Tax Commission and its adoption of the “Remote Seller Sales Tax Code & Common Definitions,” it’s clear that Alaska is getting more serious about new revenue through sales tax collection. New local jurisdictions have adopted the common code and definitions throughout 2021, requiring remote sellers and marketplace facilitators to collect and remit local sales tax if they establish economic nexus in the state. We’ll be keeping a watchful eye to see if the state moves beyond local remote seller requirements to a statewide sales and use tax.
State enactment of marketplace facilitator legislation has winded down, but amendments and rulings to address practical scenarios that affect marketplace facilitators and sellers are just ramping up.
Just last month, California proposed amendments to their sales tax regulations to clarify the distinction between marketplace sales and drop shipments: marketplace sales are not drop shipments. The new regulation explains that when marketplace sellers purchase from a supplier who directly delivers the property to California, the supplier is not considered a drop shipper or “true retailer” who is responsible for collecting tax. The responsibility for tax collection remains with the marketplace facilitator. This removes the responsibility for collection of tax on drop shipments where the retailer is not registered. However, there is still documentation required including information regarding the marketplace facilitator.
With so many business, education, and entertainment activities moving online over the past XX months, states have been clarifying their position on how such digital activities and items that support digital activities are taxed.
Washington released a publication on the application of sales and business and occupational taxes to providers of online classes. Live online classes which allow for direct interaction between presenter and participants are not subject to retail sales taxes, and the revenue from these activities are subject to the Business and Occupation (B&O) Service and Other Activities rate. Classes that do not allow for real time interaction, or that only provide a chat room or digital help desk for prerecorded videos, are subject to retail sales tax and the B&O Retailing rate.
Hawaii recently issued a release to clarify the treatment of sales of software with regards to their general excise tax (GET). For canned or prewritten software (or the license of such), the department considers it to be tangible personal property regardless of form or method transferred. Wholesalers have a lower rate for these transactions of 0.5 percent, while sales of tangible personal property and sales of services (custom software is considered a service) are taxed at 4 percent.
Sales tax exemptions are exciting for businesses to claim because they can result in huge cost savings. However, each state has its own stipulations for the who/what/when/where in determining who qualifies and what documentation must be supplied. And updates come out frequently!
Idaho passed a bill this year that amends existing law to revise provisions regarding sales tax exemption certificates and resale certificates. It is presumed in Idaho that all sales are subject to sales tax in order to prevent sales and use tax evasion. Under the new amendment, purchasers bear the burden of validating any exemptions they want to claim. Purchasers must compile the facts necessary to prove that their purchase is exempt from sales tax through exemption certificates and resale certificates. The purchaser also takes on all responsibility and liability of the transaction for any audits in the future.
There is good news for ride share drivers in Washington state. Beginning September 1, 2021, vehicles purchased for certain ride-share programs will qualify for a sales and use tax exemption. The vehicle must be operated by a public transportation agency for the benefit of the public, used by a major employer as part of its commute trip reduction program, or owned/operated by individual employees and registered with employer part of its trip reduction program or with a public transportation agency. To qualify, there are also parameters for seating capacity, length of use as a ride share vehicle, and location of use.
These are just a handful of significant recent sales tax developments in the Western region. Keeping up with all of the changes and updates is no easy feat but it’s critical if you want your company to stay sales tax compliant in the wild west. One missed change can make a huge impact!