January 27 by Gail Cole
Sales tax headlines regarding E-Commerce frequently focus on business-to-consumer (B2C) relationships. So far in 2017, for example, there’s been a lot of hype around E-Commerce giant Amazon voluntarily agreeing to collect sales and use tax in several states, including Louisiana, South Dakota, and Rhode Island. While news stories tend to focus on how these tax policies impact consumers, it’s important not to overlook the businesses that sell through Amazon, as they may suddenly find themselves on the hook for sales tax.
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In fact, every time state and local tax policies change, it impacts businesses that buy and sell the affected products and services. Simple rate changes, either statewide or local, require refreshing point of sale systems, catalogs, quotes, etc. The same goes for more granular changes, such as new product taxability rules.
At the state level, 2017 brings new tax policies to a variety of products and services, including tampons and certain digital goods and services. At the local level, there are new taxes on soda and streaming services such as Netflix. While new tax policies usually trickle down to consumers, it is businesses that need to ensure they’re appropriately applied and reported.
Read on for some of 2017’s most newsworthy sales and use tax changes.
Sales and Use Taxes
As of January 1, 2017, California and New Jersey have new state sales and use tax rates. The rate in California dropped from 7.5 percent to 7.25 percent, while the New Jersey rate decreased from 7 percent to 6.875 percent. New Jersey will see a further drop in 2018.
Numerous local rate changes took effect on January 1 in Florida, Illinois, Washington, and many other states. Arkansas, Nevada, and Wyoming have already announced local rate changes for April 1, 2017, and as the year progresses, local rates in still more states will change.
In addition to rate changes, many states will see changes product taxability in 2017. Some changes are quite specific, such as Ohio’s exemption for investment bullion; others are more broad, such as the repeal of North Carolina’s storage and use tax exclusion (items stored in the state are now subject to tax even if they’re designated for ultimate use outside of North Carolina). If Governor Haslam of Tennessee gets his way, the sales tax rate for food will decrease this year.
Rate changes and new and repealed exemptions can pose a particular challenge for E-Commerce companies with customers in multiple states. Having systems in place to track and manage these changes is sound business.
Streaming content and services
More and more people are turning away from tradition television and toward systems and devices that allow more viewing flexibility. Millennials, for example, are likely to stream their favorite shows and watch them on a variety of devices, such as smartphones or tablets. It therefore stands to reason that a growing number of states and localities are seeking to tax streaming services.
Chicago extended its amusement tax to “any paid television programming, including satellite TV,” in 2015 (given confusion over the new policy, the Chicago Department of Finance will waive penalties and interest for businesses that submit their amusement tax payments by March 31, 2017). As of August 2016, Pennsylvania sales tax applies to digital downloads and subscription services. The utility user’s tax in Pasadena, California applies to video programming services beginning January 1, 2017, and similar taxes already or will soon apply in many other California municipalities.
Digital goods and services are ripe for taxation, and since taxes can be applied at either the state or local level, businesses need to be especially attentive to them.
Soda taxes and tampon exemptions
Expect new taxes on sugary drinks in 2017. The Illinois Senate has introduced the Sugar-Sweetened Beverage Tax Act; the mayor of Santa Fe, New Mexico supports a tax on sugary drinks; and past efforts to impose a soda tax could be renewed in Alabama and Baltimore. New taxes on sugary beverages are set to take effect in Boulder, Colorado, Oakland, California, and Cook County, Illinois on July 1, 2017. And the Philadelphia Beverage Tax (PBT), which went into effect on January 1, applies to more than the drinks themselves — it’s levied on the distribution of sugary drinks, sugar substitutes and non-nutritive sweeteners, and nonalcoholic syrups and concentrates used to prepare beverages.
Meanwhile, a wave of tampon tax exemptions is flooding the nation: New York excepts feminine hygiene products from sales tax as of September 2016; Connecticut will exempt them beginning July 2018; and as of January 1, 2017, feminine hygiene products are exempt from sales tax in Illinois. There’s also a good chance that lawmakers in Texas and Washington D.C. will vote in favor of exempting these essential items this year.
E-Commerce businesses that sell a variety of products nationwide need to keep abreast of changing tax policies and adjust their catalogs, point-of-sale systems, etc. accordingly. Sellers should be on the lookout for changes occurring at the local tax changes, such as city soda taxes.
Change is a constant when it comes to sales and use tax and other transaction taxes. It’s imperative for E-Commerce sellers to have a system in place to account for new sales and use tax rates, exemptions, and tax policies. The Avalara Sales Tax Suite provides a complete, end-to-end sales and use tax compliance solution that can grow with your business. Learn more about 2017 Sales Tax Changes.
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