United States Supreme Court.
The United States Supreme Court announced on January 12, that it has granted certiorari and will hear a case related to state taxes – something that does not happen often! The High Court could finally settle an ongoing battle between e-retailers and states about how online purchases are taxed, and in the process may overturn a 1992 ruling which currently prevents states from collecting sales taxes on online purchases unless the seller has a physical presence in the state. An overhaul of this nature would change the state tax landscape significantly and require more online sellers to collect sales tax.
Based on a long standing Supreme Court ruling from 1992 (Quill Corp. v. North Dakota), online retailers are not required to collect sales tax unless they have a physical presence (such as an office, inventory, or people) in a state. Over the past several years as online purchases have become prolific and states are losing sales tax revenue, the states have fought back by passing creative legislation to allow for collection of sales tax on online purchases. Several state legislatures have recently enacted laws referred to as “economic nexus” provisions, where a company creates nexus in a state by virtue of a minimum amount of sales revenue or instances of sales into a state, instead of looking to the physical presence threshold. Some states, like Colorado, have passed onerous reporting mechanisms to, in effect, report on their customers who may not be self-assessing use tax.
What’s on the horizon for state and sales tax news this year?
Happy New Year from everyone at Miles Consulting Group! We hope you had a wonderful holiday season and are looking forward to 2018. We certainly are!
What’s on the horizon for the coming year? We’re looking forward to seeing how the following state tax news unfolds during this year:
- States’ conformity to the new federal tax act just passed. Many states may de-couple from some of the changes in the federal law. Planning for this could prove challenging!
- Supreme Court cases: It will be interesting to see if some of the state legislation we’re watching makes it to the U.S. Supreme Court, such as South Dakota’s Senate Bill 106, Ohio’s “cookie directive” or Indiana’s economic nexus. Could this finally be the year that the Supreme Court (or Congress) weighs in on the online sales tax debate?
- Increased compliance for those that decide not to collect sales taxes (because they don’t have nexus in a state), but require sharing customer data in states such as Washington and Colorado. We expect more states to jump on this bandwagon in 2018.
Could an Amnesty Program erase your tax burden?
There is a new scheduled amnesty program that may help businesses correct overlooked tax obligations if they have been selling products and services in other states. Many companies engage in multi-state sales through an intermediary, like Amazon, eBay and similar organizations called “fulfillment services.” The fulfillment centers place a seller’s inventory in warehouses in multiple states to expedite shipping, but in the process, create nexus for the seller in those states. As such, the sellers have an obligation to collect sales tax and pay income tax. Unfortunately, unpaid taxes may incur penalties and interest. Now there may be a short time window to correct these errors and avoid interest and penalties.
On Monday, July 31, the nexus committee of the Multistate Tax Commission (MTC) approved the MTC to participate in a multistate sales tax amnesty program for third-party sellers whose only nexus with a state is the use of fulfillment services offered by third-party marketplaces. The MTC is an intergovernmental state tax agency working on behalf of states and taxpayers to facilitate the equitable and efficient administration of state tax laws that apply to multistate and multinational enterprises.
I just returned from an amazing vacation – a cruise of the Mediterranean. We started in Athens, Greece; spent just a couple days there enjoying the history, and then boarded our ship. The cruise took us to the Greek isles of Santorini and Crete, and then we sailed to Italy, the beautiful St. Tropez, France, and finally Barcelona, Spain. We finished our vacation by sampling many, many tapas and wines in Barcelona. About midway through our vacation, I found myself wondering – how could I do US multistate tax consulting somewhere in Europe? I’m still working on that angle, and will certainly keep you posted.
But meanwhile, on the flip side of that equation, we’ve been engaging with several foreign companies who have US operations and find our state tax laws to be, well, challenging! As I tell all my foreign clients – trust me, they are challenging for US companies too! Here are some of the main things for foreign companies to think about as they begin doing business in the US.
How is Indiana changing the way it views nexus?
Multistate tax can be a cumbersome issue. When businesses sell their products across state lines, they need to think about whether they have taxable presence, or nexus, in the state and if their products are taxable.
Generally companies establish nexus by having a physical presence in the state. However, several states are pushing the boundaries of defining the physical presence in order to generate more revenue. Welcome to the concept of “economic nexus.”
Nexus and Physical Presence
As we discuss in a previous post, “nexus” is the term used to describe the minimum connection that a company (taxpayer) must have with the state in order for the state to be able to subject the company to its state taxing schemes (including sales tax, income tax, gross receipts tax and others). Nexus is normally established by companies having a physical presence in the state, by virtue of having employees, or third party contractors acting on their behalf in a state, or the presence of a warehouse or storefront in the state. Inventory in a state can also create nexus. Continue reading
We all buy digital products and music online, but how does Pennsylvania tax them?
Businesses obviously grow by selling their products outside of their local boundaries and across state lines. Pennsylvania (PA) has experienced, like most states, a relatively large amount of sales from companies outside PA, and, with that, the loss in sales tax revenue from those sales, as out of state companies do not often collect sales tax. Pennsylvania has a growing economy, and like most states, it is continually modifying its tax laws to be current with changing conditions and technologies.
Last summer, we wrote an article about a new Pennsylvania law going into effect related to taxing software that is digitally downloaded. This law went into effect on August 1, 2016.
The St. Louis, Missouri Gateway Arch and skyline
This month we travel to the “Show Me” state of Missouri. The people of Missouri have earned their motto as the “Show Me” state for their very practical skepticism of the fads that sweep other parts of the country. This attitude manifests itself in the state government’s approach to business encouragement and regulation. So, let’s look at the state and see how their approach could help your business.
The state is the 21st most extensive by area and is geographically diverse. North of the Missouri River, the state is primarily composed of rolling hills of the Great Plains and south of the Missouri River, the state is dominated by forests. The Mississippi River forms the Eastern Border of the State, eventually flowing into the swampy Missouri Bootheel.
What multi-state tax issues do BioTech and Pharmaceutical companies need to know about? This article explains!
If you’ve been following our series about multi-state tax facts for various facets of the technology industry, you may be aware of one more niche we haven’t discussed yet: BioTech and Pharmaceutical companies. While both these categories fall under scientific research and medicine, they’re integral to technology as well.
- BioTech organizations research living cells, studying and discovering ways to duplicate or modify them so they’re more predictable. This research has a lot of potential for curing or improving the lives of those with all sorts of diseases and conditions, and is at the forefront of scientific discovery, which is reliant on top-of-the-line, innovative tools and technology.
- Pharmaceutical companies specialize in everything surrounding drugs, specifically in-house research and licensing from academia and other businesses (including BioTech companies).
7 Multi-State Tax Facts BioTech and Pharmaceutical Companies Need to Know About
Fact 1: BioTech companies need to be aware of where they’re creating nexus beyond where the company is physically located. Many BioTech firms keep the research in their primary location, which limits instances of nexus being established in other states; however, some companies outsource some aspects of the research, which means nexus could be established beyond their home state.
Fact 2: Pharmaceutical companies may establish nexus in states in which sales representatives visit, even if they don’t complete a sale. In many states common sales activities may trigger nexus. Continue reading
What do semiconductor manufacturers need to know about multi-state tax issues? Read this blog post to find out.
As a semiconductor manufacturing company, what do you need to know about nexus and multi-state tax laws? Despite the fact that much of the manufacturing is often done in other countries (often by third party contract manufacturers), many of these businesses engineer and test the devices domestically, which often makes them subject to a wide range of laws from various states across the country.
6 Multi-State Tax Facts Semiconductor Manufacturing Companies Need to Know About
Fact 1: Nexus extends beyond states in which companies manufacture semiconductors. If they send sales representatives or store inventory across state lines, they may establish nexus without realizing it. Businesses need to be aware of what types of activities create a taxable presence from state to state; we can help with that!
Fact 2: In addition to knowing in which states they’ve established nexus, companies need to note if they’re selling directly to consumers or to resellers. If selling to the end consumer in a state where they have nexus, they’ll need to collect and remit sales tax, whereas if they’re predominantly selling to resellers it’s important they acquire valid resale certificates from their customers. Either case could result in having to file monthly or quarterly sales tax returns. Many businesses miss this step and end up facing headaches under audit, which could have been avoided altogether with proper documentation up front. Continue reading
Are you aware of these multi-state tax facts medical device companies need to know about?
If you’ve been following these series about multi-state tax facts, you know we’ve already covered software and SaaS companies. What about medical device companies?
Because the term “medical device” covers a wide range of instruments, machines, accessories or other tools that can be used both externally (such as tongue depressors) or internally (like pacemakers), there are a lot of multi-state tax questions that arise in this industry.
3 Multi-State Tax Facts Medical Device Companies Need to Know About
Fact 1: As with so many other areas of state tax, a key driver is “nexus,” or taxable presence. Employees of medical device companies often travel frequently to trade shows, doctors’ offices, and for other demo and training opportunities. But because they may not actually sell their products at these events, they often aren’t even aware their business has established nexus across state lines. It’s important to note that third party representatives (beyond just a company’s own employees) can create nexus, as can the presence of tangible property in a state. So, if a doctor’s office maintains piece of demo equipment in his/her office and the medical device company retains title to that equipment, nexus has been created. Or if the doctor helps to engage in the sale of the equipment, she may have become an agent of the company, thereby creating nexus. Continue reading