What’s new in sales and use tax?

There’s always something changing in the world of tax, especially sales tax. Here’s a review of some of the recent changes and updates.

Go find out. The Maryland Tax Court has ordered both sides in Apple’s challenge to the state’s digital ad tax to spending six months in expanded discovery with expert witness testimony.

The case hinges on whether digital advertising is comparable to traditional advertising and so discriminatory under the Internet Tax Freedom Act. Earlier, the Court denied the Comptroller of Maryland’s motion to dismiss Apple’s refund claim for Digital Advertising Taxes paid. Observers have noted that Maryland’s Digital Advertising Tax, blocked in 2022 and reinstated in 2023, has led many businesses to submit claims before the tax court.

The eventual final decision could have ramifications for future digital advertising taxes nationwide.

Food fights. Almost anything a human can eat has gone up in price. That’s the cry behind more than political movement these days – and states’ wrangling over sales tax on groceries is no exception.

Most states don’t have general statewide sales tax on groceries, and of those that do, lawmakers in Tennessee, Utah, Alabama and Mississippi are considering elimination or cutting of sales tax on groceries in their states. In Arkansas, Gov. Sarah Huckabee Sanders has reportedly unveiled a proposal to eradicate the remaining 1/8^th-cent state sales tax on groceries.

With the average price of dozen large eggs bumping against $7 nationwide – more than triple that of a couple years ago – anything to help voters survive is likely to remain a hot political tool. But observers say state sales tax cuts on food (and anything else) might become rarer as states face cuts in Medicaid and other federal programs.

Elsewhere

California has extended by three months the deadline for sales and use tax filing in response to recent wildfires in the state. The new due date is April 30 this year, and the automatic extensions are eligible to taxpayers who owed less than $1 million in sales and use tax on 3Q24 returns.

Separately, despite a recent California Senate bill restricting write-offs for lenders, retailers can continue to take bad debt deductions for sales or use tax paid to the state that is later found worthless and written off for income tax purposes.

Colorado has revised sales tax exemption rules to state that the sale, storage, use or consumption of coins and precious metal bullion are exempt from state and state-administered local sales and use taxes. Coins ever used as currency or a medium of exchange in the U.S. or a foreign country, such as quarters, dimes, nickels, and pennies, are exempt. Numismatic items not made from coins or precious metal bullion, such as paper money, tokens, checks and wampum, are not exempt.

Illinois has issued the “Determining Physical Presence and Where a Sale is Sourced – Sales and Use Tax Help Guide” for out-of-state retailers and marketplace facilitators to understand their Illinois tax obligations.

“In-State retailers clearly have physical presence in Illinois,” the guide reads. “Out-of-State retailers must determine if they have physical presence in the State to properly remit and pay the correct amount of tax for their sales.” The guide details the state’s definitions of physical presence, sourcing, online and marketplace sales and in-state inventory.

Illinois retailers are now responsible for destination-based sourcing for sales tax purposes. Retailers who maintain a place of business in the state and who sell tangible personal property from outside Illinois will be required to collect all state and local taxes at the location where the item is shipped or delivered or where the buyer takes possession.

Indiana has ruled that an out-of-state video game publisher that does not sell video games is not engaged in taxable transactions when it offers game buyers optional subscriptions, in-game items and virtual currency. The state clarified that these do not incur Indiana sales tax as they aren’t tangible personal property or specified digital products.

Louisiana, citing cost-cutting, will no longer mail state sales tax returns to businesses. Companies must submit state sales tax returns and payments by filing and paying electronically through the Louisiana Taxpayer Access Point or through Parish E-File or by downloading a Louisiana return.

Maine says that registered retailers may no longer claim a credit for sales tax paid on items later re-sold at retail. If a retailer is unable to issue a resale certificate, a refund can be requested for the sales tax paid on a Sales Tax Refund Application. The credit for sales tax paid on goods purchased for resale is only applicable to retailers who lack an active resale certificate; active registered retailers must use their resale certificate.

Nebraska has updated guidance to stipulate that retailers may not advertise falsely a about paying, assumeing or absorbing sales tax for their customers or that sales tax will not be added to the selling price. Prohibited language for ads includes “tax-free sale,” “pay no sales tax,” “purchases will be discounted by the amount of the sales tax,” “sales tax stimulus sale,” “receive a discount equal to the sales tax,” “we will pay your sales tax” and “tax credit sale.”

Washington has issued guidance on the tax treatment of “surcharges” added to customer invoices to cover such expenses as tariffs, fuel costs and credit card processing. Surcharges are part of the selling price and cannot be deducted even if listed separately on the invoice. They are also taxable under the same classification as the goods or services bought.

If you think your business may be impacted by sales tax developments, contact TaxConnex. TaxConnex provides services to become your outsourced sales tax department. Get in touch to learn more.