Accounting–it’s not just about counting beans.
The start of each new quarter and, in particular, each new year inevitably brings new tax rules. Sometimes the change is vast and impacts international business, like VAT 2015. Sometimes the change is pervasive and impacts businesses in many industries and states, like changing nexus laws. And sometimes it is discrete, like the new exemption from Transaction Privilege Tax (TPT) for non-construction (service) contractors in Arizona.
These 2015 transaction tax changes can spark useful conversations with your clients. Below are three of the most notable changes in the coming year.
Internet sales tax
It didn’t happen on the federal level in 2014, but you can bet Internet sales tax legislation will be back on the table in 2015. Representative Jason Chaffetz (R-Utah), tasked with reshaping the online sales tax legislation last spring, will reportedly introduce the Remote Transaction Parity Act next year. He told Tax Analysts that his legislation will be “very palatable to both sides of the aisle” and will clarify “a number of things that people thought were wrong with the MFA
Even if Congress continues to hem and haw, states will press the point. Online sales tax legislation currently sits on the desk of Michigan Governor Rick Snyder, a longtime proponent of allowing states to tax remote sales. If he signs the bills as expected, they will take effect in October 2015 and Michigan will join the more than two dozen states with established click-through nexus policies. And United States Supreme Court justices are currently considering Colorado’s Use Tax Notification Requirement, the state’s work-around online sales tax law. Are your clients prepared to respond to these or other state sales and use tax legislative changes?
Digital goods and services
Digital goods and services are becoming as taxable as they are popular, but their taxability comes with a host of questions: What is the product/service? Should it be treated as an intangible or a tangible, or as something new? And where is it? Is taxability based on the seller’s server, the buyer’s billing address, or wherever it was downloaded for first use? How states answer these questions impacts how they tax digital goods and services. States will continue to adapt sales tax laws to the new reality in 2015; and, as they adapt, your clients must also adapt.
Complexities surrounding the taxation of digital goods and services are not limited to the United States. On January 1, 2015, the European Union implemented tax changes for businesses that sell e-services directly to consumers. EU businesses must now base Value Added Tax (VAT) on the location of the buyer rather than on the location of the seller, as was their practice. (Businesses in the US and other non-EU providers have been operating under these rules since 2003.) All businesses must now file and remit payments through new online portals known as Mini-One-Stop-Shop, or MOSS. Read more
Your clients will look to you to help them quickly and efficiently respond to upcoming US and international transaction tax changes.
Exemptions tend to be state-specific and diverse; yet since we’re so connected these days, state-specific exemptions can touch a broad range of businesses. Take sales tax holidays. In 2014, 17 states provided 29 tax-free periods for a wide assortment of items, including clothing, emergency preparedness supplies, energy efficient products, hunting supplies, and school supplies. Businesses selling any of these items in affected states need to reprogram point of sales systems to not collect sales tax during the interval of the tax-free period. 2015 is likely to bring additional sales tax holidays, which are already being considered in Ohio and Texas.
Yet sales tax exemptions can trip up businesses any time of year, not just during tax-free periods. Sales tax compliance is particularly challenging for clothing retailers. For example: clothing is generally subject to sales tax in Texas and generally tax-exempt in Pennsylvania (unless it’s formal wear, which is generally taxable). In New York, where fashion is king, clothing and footwear costing less than $110 per item/pair is exempt from the state sales tax but may be subject to local sales tax. Or it may not. It depends where it’s sold/purchased. There will be additional confusion in 2015, when clothing costing less than $50 will be exempt from Connecticut sales tax.
Properly managing sales and use tax exemptions adds another layer of complexity to the already challenging task of sales tax compliance. Simplifying the process helps mitigate risk.
It’s no secret that sales tax is complicated. Implementing automated sales tax software as a service will enable you and your clients to improve sales tax management. Learn more.