Governors propose surprisingly specific state sales tax changes – Wacky Tax Wednesday

Governors propose surprisingly specific state sales tax changes – Wacky Tax Wednesday

It’s that time of year again. Governors from New York to California are addressing the state of the state, praising past victories and future successes, and generally putting a positive spin on their budget proposals. Every year, I’m surprised by some of the specific sales tax line items.

Last year, for example, Washington state Governor Jay Inslee’s budget proposal included repealing the bottled water sales tax exemption that took effect in 2010. He got his wish, and sales of bottled water became subject to tax as of Aug. 1, 2017. And, last October, the budget eventually approved by the Connecticut Legislature ended an exemption for sales of admissions to specific events held at specific venues.

There are some curious sales tax proposals for the upcoming fiscal year, as well. New York’s budget proposal would change how tax applies to vending machines sales, while Rhode Island is looking at expanding sales tax to armored car services.

Exempt more vending machine sales in New York

Like many states, New York has distinct tax laws for vending machine sales. It currently provides an exemption for certain food and beverages sold for $1.50 or less through a vending machine that accepts coin or currency only (not debit or credit cards). Products qualifying for the exemption include candy, confectionary, fruit drinks containing less than 70 percent natural juice, lemonade, soft drinks, and sports drinks — all of which are taxable when sold by a store.

As the law now stands, tax applies to vending machine sales of bottled water, food arranged on a plate or prepared and ready to eat, sandwiches, and any food that is heated by or kept warm in the vending machine (excluding broth and hot beverages).

Governor Andrew Cuomo would add bottled water to the list of items qualifying for the exemption. In addition, he proposes upping the price cap to $2.00 or less, and extending the exemption to sales from a vending machine that accepts cashless payments, such as a credit or debit card, as well as cash. Specifically, the proposal is to accept “any form of payment other than coin or currency.” This could conceivably include virtual currency, although the budget proposal doesn’t reference it by name.

If enacted as proposed, it would take effect June 1, 2018, and run through May 31, 2020. See the budget proposal for more details.

Tax armored car services in Rhode Island

Facing a growing budget deficit, Rhode Island Governor Gina Raimondo has proposed broadening the sales tax to security services in general, and armored car services in specific. Taxing these services is expected to generate $9.7 million in FY 2019.

Rhode Island wouldn’t be the only state to tax such services. Sales of armored car, private investigation, and security services have been subject to tax in the District of Columbia since October 2011. They’re also taxable in many eastern seaboard states, including Connecticut, Maryland, and New Jersey.

Gov. Raimondo’s budget proposal also includes a tax on software as a service (SaaS), which would bring in roughly $4.8 million. Recommended amendments to the sales tax law as it pertains to medical marijuana sales would generate an additional $1.5 million.

I don’t envy state lawmakers’ job of balancing the books, but I’m fascinated by what they choose to tax and exempt. Upping the cap on exempt vending machine sales by 50 cents? Taxing armored car services? What will they think of next?

One of the reasons sales and use tax compliance is so challenging is that product taxability laws are constantly being tweaked. Tax automation software helps businesses account for such changes. Learn more.

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