2018 sales tax changes: mid-year update

For more than a month, sales tax news has largely centered on South Dakota v. Wayfair, Inc. (Wayfair). While this is important — OK, huge — it shouldn’t eclipse all other sales tax news. Several significant state sales tax changes took effect on July 1, 2018, including those described below.

Economic nexus

The biggest news in sales tax this summer occurred on June 21, 2018, when the Supreme Court of the United States overturned a long-standing rule that a state can only tax a business with a physical presence in the state. In South Dakota v. Wayfair, Inc., the court found the “economic and virtual contacts” the defendants had with South Dakota established nexus, a connection significant enough to trigger a tax collection obligation. Economic nexus has been dominating headlines ever since.

Several states had economic nexus laws in the wings, waiting for the green light before enforcing them. Others have quickly adopted them. Following the Wayfair decision, three states announced they would begin enforcing their laws on July 1, 2018:

• Hawaii
• Kentucky
• Vermont

More states will start enforcing economic nexus laws later this year:

• Alabama, October 1, 2018
• Connecticut, December 1, 2018
• Illinois, October 1, 2018
• Indiana, October 1, 2018
• Minnesota, October 1, 2018
• North Dakota, October 1, 2018
• Wisconsin, October 1, 2018

Bear in mind that this list is organic; many states are still determining how the South Dakota v. Wayfair, Inc. decision impacts their laws. You’ll find an up-to-date list here.

Exempting essentials

Connecticut is exempting sales and use tax on diapers and feminine hygiene products as of July 1, 2018. Maryland codified its exemption for feminine hygiene products as of July 1, as well.

A boat may not be considered an essential item for some folks, but Connecticut deems them important enough to the economy to provide a lower rate of sales tax for them. As of July 1, the sales and use tax rate for vessels, boat engines, and boat trailers dropped from 6.35 percent to 2.99 percent. Additional details.

There are surely some people who consider imbibing sugary beverages a necessity, just as some are attached to their evening cocktail. In California, such thirsty folks can rest easy, knowing their favorite beverages won’t be subject to any new local taxes through 2030. Local soda taxes imposed, extended, or increased prior to January 1, 2018, remain in effect.

Taxing services

Taxing sales by out-of-state sellers isn’t the only way states are looking to increase sales tax revenue. Several states have been looking to expand tax to sales of previously exempt services, and a few have done so:

Kentucky started taxing approximately a dozen new services starting July 1, 2018, including admissions to certain events and facilities (admissions to race tracks remain exempt), indoor skin tanning services, and landscape services. Learn more.

Louisiana is temporarily taxing numerous services from July 1, 2018 through June 30, 2025. Taxable services include admissions to numerous events and certain vehicle repairs. Additional information.

Maryland imposed a tax of 8 percent on sales and charges made in connection with a shared motor vehicle used for peer-to-peer car sharing programs. It took effect July 1, 2018, and will run through June 30, 2020.

Miscellaneous changes

Veterans in Connecticut who never owned or leased property for commercial agricultural production, or did so for fewer than two years, may apply for a tax exemption permit as a “start-up” farmer as of October 1, 2018.

Louisiana is temporarily suspending its state sales tax holidays starting July 1, 2018. As a result, the state will not provide its annual hurricane preparedness sales tax holiday or back-to-school sales tax holiday through June 30, 2025. Furthermore, state sales tax will apply to items normally exempt during the annual Second Amendment sales tax holiday. However, the Second Amendment sales tax holiday isn’t entirely on hold: Local sales tax will not apply to sales of ammunition, guns, and other eligible items.

Want to know more? Check out the mid-year update to the 2018 Sales Tax Changes Report.