Florida Governor Ron DeSantis signed an omnibus tax bill, on May 25, 2023, that includes several sales tax changes and exemptions. The sales tax relief for consumers is part of a broader tax relief bill touted to provide over $2 billion in tax relief during the fiscal year. We reported previously on many of the exemptions here . The legislation establishes a slew of sales tax holidays in 2023 and 2024 including:

School Supplies – July 24, 2023 through August 6, 2023 and January 1, 2024 through January 14, 2024

Disaster Preparedness – May 27, 2023 through June 9, 2023 and August 26, 2023 through September 8, 2023

Freedom Summer – May 29, 2023 through September 4, 2023

Tool Time – September 2, 2023 through September 8, 2023

Energy Star – July 1, 2023 through June 30, 2024

Gas Stoves and Cooktops – July 1, 2023 through June 30, 2024

Detailed information including lists of items that qualify for each tax holiday can be found here.

Permanent sales tax exemptions, effective July 1, 2023, are part of the tax bill and include the following:

Baby and toddler products

Diapers and incontinence products

Oral hygiene products

Machinery and equipment to produce renewable natural gas

Certain agricultural fencing

Firearm safety devices

Services provided by small investigative agencies

Lastly, the tax bill includes relief on commercial leases or rentals by reducing the applicable state tax rate to 4.5% (from 5.5%) on December 1, 2023.

If you have questions on Florida’s new tax relief or other SALT matters, please contact HBK’s SALT Advisory Group at hbksalt@hbkcpa.com.

Quad Graphics Inc. has filed a petition for review with the U.S. Supreme Court (SCOTUS) relative to a recent decision in a sales tax case by the North Carolina Supreme Court. The North Carolina Supreme Court upheld a sales tax assessment of $3.24 million, by a 6-1 vote, issued against Quad Graphics by the North Carolina Department of Revenue (“NC DOR”) on sales that took place outside North Carolina.

Quad Graphics is a seller of printed materials based in Wisconsin. The NC DOR issued a sales tax assessment on sales made by Quad Graphics between 2009 and 2011 to customers located in North Carolina. Quad Graphics did sell the printed materials to North Carolina customers, but the sales occurred entirely outside the state of North Carolina. Quad Graphics received the orders in Wisconsin, delivered the goods to common carriers at their shipping dock (outside North Carolina), and title and risk of loss passed to the customer at this point (also outside of North Carolina).

The North Carolina Supreme Court overturned the decision of a lower Court decision that the sales tax assessment was unconstitutional under the Commerce Clause. Both Courts cited McLeod v. J. E. Dilworth Co., 322 U.S. 327 (1944) in their reasoning. The Dilworth case determined that “a state may not tax sales that occur beyond its borders, even when the goods are purchased for delivery into the taxing state.” There is a notable distinction between sales tax and use tax. A sales tax applies to the sale of goods while the use tax applies to the use of goods (potentially purchased out-of-state). Therefore, a state may tax the in-state use of goods but is not entitled to tax the out-of-state sale of goods. The North Carolina Supreme Court concluded that the state could subject goods purchased for delivery into North Carolina to its sales tax, effectively overruling Dilworth.

The question before the SCOTUS is whether Dilworth remains good law. Quad Graphics argued in its petition that allowing Courts to disregard precedent “would invite anarchy”. They also pointed to potential uncertainty for taxpayers and the risk of significant tax assessments all for (a taxpayer) following precedents established by SCOTUS. The decision by the North Carolina Supreme Court is troublesome for taxpayers as it opens the door for other states to tax transactions occurring outside their borders. Please check our website for updates on this case and whether it is accepted for review by SCOTUS.

If you have questions on sales tax, use tax or other SALT matters, please contact the HBK SALT Advisory Group at hbksalt@hbkcpa.com.

South Dakota, the state that ushered in the economic nexus era for sales tax with the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc., has enacted legislation to drop the transaction count from its remote seller collection threshold. The new law goes into effect on July 1, 2023 and remote sellers will no longer be required to collect and remit the state’s sales tax if they only exceed “200 or more separate transactions” in South Dakota. Remote sellers with $100,000 in gross revenue from sales into South Dakota remain liable for collection of the state’s sales tax.

South Dakota joins a handful of other states in dropping the transaction count threshold which tends to disproportionately impact high-volume, low dollar sellers. For example, a clothing company can easily sell 200 shirts at $20 each into a state thereby triggering economic nexus and its corresponding sales tax obligations. The sales tax obligations create a significant burden on a small business as the $4,000 in receipts (200 shirts x $20) results in a requirement to register for sales tax and file returns in the subject state. Achieving sales tax compliance is rarely as simple as flipping a switch. In the preceding example, the clothing retailer may need to add sales tax software to properly calculate the state and local sales tax based effective rates at the shipping destination. If the state is one of the several that exempt clothing, additional problems arise. Suppose that, in addition to clothing, the company also sells accessories. The retailer may now also need software to properly tax its products in the target state based on category (clothing = exempt, accessories = taxable).

South Dakota’s law change will not likely impact many of our clients, but it does illustrate the sales tax compliance considerations and complexities associated with economic nexus. State tax law changes, such as South Dakota’s, offer a minor respite to smaller business from the onslaught of economic nexus issues facing remote sellers. If your company has questions on economic nexus or other SALT matters, please contact the HBK SALT Advisory Group at hbksalt@hbkcpa.com.

*On December 8, 2022 New Jersey issued Publication ANJ-14 addressing the tax treatment of sign fabricators or installers. The sales tax rules applicable to sign vendors changed on October 1, 2022 as the result of legislation.

New Jersey passed legislation that changes the sales tax rules for sign fabricators and vendors. The new law, effective October 1, 2022, allows sign fabricators and installers to purchase signs and materials exempt as sales for resale. In addition, the law will require that the vendor bill the customer sales tax on the sale of the sign and the installation charges. Prior to effective date of the law change, sign vendors were subject to the state’s rules on contracting and capital improvements. The new law clarifies that the sale and installation of signs are taxable. The exemption for installation charges, under the capital improvement rules, will no longer apply.
For more information on New Jersey’s tax changes applicable to sign vendors, visit the New Jersey Division of Taxation website here.

If you have questions on New Jersey’s sales tax change or other SALT matters, please contact the HBK SALT Advisory Group at hbksalt@hbkcpa.com.

As activity in the board game industry continues its fast pace, developers seeing their sales figures grow face new and different kinds of challenges. One of those is keeping up with sales and use taxes in the various states where they do business. Relatively new laws about reporting and paying sales taxes, even when a developer has no physical presence in a state and even for online sales, must be adhered to and accounted for to avoid a severe negative impact on profitability.

Virtually all states now have so-called “nexus” laws that require sellers of products across state lines to collect, report, and pay taxes on their sales. The regulations can be particularly cumbersome and annoying to board game developers whose profitability is based on volume sales of relatively low-priced products. Most states apply nexus thresholds based on annual sales in dollars, or, what is more likely to burden board game developers, a number of transactions.

Background

In 2018, in South Dakota vs. Wayfair (“Wayfair”), the U.S. Supreme Court denied a challenge to South Dakota’s law requiring remote sellers who sell into the state to collect sales tax if they exceed the state’s economic nexus threshold. The decision materialized into new laws—every U.S. state that imposes a sales tax has passed “economic nexus” legislation—that require out-of-state businesses selling to customers in their states to collect and remit sales taxes on those sales once they have reached the certain sales or transaction thresholds.

Before Wayfair, businesses were required to collect and remit sales taxes only if they had a physical presence in a particular state. Physical presence could refer to an office or other property, or to an employee entering the state to sell or provide services. But in the wake of Wayfair, a physical presence is no longer required for a state to compel sales tax collection. Economic nexus is sufficient and triggered when a business from outside the state sells a product or taxable service into the state.

Economic nexus laws on remote sellers generally require out-of-state sellers to register, then collect and remit sales taxes when the sellers meet sales or transaction thresholds, which are set independently by each state. Many states have chosen $100,000 in sales or 200 transactions as the levels of activity that trigger economic nexus, but each state has its own thresholds, rules, and guidelines.

Cumbersome and expensive

In addition to being cumbersome, complying with state nexus laws can be expensive, especially if the business sells into several states, as each state will have different nexus requirements. The sales tax nexus thresholds apply to annual activity, but sales tax filings are typically required on a monthly or quarterly basis, which can require the seller to add employees, make modifications to its accounting or resource planning systems, or engage an outside consultant or resource to keep up with all their sales tax compliance requirements.

Despite complexity and cost, businesses small as well as large clearly are obligated to determine what additional states they will have to file in. They will have to register with the revenue departments in those states, collect sales tax from their customers, then file returns and remit the taxes. As well, some states have begun to apply the economic nexus standards to corporate income taxes, which could require sellers into their states to file and pay income taxes.

Trade shows

Rules for trade show and convention sales also vary from state to state. Many developers attend Gen Con, Origins, PAX Unplugged and others to demo and sell their games. But sales are typically taxable if the seller is at the show selling for even a couple days. Trade show exhibitors generally need to collect sales tax as well as register in the state with a vendor license if they anticipate making sales at the trade show.

An overview of nexus laws relative to trade show sales in states with major board game conventions:

Indiana

Displaying merchandise at a trade show in Indiana is sufficient to create nexus in the state. Transient retailers are also required to register and collect tax.

Ohio

The state has a safe harbor for sales tax nexus related to trade shows if only attending the trade show as a consumer or participation by out-of-state sellers subject to certain limitations. The state offers a transient vendor’s license when sales are made from a trade show.

Pennsylvania

The state does not have any formal guidance on trade shows and sales tax. However, the policy of the Department of Revenue appears to be that exhibiting and selling at trade shows creates a sales tax collection and filing obligation.

Texas

If the purpose of attending a trade show in Texas is to introduce and sell a product to Texas customers, then the retailer could be required to collect and remit tax. If orders are taken in Texas, then an obligation likely exists based on current case law. Additionally, Texas regulations clearly state that anyone selling in the state must collect tax and have a sales tax permit.

California

Attendance at a trade show in California does not create nexus if limited to 15 days in a 12-month period and less than $100,000 in net income from trade show activities. If sales are made or orders taken, and later delivered to California, tax is due on the transactions. A temporary permit may be obtained for businesses that qualify under the trade show exception.

Solutions

Board game manufacturers might find it difficult to generate sales tax data from their online systems. While developers can typically produce reports of sales by customer with shipping addresses, they might need to add software to their current selling platform or purchase an entirely new software solution to produce the detail needed to comply with the unique laws of the multiple states where they sell their games.

The HBK SALT Advisory Group can help. We have been assisting clients with their economic nexus considerations since South Dakota vs. Wayfair.

Among our services:

• We provide sales/use tax nexus studies based on your sales volume and transaction counts. The study includes the nexus trigger in each state. The nexus study can also include income tax and gross receipts tax obligations based on physical presence and/or factor presence.
• We help businesses identify the states where they have an obligation or tax liability and propose practical solutions. If the company has not been contacted by the state, we can anonymously and proactively approach the state under a voluntary disclosure agreement (VDA). A VDA allows a taxpayer to achieve compliance with the benefit of a limited look-back and abatement of penalties.
• We provide tax advisory services to clients to address all areas of sales/use tax. When businesses create sales tax nexus, they often have questions on preparing returns, determining product taxability, or collecting exemption certificates. Product taxability is an issue for board game developers that provide their games electronically, either by download or SaaS. State treatment of SaaS and electronically downloaded software varies, and many states do not tax SaaS, and to a lesser extent electronically downloaded software.
• We have the expertise and experience dealing with revenue departments throughout the nation that allow us to save our clients money through increased compliance and identification of savings opportunities.

For more information or to schedule a meeting to discuss your sales and use tax obligations, contact HBK SALT at hbksalt@hbkcpa.com

Effective April 1, 2022, the following jurisdictions in Ohio will increase their sales and use tax rates:

• Coshocton County 7.75% from 7.25%
• Mahoning County 7.50% from 7.25%
• Lucas County and City of Rossford are part of The Toledo Area Regional Transit Authority (TARTA) which enacted 0.50% sales and use tax. The rate in Rossford, Wood County will be 7.25% an increase from 6.75%. The rate in Lucas County increases to 7.75% from 7.25%.

Taxpayers should ensure that the rate changes are accurately reflected in their systems so that customers are charged the appropriate sales tax rate. This may include retailers updating cash registers and point-of-sale software and systems. It is a good practice to review sales on the effective date of the rate change to confirm systems are properly calculating the tax. In addition, businesses need to update their use tax rates in order to capture the rate increases when self-assessing use tax in these jurisdictions. Use tax rates are typically updated in a firm’s accounting software or ERP system.

Additional Ohio sales and use tax rate information can be found here.

I am happy to answer further questions regarding how this increase may affect you or your business. Please contact HBK’s SALT Advisory group at HBKSalt@hbkcpa.com.

In 2018, in South Dakota vs. Wayfair (“Wayfair”), the U.S. Supreme Court denied a challenge to South Dakota’s law requiring remote sellers who sell into the state to collect sales tax if they exceed the state’s economic nexus threshold. The decision has materialized into new laws—every U.S. state that imposes a sales tax has passed “economic nexus” legislation—that require out-of-state businesses selling to customers in their states to collect and remit sales taxes on those sales once they have reached the certain sales or transaction thresholds. Before Wayfair, businesses were required to collect and remit sales taxes only if they had a physical presence in a particular state. Physical presence could refer to an office or other property, or to an employee entering the state to sell or provide services. But in the wake of Wayfair, a physical presence is no longer required for a state to compel sales tax collection. Economic nexus is sufficient and triggered when a business from outside the state sells a product or taxable service into the state. Economic nexus laws on remote sellers generally require out-of-state sellers to register, then collect and remit sales taxes when the sellers meet sales or transaction count thresholds, which are set independently by the each state. Some use strictly a dollar amount as a threshold, others a dollar amount and/or a number of transactions. Many states have chosen $100,000 in sales or 200 transactions as the levels of activity that trigger economic nexus, but each state has its own thresholds, rules, and guidelines. What Nexus Means to Businesses Many small and mid-size businesses have been slow to react to the new economic nexus laws. Complying can be cumbersome as well as expensive, especially if the business sells into several states, as each state may have different nexus requirements and sales tax rules. The sales tax nexus thresholds apply to annual activity, but sales tax filings are typically required on a monthly or quarterly basis, which can require the seller to add employees, make modifications to its accounting or resource planning systems, or engage an outside consultant or resource to keep up with all their sales tax compliance requirements. Despite complexity and cost, businesses small as well as large clearly are obligated to determine what additional states they will have to file in. They will have to register with the revenue departments in those states, collect sales tax from their customers, then file returns and remit the taxes. As well, some states have begun to apply the economic nexus standards to corporate income taxes, which could require sellers into their states to file and pay income taxes. Still, there are subtleties that require examination to determine where and even whether to register. Some states count only taxable sales towards their thresholds; others include gross sales or receipts. For example, a manufacturer that sells parts to a wholesaler for resale will not include those “sales for resale” in states where exempt sales are excluded from the threshold measure. However, that manufacture should ensure it receives an exemption certificate from its customer. Tracking and maintaining exemption certificates is key to avoiding any issues with a state that might later challenge the manufacturer’s nexus or filing determination. There are also the matters of materiality and practicality. A business could technically have an obligation to register and file sales tax returns, but will it do so if no tax liability exists and no taxable sales are planned? It is not uncommon for these businesses with minimal exposure to eschew registration. Often the minimal exposure is manageable compared to the administrative burden and costs associated with registering and regularly filing sales tax returns. HBK SALT Solutions How do you measure all those thresholds to determine where you need to register for sales tax? If a state economic nexus law went into effect in 2018, but your business hasn’t registered yet, what do you owe for prior years? There is often more than one solution to the economic nexus puzzle and more than one answer to the question of how to address the related sales tax compliance. The solution for your business needs to consider the quantified tax liability and associated risk. HBK can review your business activity and provide a concise economic nexus analysis. The HBK SALT professional team has been helping businesses address economic nexus and resolve their sales tax compliance issues with state revenue departments since Wayfair broke in 2018. We have sales tax nexus and compliance conversations with clients on a daily basis. We help clients evaluate their sales tax nexus and quantify their exposure. Identifying where your business has sales tax nexus is simply the first step on the road to compliance. There are many factors to consider in assessing sales tax nexus and what steps to take. HBK asks the right questions to craft a solution tailored to your business and its resources. There are many factors that go into determining the best course for addressing sales tax issues arising as a result of economic nexus. Our discussions with you will clarify your company’s issues and needs. The following questions provide a sense of the nuance involved in sales tax and also help identify the options available to taxpayers as they plan for sales tax compliance.

• Is your product or service taxable in states where nexus has been established?
• Does your business have a process in place to obtain exemption certificates from customers?
• Does your business have past tax liability that is best addressed through a voluntary disclosure agreement?
• Does your business have the resources to handle sales tax registrations in multiple states?
• Does your business have the resources to file sales tax returns in multiple states?
• Are your systems capable of calculating sales tax rates and reports in all jurisdictions?
• Does your business need a sales tax software solution?
• Has your activity in other states created nexus or filing obligations for income/franchise or gross receipts taxes?

HBK will evaluate your obligations based on your response to these and other questions and provide an efficient solution. We will develop a plan with your input to address your sales tax responsibilities in an effective manner while considering risk and materiality. Our plan will consider a number of solutions from voluntary disclosure agreements to prospective registrations. A voluntary disclosure agreement is a proactive approach that allows us to contact a state without disclosing the taxpayer’s identity and typically results in the abatement of penalties and a limited lookback period in exchange for payment of tax and interest. If the economic nexus has been more recently established, we may put together a plan for prospective sales tax registration and documentation of prior periods. Through our experience and work, we have established relationships with state and local revenue departments throughout the nation. Our expertise and these relationships have allowed us to save our clients millions of dollars in reduced obligations while also increasing our clients tax compliance. As state and local governments seek to generate more revenue, they are leaving few stones unturned. We expect a substantial increase in state sales tax examinations in the coming years. States spent freely to combat the COVID pandemic and as business returns to normal they will be seeking to refill their coffers. Economic nexus is a tool they can use to generate substantial revenue and its primary target is out-of-state businesses. It is imperative that taxpayers engage their state and local tax expert to help them negotiate the current sales tax landscape and prepare to protect their bottom lines.

As the coronavirus causes more and more businesses to close their doors, and state and local governments order people to stay home, Florida has been working diligently to provide support and resources to employers and employees. Florida encourages anyone with questions related to the coronavirus to e-mail them to COVID19TAXHELP@floridarevenue.com. Here is a breakdown of resources currently available:

Property Taxes – Taxpayers should contact their local county property appraisers and tax collectors directly. Information on how to contact them can be found here: https://floridarevenue.com/property/Pages/LocalOfficials.aspx

Small Businesses – Governor Rob DeSantis has made $50 million available to small businesses located in Florida that have been affected by the coronavirus. Small businesses that have in-between 2 and 100 employees are eligible to apply for a one year, interest-free loan of up to $50,000 per business. This amount may be increased to $100,000 in special circumstances. For more information on details and eligibility, businesses are encouraged to visit the Florida Disaster Loan website: https://floridadisasterloan.org/eligibility-and-loan-process/

Child Support – Florida has temporarily closed all child support offices to customers until further notice. The Child Support Program is providing alternative methods for people to seek help. Forms and requests can be provided via mail or fax. Additional information can be found here: https://floridarevenue.com/childsupport/coronavirus/Pages/default.aspx

Sales Tax and Corporate Income Tax – We are still waiting for guidance on whether Florida will provide official deadline extensions.

We will continue to follow developments and provide guidance as it becomes available.

On July 18, 2019, Ohio Governor Mike DeWine signed the Ohio budget into law. There were an estimated $700 million in across the board tax cuts. The changes include:

• For pass-through entities, the $250,000 business income tax deduction and 3% flat tax remains. However, the tax break was eliminated for lawyers and lobbyists.
• The elimination of the state’s bottom two income brackets and a corresponding 4% cut to the remaining five brackets for personal income tax.
• Required remittance of sales tax for sellers with gross receipts of at least $100,000 from sales into Ohio or engage in 200 or more separate sales. The bill also requires Marketplace facilitators to collect.
• The Film Tax Credit has been broadened to cover post-production work and Broadway-style productions.
• All state manufacturers will be able to apply for a “job retention” tax credit. To qualify, manufacturers need to make a capital investment equal to 5% of tangible property at the facility site, or $50 million, whichever is less.
• Ohio will piggyback off the federal Opportunity Zone program with a state income tax credit equal to 10% of an investment into a qualified fund up to $1 million every two years.

Other measures include:

• Raising the age to buy cigarettes from 18 to 21.
• Creating a new tax on vape products of 10 cents per milliliter.
• Creating a tax credit for property owners worth up to $10,000 for lead paint removal.

Please contact Suzanne Leighton of the HBK Tax Advisory Group at SLeighton@hbkcpa.comfor more information on how these changes to state law could affect your business.