Ohio Sales Tax Updates: Exemptions for Baby Products

Starting October 1, 2023, Ohio’s Operating Budget introduced new sales tax exemptions related to children and childcare-related expenses. Let’s dive into the details.

Children’s Diapers

Section R.C. 5739.02(B)(60) exempts children’s diapers from sales tax and includes new definitions of both children’s and adult diapers. A diaper is now considered an absorbent garment worn by humans who are incapable of or have difficulty controlling their bladder or bowel movements. Diapers marketed to be worn by children are considered “children’s diapers” and those marketed to be worn by adults are considered “adult diapers”.

Therapeutic and Preventative Creams and Wipes

The new law also provides an exemption for sales of therapeutic or preventative creams and wipes primarily intended for children’s skin. It’s important to note that this exemption applies only to topical treatments marketed for kids. So, your standard grooming and hygiene products won’t fall under this category, even if they’re over-the-counter drugs.

Child Restraints and Booster Seats

Sales of child restraint devices or booster seats that meet the National Highway Safety Administration standard for child restraint systems under 49 C.F.R. 571.213 are now exempt from sales tax. Safety first!

Cribs

Sales of cribs intended for children’s sleeping accommodations are now exempt from sales tax. To qualify for the exemption, these cribs must also meet federal safety regulation standards 16 C.F.R. 1219 or 16 C.F.R. 1220.

Strollers

Transporting your child just got a tax break too. Sales of strollers meant for kids from infancy to about thirty-six months of age that meet the United States Consumer Product Safety Commission safety standard for carriages and strollers under 16 C.F.R. 1220 are now exempt. This includes various types of strollers, such as folding or collapsible strollers, convertible car seats/strollers, and jogging strollers.

 

Let’s address some common questions about Ohio’s Sales tax exemption for baby products:

 

When does the new exemption start?

The exemption only applies to sales made on or after October 1, 2023.

 

Is there a spending limit?

No, there’s no limit on how much you can spend to qualify for the exemption.

 

What if I’m charged sales tax? 

If you think you were wrongly charged sales tax on an exempt product, you can apply for a sales tax refund using the Sales/Use Tax Application for Refund (ST AR) form. Be sure to include proof of payment. 

 

Do online purchases from companies located outside Ohio count? 

Absolutely! The exemption applies to any purchases made while living in or located in Ohio, whether they’re online or in-store. If you believe you’ve been wrongly charged sales tax on an online purchase of an exempt product, provide proof of purchase and apply for a refund using the Sales/Use Tax Application for Refund (ST AR) form.

 

For more information on Ohio sales and use tax laws, visit the Ohio Department of Taxation’s FAQ section.

 

So, there you have it, folks. Ohio’s got your back when it comes to taking care of your little ones. Happy shopping and enjoy those tax exemptions!

Want to learn how we can take sales tax off your plate? Talk to our team of TaxGeeks today.

Michigan Delivery and Installation Rule Changes: What It Means

Sales tax typically applies when a company sells tangible products or services in a state where it has nexus. Some states also charge sales tax on delivery or installation costs. In Michigan, delivery and installation charges are no longer subject to tax. Here’s what the new rule means and how to calculate the tax going forward.  

What Are Michigan’s Delivery and Installation Charges?

Delivery, also known as shipping, charges are the costs of transporting goods or services. Sellers are free to set the fee for delivery or shipping and require their customers to pay it. 

Installation charges are the costs of placing or installing a product or service in the customer’s home or place of business. When someone buys a refrigerator online, they may choose to pay a fee to have a professional bring it into their home, unbox it, place it in the right spot, and plug it in. 

Before April 26, 2023, businesses had to add sales tax to Michigan delivery and installation charges. Starting April 26, 2023, delivery and installation costs are no longer subject to sales tax as long as certain conditions are met.

How Do You Determine if You Need to Tax on Michigan Delivery and Installation Charges?

Figuring out if you need to add sales tax to Michigan delivery and installation charges is pretty straightforward. 

You don’t have to tax delivery and installation if you itemize those costs separately on your customer invoices and if you keep records showing how you calculated the sales tax for those transactions. 

If your customer’s invoice looks like this, you don’t have to collect tax on delivery and installation costs:

  • Four-seater sectional couch: $2,500
  • Delivery charge: $50
  • Installation and set-up charge: $100
  • Sales tax: $150

 

In this case, you only need to charge sales tax on the cost of the couch, $150 (6%, Michigan’s sales tax rate). 

If the following apply, you do need to continue to collect sales tax on delivery and installation charges:

  • You didn’t separately itemize the delivery and installation costs or keep records of the calculation
  • The transaction involved the delivery of electricity or gas (artificial or natural) by a utility

 

Let’s say you sold a couch to a customer but included the cost for delivery and set-up in the furniture price. You need to collect sales tax on delivery and installation charges if your customer’s invoice looks like this: 

  • Four-seater sectional couch: $2,650
  • Sales tax: $159

Why Did Michigan Make the Change?

Michigan made the sales tax change for a few reasons. The state determined that the old way of collecting sales tax on delivery and installation charges was confusing. 

It also decided that the old way of collecting tax on delivery and installation charges created a disadvantage for businesses that offer customers “all-in-one” service. 

What if Your Company Owed Back Taxes?

Michigan’s delivery and installation charges tax rule is retroactive. That means the state’s treasury isn’t going to issue new delivery or installation charges tax assessments for periods before April 26, 2023. 

The Treasury is also identifying and canceling any outstanding sales tax balances for delivery and installation charges that occurred before April 26, 2023. 

Can You Get a Sales Tax Refund?

If your company paid sales tax on Michigan delivery or installation charges before April 26, 2023, you’re not entitled to a refund.

For transactions that occur after April 26, 2023, customers have the right to request a sales tax refund if your company erroneously collects sales tax on delivery or installation costs. As the seller, you can refuse the refund but must then pay any sales tax collected to the state treasury. 

If you agree to the refund, you must pay the customer the amount of sales tax collected in error. You can then request a refund from the Treasury for your business. 

Need more help deciphering what Michigan’s delivery and installation charges tax change means for your business? Our TaxGeeks are standing by. Get in touch and we’ll help you stay sales tax compliant.

Sales Tax Filing Due Dates: August 2023

Most states’ sales tax filing due date is on the 20th for companies that file monthly returns. But there are a few outliers, including states that expect payment by the end of the month. Here are the due dates you need to know for August 2023.

Sales Tax Filing Due Dates: August 15

  • Maine: Monthly sales tax due

 

Maine’s sales tax filing due date is on the 15th of the month after the activity took place. In August, you’re filing a return for July.

Sales Tax Filing Due Dates: August 21

 

  • Alabama: Monthly sales tax due
  • Arizona: Monthly sales tax return due
  • Arkansas: Monthly sales tax due
  • Colorado: Monthly sales tax due
  • District of Columbia: Monthly sales tax due
  • Florida: Monthly sales tax due
  • Georgia: Monthly sales tax due
  • Hawaii: Monthly sales tax due
  • Idaho: Monthly sales tax due
  • Illinois: Monthly sales tax due
  • Indiana: Monthly sales tax due
  • Kentucky: Monthly sales tax due
  • Louisiana: Monthly sales tax due
  • Maryland: Monthly sales tax due
  • Michigan: Monthly sales tax due
  • Minnesota: Monthly sales tax due
  • Mississippi: Monthly sales tax due
  • Nebraska: Monthly sales tax due
  • New Jersey:  Monthly sales tax due
  • New York: Monthly sales taxes due
  • North Carolina:  Monthly sales tax due
  • Oklahoma: Monthly sales tax due
  • Pennsylvania: Monthly and semi-annual sales tax due
  • Puerto Rico: Monthly sales tax due
  • Rhode Island: Monthly sales tax due
  • South Carolina: Monthly sales tax due
  • South Dakota: Monthly sales tax due
  • Tennessee: Monthly sales tax due
  • Texas: Monthly sales tax due
  • Virginia: Monthly sales tax due
  • West Virginia: Monthly sales tax due
  • Wisconsin: Monthly sales tax due

 

The 20th of the month is a popular sales tax filing due date, but since the 20th falls on a Sunday this year, the due date gets pushed to the following business day, August 21. 

Sales Tax Filing Due Dates: August 23

  • Ohio: Monthly sales tax due

 

Ohio’s monthly sale tax returns are due by the 23rd, which falls on a Wednesday this year.

Sales Tax Filing Due Dates: August 25

  • Kansas: Monthly sales tax due
  • New Mexico: Monthly sales tax due
  • Vermont: Monthly sales tax due
  • Washington: Monthly sales tax due

Sales Tax Filing Due Dates: August 30

  • Massachusetts: Monthly sales tax due

Sales Tax Filing Due Dates: August 31

  • Alaska: Monthly sales tax due (although Alaska doesn’t have a state sales tax, many cities do)
  • California: Monthly sales tax due
  • Connecticut: Monthly sales tax due
  • Iowa: Monthly sales tax due
  • Missouri: Monthly sales tax due
  • Nevada: Monthly sales tax due
  • North Dakota: Monthly sales tax due
  • Utah: Monthly sales tax due
  • Wyoming: Monthly sales tax due

 

The last day of the month is another popular sales tax due date.

Simplify Your Sales Tax Return Filing

Need help keeping track of your monthly sales tax filing deadlines? TaxCloud’s sales tax filing services streamline sales tax filing wherever and whenever your returns are due. 

Don’t live in fear of missing a deadline. We’ve got you covered. Get in touch, and we’ll show you how it works.

Sales Tax Nexus in Louisiana: What’s New?

Some states require businesses to reach a sales threshold before paying sales tax. Others require businesses to reach a transaction threshold. In a few states, it’s an either/or situation. Sales tax nexus in Louisiana was previously an either/or situation. But that’s changing on August 1, which should be good news for ecommerce businesses everywhere.

Nexus: A Refresher Course

What’s nexus again? The short and simple answer is your company’s connection to a state. Nexus rules vary by state, but one thing is constant. Ever since South Dakota v. Wayfair, a business doesn’t have to have a physical presence in a state to trigger nexus. Economic nexus is sufficient for a state to require your company to collect and pay sales tax.

States typically have thresholds that businesses need to reach before paying up. If a state has a sales threshold, your company needs to collect and pay tax once it reaches a dollar amount in sales in that state, like $100,000.

Some states have a transaction threshold, which requires companies to pay sales tax once they make a certain number of sales, such as 200. 

Sales Tax Nexus in Louisiana

Sales tax nexus in Louisiana required sellers to collect and pay tax when they had either $100,000 in sales or 200 transactions. That placed a heavy tax burden on sellers with a high number of low-value sales. For example, a business that sells inexpensive products could easily have just $1,000 in sales but more than 200 transactions.

Starting on August 1, 2023, Louisiana is doing away with the transaction threshold. The state’s legislature voted unanimously to repeal the transaction threshold. 

The change in the sales tax nexus in Louisiana also affects the sales threshold for some companies. Starting in August, the threshold for marketplace facilitators changes from $100,000 in gross sales to $100,000 in retail sales. Wholesale or resale sales won’t count toward the threshold limit.

What the Change Means for You

If your company previously met Louisiana’s transaction threshold but not the sales threshold, the sales tax nexus change can mean you no longer need to collect, pay or file sales tax in the Pelican State.

Of course, if you need clarification on whether you have nexus in Louisiana or your company’s sales tax obligations with the state, we’re here for you. TaxCloud automates sales tax compliance.  

We’ll make sure your business collects the right amount of sales tax during every transaction. Once Louisiana’s sales tax nexus change goes into effect, our software will automatically include the update, so you don’t have to worry about collecting tax your company doesn’t actually owe.

States update their sales tax rules and nexus requirements frequently. Our TaxGeeks stay on top of all the latest changes. 

We’ll help you stay compliant no matter what the rules are. Get a sales tax compliance assessment today to see what you might owe and where.

Sales Tax Filing Due Dates: July 2023

Sales tax filing due dates vary by state. To mix things up, some states have different deadlines based on how frequently your company files. As we round into a new fiscal year (or the third quarter, depending on how you roll), here are the due dates you need to know for July.

Sales Tax Filing Due Date: July 17

  • Maine: Monthly, quarterly and semi-annual sales tax due


Maine’s typical
sales tax filing due date is the 15th of the month, but since that falls on a Saturday in July, the due date gets pushed to Monday, July 17.

Sales Tax Filing Due Date: July 19

  • Florida: Monthly, quarterly and semi-annual sales tax due


In Florida, sales tax is due on the first of the
month following the reporting period, but the state is nice enough to give businesses a 20-day grace period. So if you file and pay your Florida sales tax by July 19, you’ll avoid a late fee and interest.

Sales Tax Filing Due Date: July 20

  • Alabama: Monthly and quarterly sales tax due
  • Arkansas: Monthly and quarterly sales tax due
  • Colorado: Monthly and quarterly sales tax due
  • District of Columbia: Monthly and quarterly sales tax due
  • Georgia: Monthly and quarterly sales tax due
  • Hawaii: Monthly, quarterly and semi-annual sales tax due
  • Idaho: Monthly and quarterly sales tax due
  • Illinois: Monthly and quarterly sales tax due
  • Indiana: Monthly sales tax due*
  • Iowa: Monthly sales tax due*
  • Kentucky: Monthly and quarterly sales tax due*
  • Louisiana: Monthly and quarterly sales tax due
  • Maryland: Monthly quarterly and semi-annual sales tax due
  • Michigan: Monthly and quarterly sales tax due
  • Minnesota: Monthly and quarterly sales tax due
  • Mississippi: Monthly and quarterly sales tax due
  • Nebraska: Monthly and quarterly sales tax due
  • New Jersey:  Monthly and quarterly sales tax due, quarterly pre-pay taxes due
  • New York: Quarterly pre-pay taxes due
  • North Carolina:  Monthly sales tax due*
  • Oklahoma: Monthly, quarterly and semi-annual sales tax due
  • Pennsylvania: Monthly and quarterly sales tax due
  • Puerto Rico: Monthly sales tax due
  • Rhode Island: Monthly sales tax due*
  • South Carolina: Monthly and quarterly sales tax due
  • South Dakota: Monthly, bimonthly, quarterly and semi-annual sales tax due
  • Tennessee: Monthly and quarterly sales tax due*
  • Texas: Monthly and quarterly sales tax due
  • Virginia: Monthly and quarterly sales tax due
  • West Virginia: Monthly and quarterly sales tax due
  • Wisconsin: Monthly sales tax due*


July 20 is a busy day for sales tax. Note that some states, such as Indiana, Iowa, Kentucky and North Carolina, have different due dates depending on whether your business files monthly, quarterly or semi-annually.

* = states with multiple due dates

Sales Tax Filing Due Date: July 24

  • Ohio: Monthly and semi-annual sales tax due


Maine’s monthly and semi-annual sale tax returns
are typically due by the 23rd, but since that falls on a Sunday in July, the due date gets pushed to the 24th.

Sales Tax Filing Due Date: July 25

  • Kansas: Monthly and quarterly sales tax due
  • New Mexico: Monthly, quarterly and semi-annual sales tax due
  • Vermont: Monthly and quarterly sales tax due
  • Washington: Monthly sales tax due*


* = states with multiple due dates

Sales Tax Filing Due Date: July 28

  • Arizona: Monthly and quarterly transaction privilege tax due


Fun fact: Arizona calls its sales tax a “transaction privilege tax” and
taxes companies for the privilege of doing business in the state.

Sales Tax Filing Due Date: July 31

  • Alaska: Monthly and quarterly sales tax due
  • California: Monthly, quarterly, semi-annual, fiscal annual and quarterly pre-pay sales tax due
  • Connecticut: Monthly and quarterly sales tax due
  • Indiana: Fiscal annual sales tax due*
  • Iowa: Quarterly prepay and quarterly sales tax due*
  • Kentucky: Fiscal annual sales tax due*
  • Massachusetts: Monthly and quarterly sales tax due
  • Missouri: Monthly and quarterly sales tax due
  • Nevada: Monthly and quarterly sales tax due
  • North Carolina: Quarterly sales tax due*
  • North Dakota: Monthly, quarterly and semi-annual sales tax due
  • Rhode Island: Quarterly sales tax due*
  • Tennessee: Fiscal annual sales tax due*
  • Utah: Monthly and quarterly sales tax due
  • Washington: Quarterly sales tax due*
  • Wisconsin: Quarterly sales tax due*
  • Wyoming: Monthly and quarterly sales tax due


The last day of the month is another popular sales tax deadline. Note that some states, such as North Carolina and Rhode Island, collect sales tax for quarterly filers on July 31, rather than on July 20.

* = states with multiple due dates

Simplify Your Sales Tax Return Filing


Don’t want to set up a million calendar reminders just to keep up with all the different sales tax filing due dates? We hear ya. Our
sales tax filing services automate the process of filing and paying your sales taxes wherever and whenever they’re due. 

Say goodbye to pesky reminders or the fear of missing a deadline. TaxCloud has you covered. Contact us today and we’ll show you how it works.

Ecommerce Sales Tax Rate Changes in 2023: The Colorado Retail Delivery Fee

When the Colorado retail delivery fee was rolled out in July 2022, things got off to a rocky startOne year later, the state passed further legislation exempting certain retailers from the fee. It’s just one of a few Colorado eCommerce sales tax rate changes in 2023. Here’s what it means for you.

Colorado Retail Delivery Fee Details

Colorado’s retail delivery fee was the first of its kind, a 27-cent fee on the delivery of tangible goods to addresses in Colorado. The purpose of the fee is to support the Centennial State’s transportation infrastructure. 

Initially, retailers had to list the fee on the invoice or receipt, collecting it from each customer. The fee applied per delivery, so no matter how many items were purchased or the size of a delivery, it was 27 cents.

Sellers pay the retail delivery fee to the state when they file and pay their sales tax. The fee is only collected with delivery orders when sale tax is collected, too. If a customer’s order contains only items that are tax-exempt, sellers don’t have to collect the retail delivery fee.

Exemptions to the Colorado Retail Delivery Fee

Starting July 1, businesses with less than $500,000 in sales the previous year no longer need to collect the fee.

The new legislation also allows sellers to pay the fee out of their own pockets rather than requiring them to pass it on to their customers or include it as a line item on invoices or receipts. 

Colorado Sales Tax Rate Changes in 2023

Colorado didn’t just tweak the requirements for the Retail Delivery Fee. It also changed the rate. Starting July 1, the fee will increase to 28 cents per delivery. 

It’s just one of a few Colorado eCommerce sales tax rate changes in 2023. State and local sales taxes get updated twice a year, on January 1 and July 1. In July of this year, several Colorado cities are updating their sales tax exemptions while Grand Junction, Colorado, is bumping its sales tax rate up to 3.39% from 3.25%. 

What Do These Sales Tax Rate Changes Mean for Your Business?

What do Colorado’s retail delivery fee and sales tax rate changes mean for your ecommerce business? If you have nexus with the state and need to collect tax, the amount you collect will change in certain areas. 

But don’t sweat those changes. TaxCloud will automatically make the adjustments, so you can be confident that you’re collecting the right tax amount on every sale. Talk to our team of TaxGeeks today to learn more.

Filing Sales Tax Amidst The SVB Collapse

On Friday, March 10, 2023, Silicon Valley Bank (SVB) was hit with regulatory enforcement actions that marked the second largest US bank failure since the early 2000s Global Financial Crisis. Understandably, this has forced many businesses to reassess their banking relationships and contingency plans. For merchants who bank with SVB, this situation is particularly challenging and may impact their sales tax filing process.

In light of the recent news, we’re sharing everything that you need to know about how the sales tax filing process at TaxCloud will work if you’ve been affected by this event or should your bank become insolvent.

How Does This Affect TaxCloud Customers?

First and foremost, TaxCloud wants to reassure its customers that it has no exposure to SVB. TaxCloud is filing taxes and remitting to states normally.

While this situation is unsettling, regulators have said depositors will have access to their deposits starting Monday, March 13, and have set up a new facility to give banks access to emergency funds. The Federal Reserve has also made it easier for banks to borrow from them in emergencies such as this.

How Does This Affect Silicon Valley Bank Merchants?
For merchants who bank with SVB or whose bank becomes insolvent, there are some important things to know about state sales and use tax. State laws require that all returns be filed in a timely fashion, and if funds are not available, the returns should be filed without payment which will result in an unpaid sales tax liability.

State laws define penalties and interest to be assessed to merchants when late payments occur, but TaxCloud will work with affected merchants to file for an abatement when possible. It may take several weeks or longer to recover penalties that were applied by the state.

TaxCloud will also help retrieve tax remittances as soon as possible and remit that to each state. Returns filed without payment should be adjusted as soon as possible to include the sales tax remittance. Penalties and interest may apply in these instances, but state laws also provide abatement in certain circumstances.

TaxCloud does not assume liability for penalties or interest where a sales tax remittance was not funded in a timely fashion but we expect the unusual nature of this situation will be considered by each state as part of the abatement process.

Moving Forward Together

This is a difficult time for many businesses, and we want to be a partner to merchants through this process. We hope this post helps businesses like yours navigate these challenges and continue to thrive.

Please don’t hesitate to contact support at service@taxcloud.net should you have questions or concerns.

 

Featured image: Focal Foto

Missouri: the final sales tax state to adopt economic nexus standards

It took a while, but as of January 1, the Show Me State became the final general sales tax state to require remote sellers and marketplace facilitators meeting economic nexus standards to collect and remit sales or use tax for sales to Missouri customers.

In the wake of the Wayfair 2018 decision by the U.S. Supreme Court overturning the longstanding physical presence test, by 2022 all general sales tax states but Missouri decided to use economic activity thresholds to determine which sellers and marketplaces must collect and remit sales or use tax in their states.

Missouri’s Particulars for Remote Sellers

Thresholds:  $100,000 in sales of taxable tangible personal property sold to Missouri customers and shipped into the state annually.  This includes sales through a marketplace facilitator.

Measurement Period: Each calendar quarter determine if your taxable sales into Missouri exceeded $100,000 in the preceding 12-month period.  When exceeded, you are required to collect and remit tax to Missouri no later than three months following the close of the quarter.

Marketplace Facilitators: The registration requirements, forms, and particulars regarding marketplace facilitators, including the availability of a Timely Discount, are more complex.  The Missouri Department of Revenue has Remote Seller and Marketplace Facilitator FAQs to answer questions.

Registration:  You can register online through the My Tax Missouri portal.

 

TaxCloud

The Bad News: The adopted standards are not ideal because the states have employed a complex array of rules or factors to determine when nexus is met.  The different factors by state include which sales count (gross, retail, or taxable only), whether marketplace sales are included, the value of sales and/or number of transactions that trigger nexus (there are six variations), the measurement period (there are six variations), and when remote sellers must register (there are seven variations).  The mix and match combinations the states have individually adopted are confusing at best.

The Good News: If you are a TaxCloud customer, we automatically track when you meet the economic nexus thresholds and standards in each state and begin collecting and remitting sales or use tax as required in each state. If you are not a TaxCloud customer, sign up at TaxCloud.com to keep up to date and compliant in the complex and constantly evolving world of sales and use tax.

 

TaxCloud is among those actively advocating to the states that they simplify matters by adopting uniform standards across the states that are easy to understand.

Streamline Work Group Improves Exemption Certificate and Related Directions and Information

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Alison Jares is Deputy Director of Business Tax at the South Dakota Department of Revenue. She has been with the department for 24 years starting as a Revenue Agent in the newly formed Taxpayer Assistance Center. In her role as Deputy Director, Alison focuses on sales and use tax policy and training as well as contractor’s excise tax policy and training. She is also active in the Streamlined Sales Tax Program currently serving as the chair of the State and Local Advisory Council. Prior to working for the Department of Revenue Alison worked for the Nash Finch Company in grocery retail operations throughout the Midwest. She is a graduate of the University of South Dakota where she obtained her Bachelor of Administration.

Alison was privileged to be in the first class of the governor’s State Leadership Excellence program in South Dakota. Alison and her family have called the Capitol City of Pierre home for over 25 years.

Russ:  Alison, Christie, David, Thanks for joining us today to talk about the Streamline Sales Tax exemption project.

One of the most significant decisions the SST Governing Board initially made was to allow sellers to be relieved of liability if they did not collect sales tax because they accepted an exemption certificate from their customer at the time of sale or within 90 days of the sale, without regard to “good faith.”  What does this mean and why is this so important to sellers?

Christie:  The purpose of the Streamlined Sales Tax Agreement (Agreement) is to simplify and modernize sales and use tax administration to substantially reduce the burden of tax compliance. The Agreement focuses on improving sales and use tax administration systems for all sellers and for all types of commerce in several areas, one of which is the simplified administration of exemptions (SSUTA Sec. 317).  As part of the exemption administration simplification effort, a single certificate of exemption was created that all SST member states accept. With limited exceptions, if a seller accepts a fully completed certificate at the time of sale or within 90 days of the sale, the seller will be relieved from liability for any tax that might be due if it is determined that the purchaser improperly claimed an exemption and the purchaser will be held liable for the nonpayment of tax. Prior to the adoption of SSUTA Sec. 317, and member states amending their statutes or regulations to comply with Sec.317, a seller was generally not relieved of liability unless it could show that the certificate was accepted in good faith.  In the context of exemption administration, “good faith” means that the exemption claimed on an exemption certificate must be:

  • statutorily available on the date of the transaction in the jurisdiction where the transaction is sourced,
  • applicable to the item being purchased, and
  • reasonable for the purchaser’s type of business.

To require an out-of-state seller to know the answers to the questions raised in this definition for all its customers and for all of the states to which it ships its products is unreasonable and does not fall within the goal of reducing the burden of tax compliance.  So, in the spirit of simplifying sales tax administration and reducing the burden of tax compliance, the Agreement provides for the relaxation of the good faith requirement.   If states are imposing good faith requirements, they are not easing the burden of tax compliance, particularly on remote sellers.   

If, however, a state finds that a purchaser is repeatedly issuing incorrect certificates, the state has the right to contact the purchaser to determine if the purchaser simply does not understand their responsibility or if the purchaser is knowingly claiming an exemption that does not apply and can hold the purchaser responsible for the tax due on those transactions.

Russ:  Has this decision created any problems for the states?

Christie:  Historically most states have had a “good faith” standard in their laws related to sellers claiming an exemption and the documentation required to demonstrate the right to the exemption.  The change to remove that “good faith” standard may have proved more difficult for some states than others.  What difficulties the change has caused the states cannot be specifically identified here.

From an efficiency standpoint, if a state determines a purchaser is improperly issuing an exemption certificate to a particular seller, that purchaser may be improperly issuing exemption certificates to numerous sellers, and it is likely in the best interest of the state to contact that purchaser to correct the situation.

While all member states are required to remove the “good faith” standard from their laws to be in compliance with the Agreement, there is currently a full member state that has not removed the “good faith” standard from their law.  This has put the state out of compliance with the Agreement.

Russ:  Obtaining and retaining exemption certificates is a critical part of sales tax administration.  The three of you head up a work group that made revisions to the SSTGB Exemption Certificate and the accompanying instructions.  We appreciate your efforts in addressing the complexities of exemption certificates. It is very important for us and our merchants.  You are also working on a disclosed practices matrix for the Streamlined Sales Tax States.  Why did SSTGB think this was an important undertaking?

Christie:  The SST staff identified the need for updates to the Streamlined Exemption Certificate after receiving numerous questions about how to properly complete the certificate. Businesses asked questions specifically regarding the ID number to list when claiming a sales tax exemption on purchases of items to be resold.

Alison:  The business community also asked for clarity regarding what is a “properly completed exemption certificate”. Streamline member states, in accordance with the Agreement, relieve a seller of sales tax liability when the seller accepts a properly completed exemption certificate. The recent changes made to the exemption certificate provide direction to both sellers and purchasers regarding how to properly complete the exemption certificate. Sellers and purchasers want to do what is expected but need states to provide clear instructions.

Russ:  The exemption for resale is one of the most common.  While it is not uniform across the states it is fairly well standardized.  What are some of the most common pitfalls or mistakes for sellers?

Alison:  The most common questions that SST and states receive from sellers include:

  • What is a properly completed exemption certificate?
  • How frequently do exemption certificates need to be updated?
  • Is my business liable for sales tax if a purchaser claims a sales exemption as a resale purchase but then does not resell the item?

The recent updates and changes to the Streamline exemption certificate as well as the disclosed practices member states are working on to assist sellers with these questions.

 Russ:  What are some of the most common pitfalls or mistakes purchasers make when completing an exemption certificate for resale?

David:  Not providing correct ID numbers.

Russ:  What are some significant pitfalls and mistakes for purchasers and sellers with other exemptions? 

David:  Purchasers and sellers might assume a sales tax exemption allowed in their home state is also allowed in all states. This is an incorrect assumption. Purchasers and sellers must research the tax exemptions provided in the state the sale is sourced to. This is one reason Streamlined is creating the disclosed practices specific to the use of the Streamlined Sales Tax Exemption Certificate. These disclosed practices provide direction and resources for purchasers and sellers regarding exemptions allowed in the member states.

Purchasers sometimes mistake use-based exemptions for entity-based exemptions (e.g., agricultural production) and purchase items exempt that do not qualify for the exemption because it is not an exempt use.

Russ:  What encouragement would you give to other states to join the Agreement?

David:  The Agreement provides many benefits to its member states. First and foremost, one of the biggest benefits to membership was the Supreme Court’s favorable view of South Dakota’s membership in Wayfair. While state laws differ, the Court’s holding that membership reduced undue burden on sellers gives comfort to other member states that their economic nexus policies are on firm constitutional footing. 

Disclosed practices, such as the current work on exemption claims, also greatly reduce burden on sellers. It provides a one stop shop for a seller to gain a large amount of information regarding many states. This is not only a benefit to sellers in other states, but also to sellers located in each member’s own state as it provides your own constituents with a vast body of very helpful information. I would encourage non-member states to consider voluntarily responding to the Agreement’s disclosed practices as a way to help reduce burdens on sellers. 

Streamline’s registration system, which allows for registration in all member states by filing one registration also reduces burdens on sellers and encourages sellers to register in states due to how easy it is.

Finally, CSPs provide a low burden and cost effective way for sellers to comply with state sales and use tax laws. 

Russ:  There are hundreds of other state sales and use tax exemptions across the states.  What are the best methods for individual taxpayers and practitioners to understand what exemptions may apply to their businesses and clients and what the requirements are to claim them?

Alison:  The best advice I can give anyone is to contact that state directly. Each situation can be unique. Discuss your specific transaction directly with the state the sale is sourced to.

Many states have written guidance provided on their state website. Use the information as a source to start your review but contact the state to ensure you are understanding and applying the guidance correctly, particularly if the guidance is dated. Streamlined provides links to every (member and nonmember) state’s website and sales tax division under the “Contacts” tab on its website.  This is a quick way to find information for any state.

Russ:  What are some of the most unusual sales and use tax exemptions you have encountered in your careers and in this study?

Alison:  Each state’s tax exemptions are often specific to the leading industries of that state. For example, South Dakota’s primary economic driver is our agricultural industry. There are numerous sales tax exemptions specific to the agricultural industry.

David:  One strange exemption in Michigan is for aquatic vegetation harvesters.

Russ:  What are your recommendations for record keeping so that purchasers and sellers can be comfortable with their practices and know they will be ready for any potential inquiry or audit?

Alison:  Sellers, maintain copies of all exemption certificates, proof of exemptions (such as method of payment), bills of lading or proof of deliver location. These documents can be held in paper or electronic form. Be sure to maintain the documents to support any exemption that your provide to your customers.

David:  Purchasers that did not claim an exemption and paid tax on a purchase should always maintain a copy of their receipt, invoice, bill of sale, etc. that indicates the amount of tax paid.  Failure to do so will likely result in a use tax liability. 

Voluntary Disclosure Agreements: Getting Right With State Taxes

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Richard Cram is the Director of the Multistate Tax Commission’s National Nexus Program in Washington, D.C. The National Nexus Program provides a Multistate Voluntary Disclosure Program that 38 states and the District of Columbia participate in. Cram has recently contributed articles to Tax Analysts State Tax Notes and has presented as a co-panelist at the Georgetown Law School Advanced State and Local Tax Institute and the Paul J. Hartman SALT Forum. Prior to his current position, Cram served for 15 years as the Director of Policy & Research in the Kansas Department of Revenue, and for 2 years as an attorney in the Legal Services Bureau of the Department, in Topeka, Kansas. He has worked as a research attorney for the Kansas Supreme Court, and practiced law as an associate in law firms in Chicago, Illinois and Goodland, Kansas. Cram graduated from the University of Kansas School of Law. He currently resides in Alexandria, Virginia.

Russ:  First things First.  In simple terms, what are voluntary disclosure agreements (VDAs) and what do they typically cover?  And importantly, what are their most common limitations? 

Richard:  A voluntary disclosure agreement is a contract between the taxpayer and the state tax agency, whereby the taxpayer acknowledges nexus with that state for certain tax types, represents its activities in the state and that the taxpayer has not had prior contact with the state, and agrees to perform the following within the required time period:  register, file returns, and pay  past due taxes (including interest) accrued during the state’s “lookback period” (which generally ranges from 3 to 5 prior tax years, depending on the state). In return, the state waives penalties and back tax liability owed prior to the state’s lookback period. 

Voluntary disclosure agreements are generally limited to sales/use taxes, income/franchise taxes, employer withholding taxes, or other excise taxes that the state tax agency administers, but not property taxes. Local taxes associated with these tax types are also included, unless the local tax is locally administered. In that case, the voluntary disclosure agreement would need to be entered into with that local administering authority, which is beyond the scope the MTC Multistate Voluntary Disclosure Program. 

Voluntary disclosure agreements do not protect the taxpayer against audit by the state for the time periods included in the lookback period and going forward. 

If the taxpayer has past due collected but unremitted sales tax or withholding tax, voluntary disclosure agreements generally do not include waiver of penalties or lookback period relief for those amounts. 

Russ:  How does a company most often find out that a VDA is something they may need to explore? 

When the company selling in multiple states seeks competent state and local tax professional advice, the consultant should alert the company to potential tax liability exposure, including the need to seek voluntary disclosure relief. Also, if the company is large enough to have staff dedicated to state and local tax compliance, that staff should be aware of such tax liability exposure and alert the company. Otherwise, it falls upon company leadership to stay abreast of state and local tax developments that may affect the company’s multistate tax liability exposure (such as the 2018 Wayfair decision and states’ enactment of sales/use tax economic nexus laws). The company needs to constantly maintain awareness of its current and historic physical presence and economic presence in all of the states where it is making sales or conducting other business activity. 

Merger and acquisition transactions often result in either the entity being acquired seeking voluntary disclosure relief prior to the transaction, or the acquiring entity seeking voluntary disclosure relief for the acquired entity after the transaction 

Richard:  With the Supreme Court Wayfair decision, widespread adoption of economic nexus thresholds, and other tax changes in recent years many companies are obligated to collect and/or pay taxes in many more states than previously.  Are you finding that many companies do not have sufficient awareness of their potential liabilities? 

Yes. A surprisingly large portion of small-to-medium-size remote sellers apparently still remain unaware of the Wayfair decision and states’ enactment of sales/use tax economic nexus laws.  

Russ:  Because of these changes in the tax landscape, are you seeing an increase in use of VDAs? 

Richard:  Yes. MTC Multistate Voluntary Disclosure Program applications have more than doubled since the Wayfair decision. However, we know that multiples more of businesses out there should be applying but have not yet.  

Russ:  Can VDAs be used for both sales tax and income and franchise taxes?   

Richard:  Yes. The taxpayer chooses in the application which tax types to propose including in the agreement, and one or more tax types can be included. Certainly, if the taxpayer has liability exposure for sales, income and franchise tax and has not had prior contact with the state concerning any of those tax types, they should all be included in the agreement. 

Russ:  If so, must the taxpayer enter into an agreement on both? 

Richard:  As mentioned above, the taxpayer decides in the application which tax types to propose to include in the agreement. When the taxpayer’s application is sent to the state for review, the state may determine that based on the facts represented in the application, the taxpayer has nexus for tax types in addition to the one the taxpayer chose in the application. Then the state may respond that the agreement needs to include those additional tax types before the state is willing to sign the agreement. At that point, the taxpayer can decide to enter into an agreement including those additional tax types, or withdraw the application. Keep in mind the taxpayer can apply to the MTC Multistate Voluntary Disclosure Program anonymously and is not required to disclose identity to the state until the state first signs the agreement and it is sent to the taxpayer for execution. 

Russ:  Given that the taxpayer will be making their presence known, are there any reasons not to include both taxes? 

Richard:  I cannot think of any. The taxpayer certainly wants to avoid entering into a voluntary disclosure agreement for one tax type with the state; Then after the taxpayer has already disclosed its identity to the state in that agreement, the state discovers that the taxpayer has nexus for additional tax types not included in that agreement. The taxpayer could then face back tax liability that would not be eligible for inclusion in another voluntary disclosure agreement. 

Russ:  Once a taxpayer concludes that they have an obligation to collect sales tax, they presumably lower their exposure if they begin to do so as soon as possible. I understand that doing so can actually disqualify a taxpayer from entering into a VDA in many states.  Is this true? 

Richard:  Yes. One of the qualifying criteria for voluntary disclosure relief with states participating in the MTC Multistate Voluntary Disclosure Program is that the taxpayer has not had prior contact with the state concerning that tax type. If the taxpayer has registered, filed returns, and remitted sales tax prior to applying for voluntary disclosure with that state for sales tax, then such prior contact would make the taxpayer ineligible for the MTC Program. The state already has the taxpayer’s identity. The purpose of voluntary disclosure relief is to provide an incentive for an undiscovered taxpayer to come forward to a state and become tax compliant, in return for the relief provided. 

We also see taxpayers who have collected but not remitted sales tax and not registered with the state prior to submitting their application for voluntary disclosure. While this will not disqualify the taxpayer from eligibility for voluntary disclosure, most states will not waive the penalties for failure to timely remit that collected sales tax. Registration for sales tax is what gives the seller the legal authority to collect that sales tax. A business that collects the tax without being registered is breaking the law. 

As long as the taxpayer waits to register and start collecting sales tax until after submitting an application for voluntary disclosure to the MTC Multistate Voluntary Disclosure Program, that activity would not be considered a disqualifying prior contact with the state. The taxpayer does need to disclose in the application the intent to register with the state after submitting the application. Otherwise, registration with the state may trigger notices from the state that otherwise would not be triggered if the state’s voluntary disclosure staff is aware that the applicant is registering with the state.  

Registration after submitting the application but before the state has signed the agreement would provide the state the applicant’s identity prior to the applicant knowing for certain that the state will enter into the voluntary disclosure agreement, but it does allow the applicant to commence collecting the sales tax sooner, thus reducing liability exposure for uncollected tax. 

When the taxpayer waits to register with the state until after the taxpayer receives the state-signed agreement, the taxpayer has assurance that the state is granting voluntary disclosure relief, assuming the taxpayer timely follows through with executing the agreement, registering, filing returns and paying back taxes for the lookback period. 

Russ:  This variation among states can be a real trap for an unsophisticated taxpayer.    Do you have suggestions as to how to deal with this problem? 

Richard:  With a few exceptions, states that participate in the MTC Multistate Voluntary Disclosure Program use the same standard agreement form. When the taxpayer submits an application to the MTC Multistate Voluntary Disclosure Program, selecting the states being applied to, MTC staff will send the taxpayer the standard agreement form for review and approval. Once the taxpayer approves that form (this does not require the taxpayer to sign anything—just approval to move forward with the process) MTC will use that standard agreement form to prepare a draft agreement for the state and send the application along with that draft agreement to the state, which will include the tax types to be included and the proposed lookback periods. If the state finds the draft agreement acceptable, the state will sign the agreement and return it to MTC staff, who will forward it on to the taxpayer, along with instructions for executing the agreement, returning it directly to the state, registering with the state, filing returns and remitting back taxes owed. The state could instead send a counterproposal back to MTC staff (which will be forwarded to the taxpayer) that might change the lookback period, request that additional tax types be included, etc. At that point, the taxpayer can decide whether to continue proceeding forward with the application or withdraw it. Since the taxpayer’s identity has not been disclosed to the state at that point, the taxpayer will be no worse off, should the taxpayer decide to withdraw. 

Even though states may vary on their lookback periods or other policies concerning voluntary disclosure, the taxpayer always has the option to withdraw from the process prior to executing the voluntary disclosure agreement that the state has signed, which is the final step in the process. 

Russ:  What are the other most significant variations among the states?  (e.g. lookback periods, taxes covered, what constitutes inability to use a VDA). 

Richard:  State do vary on the length of their lookback periods, and those can also vary, depending on the tax type. Income or franchise tax periods are generally measured in prior past due tax years, and sales tax lookback periods are measured in months (but roughly equivalent to the income or franchise tax lookback period). We publish on our website a spreadsheet showing the lookback periods for participating states in the Program, which is attached. 

Because the state tax agencies are the entities that participate in our Program, the tax must be administered by that tax agency in order for it to be included in a voluntary disclosure program. Thus, only local income or sales taxes that are centrally administered by the state tax agency can be included in the voluntary disclosure agreement. If the local taxes are locally administered, unfortunately, that means the taxpayer must seek voluntary disclosure directly with those local tax administration entities. For example, Colorado and Louisiana have locally administered local sales taxes, so to the extent those taxes are locally administered, they could not be included in a voluntary disclosure agreement with either of those states and would need to be the subject of separate voluntary disclosure agreements with those locally administered local jurisdictions. However, both states are working toward total central administration of their local sales taxes in the future. 

There may be some variation between the states on what they consider to be a prior contact that would disqualify a taxpayer for voluntary disclosure relief. 

Russ:  When does it make sense to use the MTC VDA process and when might it make more sense to go through individual states? 

Richard:  Of course, we like to think that it always makes more sense for the taxpayer to use the MTC Program for applying for voluntary disclosure to states that participate in our program, rather than applying directly to those states. But taxpayers certainly have the option of applying directly to the any of the states—even those that participate in the MTC Program. The taxpayer can apply anonymously to the MTC Program. The taxpayer needs to fill out one online application and submit it to us, rather than complete each state’s separate application form. We have a standard agreement form that most of our participating states use, rather than each state having its own agreement form. MTC staff serves as a single point of contact on behalf of the states during the voluntary disclosure process up to the point where MTC staff sends the taxpayer the state-signed agreement.  

Taxpayers can also apply only to one state, using the MTC Program. The application does not necessarily need to include multiple states. When the taxpayer has nexus and back tax liability exposure in multiple states, the taxpayer can choose which of those states it wants to apply to and does not need to apply to all of them at once. The taxpayer could later submit an application to those other states not initially applied to. 

Russ: This is pretty complicated stuff.  And the process assumes a need for anonymity and confidentiality.  Is it correct that VDAs are almost always handled by a tax professional on behalf of a company? 

Richard:  The majority of applicants retain a state and local tax professional to handle the voluntary disclosure application process for them, but we do see some business owners  who handle those responsibilities themselves. Determining the taxes that need to be included, the state and local rates in effect at the time of the transactions, and calculating the back tax liability exposure for current and prior years, as well as completing the state’s registration, return filing and tax payment processes can be significant tasks without professional help. 

As you mentioned, the taxpayer’s application is considered confidential taxpayer information, and MTC staff will provide that only to the state to which the taxpayer has applied. Other states are not made aware that the taxpayer has applied to any particular state. Also, once the taxpayer has submitted the application to the MTC Program, the taxpayer is considered to be “protected” from “discovery” by the state during the processing of the application (assuming the taxpayer is timely and actively pursuing the process). If the taxpayer is discovered by the state during the application process and the taxpayer receives an inquiry from the state concerning the tax type that the taxpayer is seeking voluntary disclosure relief for, that discovery will not affect the taxpayer’s eligibility to follow through and complete the voluntary disclosure process. If the application becomes dormant at some point, then that protection from discovery will be lost.  

Russ:  Once a VDA is signed and the taxpayer’s identity is disclosed to the State, do the agreements remain confidential? 

Richard:  Yes. The agreement itself expressly provides that the state will keep the agreement confidential except in response to an inter-government exchange of information agreement or pursuant to a statutory requirement or lawful order. 

Russ:  How long can a taxpayer expect the VDA process to last? 

Richard:  The pandemic has definitely pressured state tax agencies, leaving fewer resources for processing voluntary disclosure agreements. We are telling applicants to expect that the process could take six months. Some states are faster than others in processing applications. 

Russ:  About a dozen states do not use the MTC process, and giants CA and NY are among them.  Why do these states not use the MTC?  Are there major differences in their programs? 

Richard:  I wish I knew the answer to that question. If I did, we would certainly take action to try to address those reasons and get those states on board with our Program. All states, even our participating states, have their own voluntary disclosure programs to which taxpayers can directly apply, if they choose. We feel that the MTC Program makes the process more efficient for taxpayers applying to multiple states, so the taxpayer can complete one application form, instead of each state’s individual application form, and one standard agreement form can be used for each state agreement, instead of each state developing their own agreement form. Also, MTC staff functions on behalf of the states as a single point of contact during the voluntary disclosure process, up to the point when MTC staff sends to the taxpayer the state-signed agreement with instructions for completing the execution of the agreement, registration, return filing and tax payment directly with that state. 

All of the states’ voluntary disclosure programs are fairly similar: a nonfiler can come forward to the state, register, file returns and pay back taxes (plus interest) to the state for that state’s lookback period, and in return, the state will waive penalties and tax liability owed for periods prior to the lookback period.  

Russ:  It seems an important aspect in considering the use of VDAs is risk management.  Not just whether to do one or more, but what the timing should be.  What are some of the considerations and strategies companies may want to consider in making these decisions? 

Richard:  Proper risk management begins with staying abreast of state and local tax developments that affect multistate businesses. For example, prior to the 2018 Wayfair decision, the rule for sales tax nexus was physical presence: the only state a multistate seller had to worry about registering with and collecting sales tax was the state in which it was physically located. Since that decision, all states have implemented sales tax economic nexus with specific thresholds (sales volume or in some states transaction volume per year) that create economic nexus if exceeded. Thus, within a period of a year or two, a business making retail sales in several states in significant volumes can be exposed to enough back tax liability in multiple states sufficient to threaten that business’s continued existence. First and foremost, then, is staying informed of relevant state and local tax developments. 

Second, the business needs to track its multistate sales and constantly monitor sales and transaction volume, so the business can determine when it may have exceeded a particular state’s economic nexus thresholds, necessitating registration and collection of that state’s sales tax going forward. Businesses must also track where and when they may have physical presence (employees, representatives, inventory or other tangible or real property leased or owned) in a state. 

Ditto the above for income tax liability exposure in multiple states as well. Some states have also enacted economic nexus thresholds for income tax. P.L. 86-272 may offer protection against a state’s income tax for sellers of tangible personal property falling within the scope of protection of that law.  

If a multistate business timely monitors state and local tax developments and tracks its state tax nexus exposure in the states where it is carrying on business activities or making sales, it can register and stay in tax compliance before any significant back tax liability accrues. That would do away with any need to seek voluntary disclosure relief. Depending on its size and resources, the business can accomplish these tasks either with internal staff or by seeking outside professionals. 

Even when multistate nexus and back tax liability exposure has accrued for the business, the sooner it is discovered and acted upon the better, and the easier to resolve through a process such as voluntary disclosure with the states concerned. The MTC Program stands ready to assist, should that need arise.