How Might the Recent Supreme Court Ruling on Sales Tax Affect You?

In a 1992 landmark decision (Quill Corp. vs. North Dakota) the Supreme Court said that a seller had to have a physical presence in a state before that state could require it to collect sales tax. For example, ABC, Inc. a New York corporation, not having offices elsewhere sells through a catalog delivered by mail. A customer in Maine orders snow shoes. Under that decision ABC, Inc. would not have to charge sales tax on the snow shoes. If ABC, Inc. opened a manufacturing plant with one employee, or stored inventory in Maine, that state could require it to collect sales tax.

But, in 1992 online sales barely existed. Now, they account for a substantial, and fast growing, segment of the overall market. Many states have devised ways to capture some of those lost sales and have devised a number of ways to create a “connection” between an out-of-state seller and the state. One of the most popular is the “click-through nexus law”. Basically, if a buyer clicks on an ad on a website maintained in the state where the sale is made. There’s usually a threshold on such sales. For example, the rule doesn’t apply until sales in the state top $10,000. There are other approaches that are not as popular. Finally some states have not yet addressed the issue.

In the current case decided by the U.S. Supreme Court, South Dakota vs. Wayfair, Inc., South Dakota enacted a law in 2016 that required out-of-state retailers that deliver more than $100,000 in goods or services or make 200 or more transactions annually in the state to collect and remit sales tax. The law was written in such a way to enhance its chances for surviving a court battle that did, indeed, come to pass. The Court found a number of faults with the 1992 Quill decision and noted the changes created by the internet since then. The Court found that the 2016 South Dakota law was valid, noting that the safe harbor threshold for activity did not unduly burden businesses.

So, what does this all mean? Look for most states to enact laws to tax out-of-state sellers using a safe harbor threshold similar to that in use by South Dakota. Using the same threshold would make challenging the state law impossible. A lower threshold could leave the state vulnerable. States with dissimilar approaches currently may change their laws. It’s possible Congress could enact legislation to avoid a multitude of different laws. That seems unlikely given the current state of Congress. If you sell via the internet and your sales could reach the thresholds mentioned above, you would be wise to start adapting your systems to track sales by state and, if appropriate, by local jurisdiction.

Do you think the recent Supreme Court ruling is fair?

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com

Other Social Media Outlets: Facebook.com/SolidTaxSolutions.

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

 

YOUR BUSINESS MAY BE OPERATING IN MORE THAN ONE STATE….AND THAT MIGHT BE A BIG AND COSTLY SURPRISE TO YOU!!

      Why you might ask?

Well let me tell you….since you asked.

Each state has its own regime for corporate income tax, sales tax, use tax, and other revenue raisers. Typically, you are subject to a state’s taxes if you have a nexus to the state.  Nexus means having a substantial physical presence within a state, such as maintaining offices, warehouses, or a sales force. The presence may be permanent or temporary.

However, as states look to expand their ability to tax, the concept of nexus is growing as well, and may cause you to become subject to a state’s taxes without any conscious decision on your part to transact business there. so, for example, merely traveling on business by airplane creates nexus in a number of states. And with the advent of online sales, a number of states have created “click-through nexus“, where online (remote) sellers with a certain level of sales are deemed to have sufficient nexus to collect sales tax in the state where the sales occur (the location of the buyer even though the seller is in another state).

The 2016 Bloomberg BNA survey of State Tax Departments found some startling information that you should know about when it comes to nexus. (Note: You can download a complimentary copy of the survey, but you have to provide your email, name, company, and zip code).

Key Findings From the Survey:

      • Using FedEx or UPS to deliver goods in another state can create sales tax nexus for remote sellers (this is so in 1 out of 4 states).
      • Because of the complicated tax rules, some businesses may be subject to double taxation (i.e., tax on the same income, sales, etc. in more than one state). While there may be some deductions or credits for taxes paid in one location against taxes in other, the write-offs may not fully account for the taxes.
      • Guidance on how pass-through entities (S Corporations, Partnerships) should apportion income to the states in which there is nexus is largely unclear; only 6 states have clear guidance rules.

Bottom line

Talk with your tax advisor to determine your business’s exposure to taxes in states that you may not think have a physical presence in. If you learn you will be treated as having a nexus elsewhere, then discuss ways to minimize your tax bill in any of these other states.

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

Categories: Business, Income Tax, Sales Tax

Which Clothing Items are Exempt from Sales Tax in New York State?

I just finished writing an article today (December 2, 2015) on our Facebook page
(facebook.com/SolidTaxSolutions – or just click on the Facebook icon located in the right sidebar of this page) about certain qualifying items of clothing that are exempt from New York State sales tax and, for certain counties, exempt from local sales tax.

So basically, clothing, footwear, and items used to make or repair exempt clothing sold for less than $110 per item or pair are exempt from the New York State 4% sales tax, the local tax in localities (New York City and 8 other counties) that provide the exemption, and the ⅜% Metropolitan Commuter Transportation District (MCTD) tax within exempt localities in the MCTD.

The following two charts list examples of exempt and taxable clothing, footwear, and items used to make or repair exempt clothing (Happy Holiday Shopping!).

 

Exempt Items
Aerobic clothing
Antique clothing (for wear)
Aprons
Arm warmers
Athletic supporters
Athletic or sport uniforms or
clothing (but not equipment such as mitts,
helmets and pads)
Bandannas
Bathing caps
Bathing suits
Beach caps and coats
Belt buckles
Belts/suspenders
Bibs (baby)
Blouses
Boots (climbing, fishing, riding, ski,
waders)
Bridal gowns and veils (unless rented)
Caps
Coats and wraps
Corset laces
Coveralls
Diapers (adult – including disposable)
Diapers (children – including disposable)
Dress shields
Dresses
Ear muffs
Eyeglasses (prescription – including
goggles, safety and sun glasses)
Formal clothing (unless rented)
Fur clothing
Garters/garter belts
Girdles
Gloves (batting, bicycle, dress [unless
rented], garden, golf, ski, tennis, work)
Graduation caps and gowns (unless
rented)
Gym suits
Hand muffs
Handkerchiefs
Hats
Hosiery (pantyhose, peds, etc.)
Insoles
Jeans
Jogging suits
Lab coats
Leg warmers
Leotards
Lingerie
Pajamas
Pants (slacks, jeans, etc.)
Ponchos
Prom dress (unless rented)
Rain wear
Receiving blankets
Religious clothing
Rented uniforms (unless formal wear/
costume)
Riding pants
Robes
Scarves
Scout uniforms
Shawls and wraps
Shirts
Shoes (ballet, bicycle, bowling,
cleated, football, golf, jazz/dance, soccer,
track, etc.)
Shoe inserts
Shoe laces
Shoulder pads for dresses,
jackets, etc. (but not athletic or sport
protective pads)
Shower caps
Ski masks
Sleepwear
Slippers
Sneakers
Socks
Sports clothing and uniforms (but not
equipment such as mitts, helmets, and
pads)
Stockings
Support hosiery
Suspenders
Sweat bands
Sweat suits
Ties/neckwear
Tights
Tuxedos (unless rented)
Underwear
Uniforms (occupational, military, scouting,
sport)
Wet and dry suits
Yard goods and notions1
Taxable Items
Antique clothing (collectible, not for wear)
Barrettes
Bobby pins
Costumes
Crib blankets
Elastic ponytail holders
Goggles (nonprescription)
Hair bows
Hair clips
Handbags and purses
Headbands (sweatbands are exempt)
Helmets (sport, motorcycle, bicycle, etc.)
Ice skates
In-line skates
Jewelry
Key cases
Mitts (baseball fielder’s glove, hockey, etc.)
Party costumes
Personal flotation devices
Protective masks (athletic, sport, or
occupational)
Roller skates
Safety glasses (nonprescription)
Sewing accessories (not an integral part of
clothing such as chalk, instruction books,
knitting needles, measuring tapes, needles,
patterns, scissors, pins, thimbles)
Shin guards and padding
Shoulder pads (football, hockey, etc.)
Sunglasses (nonprescription)
Umbrellas
Wallets
Watch bands
Watches
Wigs
Yard goods and notions1

 


1 Note: Yard goods and notions (fabric, thread, yarn, buttons, snaps, hooks, zippers and like items) which are used or consumed to make or repair exempt clothing which become a
physical component part of the clothing are generally exempt.

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

Categories: Sales Tax