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Navigating the complexities of sales and use taxes is crucial for any business selling goods or services. Sales and use tax laws can be confusing, with regulations varying widely by state and industry. Proper compliance can save businesses from hefty penalties, audit risks, and unexpected expenses. Below is a breakdown of key concepts, including sales tax, use tax, nexus, and tax-exempt purchases, to help business owners understand their obligations and stay compliant. What Are Sales and Use Taxes? Sales tax is a state-imposed tax on the retail sale of goods and certain services collected by the seller at the point of sale and remitted to the state. Use tax, by contrast, applies when goods are purchased out of state for use within a state without sales tax being paid at the time of purchase. For example, if a business buys equipment from another state and no sales tax is charged, the business is typically required to pay use tax to the state where the equipment is used. Understanding the distinction between sales and use taxes is essential for maintaining compliance and avoiding potential penalties. Understanding Nexus and Sales Tax Obligations One of the most important concepts for businesses to understand is sales tax nexus. Nexus refers to the level of connection a business has with a state, determining whether it must collect and remit sales tax there. Traditionally, nexus was established through physical presence, such as a storefront, office, or warehouse. However, the landmark 2018 South Dakota v. Wayfair, Inc. decision expanded the definition to include economic nexus. Now, many states require businesses to collect sales tax if they exceed a certain sales threshold or transaction volume within the state, even without a physical presence. Taxable vs. Non-Taxable Items and Services Understanding which items and services are taxable is essential for compliance. While most physical goods are subject to sales tax, certain services like repairs, shipping, and installation may or may not be taxed depending on the state. This variation can make it challenging for businesses operating in multiple states to calculate and remit taxes accurately. Staying up to date on state-specific sales tax laws is critical, as tax rules can change frequently. The Importance of Sales Tax Compliance For businesses, sales tax compliance involves accurately collecting, reporting, and remitting sales and use taxes to the appropriate state authorities. Proper compliance not only avoids costly penalties and audits but also safeguards a business’s reputation. To learn more, read the full article on our website. https://lnkd.in/gNJMZjBt

The Texas Comptroller of Public Accounts has recently revised its publication on contesting disagreed audits, examinations, and refund denials related to sales and use tax. The updated guidelines offer taxpayers a clearer understanding of their rights and the procedures to follow when they disagree with the Comptroller’s audit findings or tax assessments. If you’re a Texas taxpayer facing such issues, understanding your options can help ensure that you’re not at a disadvantage when contesting these decisions. Let’s Break Down The Key Elements of This Revised Publication 1. Pre-Audit or Pre-Examination Disagreements Before an official audit or examination notification is received, taxpayers have several options to address potential issues: Reconciliation Conference: This is an informal meeting between the taxpayer and the Comptroller’s office where both parties can attempt to resolve issues without proceeding to a formal audit. Requesting Taxability Guidance: If the taxpayer is unsure about the taxability of certain transactions, they can request guidance from the Comptroller’s office. This guidance can help avoid future disagreements and streamline the process. Independent Audit Review Conference: Taxpayers may request an independent review of their records by an experienced tax examiner who can provide a second opinion, potentially resolving discrepancies before the formal audit begins. 2. After Receiving Audit or Examination Results Once a notification of audit or examination results is issued, taxpayers have a more structured set of options available to contest findings: Request for a Conference: If a taxpayer disagrees with the audit findings, they can request a conference to discuss the results in more detail. This provides an opportunity to present additional evidence or clarify any misunderstandings. Statement of Grounds for Administrative Hearing Requests: If a resolution is not achieved through a conference, taxpayers can formally request an administrative hearing. This involves submitting a statement outlining the specific grounds for contesting the audit results. Notice of Intent to Bypass the Hearing: In some cases, taxpayers may choose to bypass the formal hearing process if they believe a resolution can be reached through other means, such as direct negotiation with the Comptroller’s office. 3. Penalties, Interest, and Waivers Understanding the financial implications of contested audits is crucial: Penalty and Interest: If the audit results in additional taxes owed, the taxpayer may also be required to pay penalties and interest. The revised publication discusses how penalties are assessed, the rates of interest, and how taxpayers can calculate the amount owed. For further information, read the full blog post here: https://lnkd.in/eegyvnPh Reach out to Thompson Tax today for your sales and use tax needs. We are your Trusted Tax Advisors.

Michigan recently revised its Sales and Use Tax guidance for lease transactions, introducing key updates that impact tax obligations for lessors and lessees. Use Tax on Rental Receipts: Lessors opting to pay use tax on rental receipts instead of purchase costs must pay tax on the total rental receipts. Exclusion of Delivery and Installation Charges: Delivery and installation charges are excluded from the taxable base if they are separately stated in the lease agreement or invoice. School Bus Exemption Expansion: The sale or lease of a school bus, as well as transportation-related services and adaptive equipment, are exempt from tax when the school bus is primarily used under a contract with a public school or academy representative. Definition of “Lease” for School Bus Exemptions: The provision of an operator along with the school bus no longer disqualifies the transaction from being considered a lease for tax exemption purposes. To make a Lessor Election (From Michigan Revenue Administrative Bulletin 2024-18)  In order to properly make a lessor election, a purchaser may complete form 3372, Michigan Sales and Use Tax Certificate of Exemption, selecting “For Lease” as the basis for the exemption along with providing the lessor’s sales tax license or use tax registration number. This form is not required to be submitted to Treasury unless requested and should be provided to the seller to be retained for their records. Alternatively, a lessor may provide the same information required by form 3372 in a different format. See RAB 2024-11 for more general information regarding claiming an exemption. A taxpayer that makes the lessor election will lose that election if tangible personal property is used in anyway other than leasing it, including any personal use. MCL 205.97(2). If this occurs, tax is due at the time of conversion to a taxable use on the original purchase price of the property. Id For more information, consult the Michigan Department of Treasury or a qualified tax professional. At Thompson Tax, we offer expert guidance tailored to your sales and use tax needs. We are your Trusted Tax Advisors – contact us today!

Illinois officially began applying destination sourcing rules for sales tax as part of the implementation of the Leveling the Playing Field for Illinois Retail Act, which became effective on January 1, 2021. This legislation was passed to align Illinois’ sales tax laws with the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., which allowed states to require out-of-state (remote) sellers to collect and remit sales tax based on the destination of the purchase. Here’s a breakdown of its implementation: Pre-2021: Illinois primarily used origin-based sourcing for intrastate transactions, where sales tax was calculated based on the seller’s location. January 1, 2021: The destination sourcing rules took effect, requiring remote sellers and marketplace facilitators meeting Illinois economic nexus thresholds (i.e., $100,000 in sales or 200 transactions annually) to collect and remit tax based on the delivery address. Retailers’ Occupation Tax (ROT) Changes: The rules also extended to intrastate retailers delivering goods to customers in different jurisdictions within Illinois. Businesses had to collect local taxes applicable to the customer’s delivery address. These changes significantly impacted how businesses calculated and remitted sales and use taxes, especially for online and remote sales. Updates to these rules, as outlined in recent guidance issued by the Illinois Department of Revenue (IDOR), will take effect on January 1, 2025, and aim to clarify tax collection obligations based on the location where a product is delivered or a service is consumed. Key Components of Illinois’ Guidance 1. Application to Retailers and Marketplaces Illinois requires retailers, including those operating through third-party marketplaces, to collect and remit tax based on the customer’s location. This includes both in-state and remote sellers meeting the economic nexus threshold (e.g., $100,000 in sales or 200 transactions annually in Illinois). 2. Effective Date and Scope While destination sourcing rules have been gradually implemented, the most recent guidance clarifies situations such as: When a product is shipped to a buyer in Illinois. When a product is picked up by the buyer at a location other than the seller’s principal place of business. For further details, follow this link: https://lnkd.in/gdt--VWa Contact Thompson Tax today for all of your sales and use tax needs. We are your Trusted Tax Advisors and are always just a phone call away.

The Illinois Department of Revenue recently clarified how sales tax applies to subscription membership fees for cloud-based software services. Generally, sales tax does not apply to cloud-based software that customers access remotely without the ability to download it to their devices. However, if the service provider includes downloadable components like an API, applet, desktop agent, or remote access tool to facilitate access to their network and services, these components are considered taxable as computer software. Example 1: Cloud-Based Fitness App Subscription A fitness app provider charges a subscription fee for its cloud-based service, allowing users to access workout plans and tracking tools directly from their web browser. Since users access the app exclusively online and can’t download it to their devices, the subscription fee is not subject to Illinois sales tax. The app qualifies as non-taxable cloud-based software because it doesn’t provide any downloadable components. Example 2: Data Analytics Software with a Desktop Agent A data analytics company offers a subscription to its cloud-based platform but requires users to download a desktop agent to sync their data with the platform. In this case, the desktop agent is considered a form of computer software. Because the subscription includes this downloadable component, it is subject to Illinois sales tax—unless the service provider can qualify it as a non-taxable license of computer software. Additionally, Illinois residents who download software from an out-of-state retailer’s or service provider’s website or server located outside of Illinois are generally not liable for use tax on the download. Reach out to Thompson Tax today for any questions you may have. We are your Trusted Tax Advisors and are always just a phone call away!

As we near 2025, the sales and use tax landscape is evolving faster than ever, thanks to changing consumer habits, cutting-edge technology, and determined governments looking to close tax gaps. For businesses, staying on top of these trends is key to avoiding any tax “bites.” Let’s dive into what’s ahead! Sales and Use Tax Trends for 2025 1. Increased Focus on Sales and Use Tax Audits Use tax is often overlooked by businesses, but in 2025, tax authorities are stepping up their game to make sure no stone (or sale) goes unturned. Be prepared for stricter enforcement as they aim to close that revenue gap. Keep in mind that post-COVID, state auditors’ overall institutional knowledge has waned due to mass retirement, so audits are becoming more difficult to navigate. Not only are auditors becoming more aggressive but there is a learning curve involved as well, so expect a few surprises! According to the 2023 Eversheds Sutherland SALT Scoreboard, taxpayers only won 44% of significant sales and use tax cases. By mid-2024, that number dipped to 24%. The odds aren’t exactly in your favor, so stay vigilant! 2. Services Taxation Expands (Yes, Again) The digital world keeps growing, and tax authorities are hustling to keep up. More states are taxing digital goods like e-books and streaming services, along with services like SaaS platforms. So, if you’re in the business of bytes, it’s time to pay extra attention! 3. Digital Goods – The Plot Thickens If you’re selling digital products, it’s time to brush up on the rules—state by state. The complexity is only increasing, and 2025 will bring new twists: Broader Definitions: States may broaden what they consider taxable digital goods. Some might even classify more cloud-based services as “tangible personal property.” (Yes, even though they aren’t tangible!) Marketplace Facilitator Rules: If you’re using platforms to sell your digital goods across borders, expect more marketplaces to collect and remit taxes on your behalf. Overall, this will be less hassle for your business, but more paperwork to keep track of! 4. Economic Nexus – Know Your State and Local Rules! Remember the 2018 South Dakota v. Wayfair ruling? It’s been a game-changer for out-of-state sellers, and by 2025, almost every state will have economic nexus laws in place. But the devil is in the details—each state has its own thresholds and requirements, so stay sharp (or get bit)! NOMAD States: There are fifty states, plus the District of Columbia, and only five of them do not collect a state sales tax (aka the NOMAD States: New Hampshire, Oregon, Montana, Alaska, and Delaware) Home Rule States: Watch out for Alabama, Colorado, and Louisiana, where local jurisdictions act independently. These places like to keep things… interesting. For more details and our list of the Top 10 Sales & Use Tax Concerns for 2025; read our full blog here: https://lnkd.in/gGdfvJxX

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The Massachusetts Sales and Use Tax Amnesty Period is a special initiative introduced by the Massachusetts Department of Revenue (DOR) to encourage businesses to resolve overdue taxes. Running for a limited time only between November 1, 2024, through December 31, 2024, the program offers businesses an opportunity to settle outstanding tax liabilities while providing significant relief from penalties and interest. Key Benefits of the Amnesty Program: Waiver of Penalties: Normally, late tax payments accumulate significant penalties. Under the amnesty program, most of these penalties are waived, offering businesses the chance to settle their tax obligations at a much lower cost. Protection from Legal Action: Businesses that participate in the program will not face prosecution or further legal action for the taxes they disclose and pay during the amnesty period. Why Should Your Business Participate? For businesses with overdue sales or use taxes, participating in the amnesty program is a smart financial move. Here’s why: Avoid Hefty Penalties: Once the amnesty period ends, the state will resume its standard enforcement actions, which could include steep penalties and interest on unpaid taxes. By settling during the amnesty period, you can significantly reduce these penalties and avoid future collection efforts. Enhance Your Financial Health: Unresolved tax debts can burden your business’ finances. Clearing these liabilities will improve cash flow, enabling you to focus on growth rather than dealing with back taxes. Ensure Future Compliance: Participating in the program also helps you reset your tax compliance. This reduces the risk of future audits or legal complications and sets your business on a clear path for maintaining tax obligations. Who Qualifies for the Amnesty Program? To qualify for the Massachusetts Sales and Use Tax Amnesty Program, businesses must: Be an eligible taxpayer; Submit an amnesty request via MassTaxConnect beginning November 1, 2024; Pay all taxes and interest included in the amnesty request; File any required returns by December 30, 2024. For more information please read our full blog here: https://lnkd.in/gVNSHTs7 Thompson Tax is here to help. Contact us today for expert advice on managing your sales and use tax obligations and let us help you navigate the amnesty process smoothly.

Maine Revenue Services recently released General Information Bulletin No. 114 to provide guidance regarding significant changes to the state’s sales and use tax rules as they apply to leases and rentals. These updates, which will take effect on January 1, 2025, reshape how lessors are required to handle sales tax on leases of tangible personal property. For businesses and individuals involved in leasing and renting, understanding these new rules is essential to remain compliant with Maine’s tax regulations. What Are the Current Rules? Until the end of 2024, lessors (those leasing tangible personal property) must pay sales tax upfront when they purchase property that will be leased or rented out. The tax is calculated based on the full value of the property. This means that even if the property is rented over several years, the tax liability is borne by the lessor at the time of purchase. This approach simplifies tax collection but creates a significant upfront cost for lessors, as they are paying taxes before they’ve even begun to collect lease or rental income. Key Changes Effective January 1, 2025 Starting on January 1, 2025, lessors in Maine will be able to purchase tangible personal property exempt from sales tax, provided they present a resale certificate. Here’s how it will work: 1. No Sales Tax on Initial Purchase: Lessors will no longer be required to pay sales tax when they purchase tangible personal property to lease or rent out. Instead, they will use a resale certificate to purchase the property exempt from sales tax. 2. Sales Tax on Lease Payments: Instead of paying the tax upfront, lessors will be responsible for collecting sales tax on each lease or rental payment they receive from their customers. This change aligns Maine’s rules more closely with how most other states handle sales tax on leases and rentals of tangible personal property. 3. Sourcing Rules for Taxation: The guidance also addresses sourcing rules, which determine how and where taxes are applied. The location of the leased or rented property, and potentially the location of the lessee, will play a role in determining where the tax is sourced. What Does This Mean for Lessors? For lessors, this legislative change offers some relief from the initial financial burden of paying sales tax when purchasing taxable property. However, it introduces ongoing responsibilities for collecting and remitting sales tax on each individual payment received from lessees. It also means that lessors will need to keep meticulous records of their leases and rental payments to ensure they are properly collecting and remitting the correct amount of sales tax. For more information, including refund opportunities, read our full blog here: https://lnkd.in/gEDhvbZD

The New York Department of Taxation and Finance has recently issued guidance clarifying the rules around amending Sales and Use Tax returns. This guidance stems from previously enacted legislation and brings Sales and Use Tax returns under similar limitations as other tax filings. Understanding these updates is crucial for businesses required to collect tax under Tax Law Article 28 (Sales and Compensating Use Taxes), especially as they take effect for filing periods beginning on or after December 1, 2024. Here’s a breakdown of the new rules and what they mean for your business. Amending Returns Under the new guidance, businesses required to collect Sales and Use Tax can amend previously filed returns, but there are important limitations to be aware of: 1. Conditions for Amending Returns: A business can amend a previously filed return only if the amendment does not reduce or eliminate a past-due tax liability related to that specific filing period. Past-due tax liability refers to any tax debt that has become final and unchangeable, where the taxpayer has no further right to administrative or judicial review. However, if the business self-reported past-due tax liability, they may amend the return to reduce or eliminate this liability within 180 days of the original due date. 2. Overpayments and Refunds: If no past-due tax liability exists, and the amended return results in an overpayment, the business can claim a credit or request a refund. This claim must be made within three years of the original tax due date or within two years of the date the tax was paid, whichever is later. 3. Department’s Right to Assess: The New York Department of Taxation and Finance retains the right to assess additional tax, penalties, and interest, including recovering a previously paid refund based on changes or corrections made on an amended return. This assessment can be made within three years after filing the amended return.   Filing a Return After Receiving a Notice of Determination The guidance also addresses situations where a business fails to file a return, and the Department issues a notice of determination of tax due: If a notice of determination is issued because a return was not filed, the business has 180 days from the mailing date of the notice to file the missing return. Important Note: Filing a late return after receiving a notice of determination does not impact any penalties or interest that have accrued due to the original failure to file on time. For more information, see our full blog below: NY Clarifies Amended Sales & Use Tax Returns | Thompson Tax Contact Thompson Tax today for all of your sales and use tax needs. We are your Trusted Tax Advisors.