A Brief Review of Sales and Use Taxability Changes Effective July 1, 2015

The Tax Department at Sovos Compliance is committed to providing our clients with timely and accurate taxability rates and rules. Simply put, for us its considered job #1. Historically, any number of jurisdictions will make legislative and regulatory changes in the area of sales tax effective on July 1, and sometimes political realities result in those changes being made with little notice to taxpayers. This year was no exception. Now that a few weeks’ time separate us from this action packed date, we thought it might be worthwhile to review some of the changes (and non-changes) that impacted the US and Canadian content we support in our tax calculation engines. As can be seen from the brief summaries below, cloud computing and E-911 rates were definitely hot topics this year.

1. The Arkansas Department of Revenue announced that the 1.5% motor vehicle rental tax on rentals over 30 days was no longer effective.
2. The state of Colorado joined a growing number of states that now impose a Paint Recovery Fee on the sale of qualifying architectural paint products sold in containers of 5 gallons or less.
3. On June 30, 2015 the Connecticut Governor signed HB 7061 which repealed a previously enacted exemption that would have applied to the sale of clothing and footwear priced under $50 starting on July 1 and replaced it with an increase to the “luxury tax” rate from 7.0% to 7.75% also effective on July 1. In far less dramatic fashion but also with little advance warning, the Connecticut Public Utilities Regulatory Authority (PURA) decreased the state’s prepaid wireless E911 fee to $0.51 from $0.70.
4. The City of Chicago Finance Department issued two rulings effective July 1, 2015. Personal Property Lease Transaction Tax Ruling #12 specifies that the 9% Lease Transaction Tax applies to database services, such as access to a legal research databases. Likewise, Amusement Tax Ruling # 5 specifies that the amusement tax properly extends to amusements delivered electronically such as watching electronically delivered shows, movies or videos, listening to electronically delivered music, and playing games online. Both rulings will not be enforced until September 1, 2015, so as to give businesses sufficient time to adjust. Chicago also decreased their prepaid wireless E911 surcharge from 9% to 7%.
5. Florida House Bill 33A effectuated a one-year exemption for the retail sale of qualifying textbooks that are required or recommended for use in a course offered by a public post-secondary educational institution or a nonpublic post-secondary educational institution that is eligible to participate in Florida tuition assistance programs.
6. Georgia statute 48-13-131 authorized a new 5% excise tax on the sale of consumer fireworks which applies in addition to all other taxes imposed by law.
7. Idaho enacted HB 0075 which created an exemption from sales and use tax for prescription eyeglasses and eyeglass component parts as well as contact lenses.
8. Indiana House Bill 1475 increased the wireless emergency enhanced 911 fee (which applies to prepaid calling arrangements) fee from $.50 to $1.00.
9. Kansas increased their standard sales and use tax rate from 6.15% to 6.5%.
10. Preexisting legislation in the state of Maine was slated to reduce the standard sales and use tax rate from 5.5% to 5% effective July 1. However, on June 30 legislation was passed, successfully overriding a gubernatorial veto by one vote, which retained the existing rate.
11. Minnesota instituted an upfront exemption for purchasers of qualifying machinery and equipment used in manufacturing. Previously, purchasers of capital equipment were required to pay sales tax and then apply for a refund.
12. In Puerto Rico, the first stage of a substantial tax reform became effective under which their standard Commonwealth-level sales tax (IVU) rate increased to 10.5%
13. The Rhode Island Budget which was adopted on June 30 included two substantial last-minute sales tax changes. First, the sale of wine and spirits at liquor stores in Rhode Island became permanently exempt from sales tax. Second, all sales of heating fuels became exempt. Under prior law, an exemption applied only to heating fuel used in the heating of homes and residential premises and to heating fuel used in the manufacturing process.
14. In the state of Tennessee, there were five substantial sales tax changes effective on July 1.
    1. Tennessee Code Section 67-6-302 was updated to specifically exempt parts, components, accessories, materials, equipment and supplies that are sold to, sold by, used by or installed by an authorized large aircraft service facility.
    2. Tennessee Code Section 67-6-231 was amended to expressly tax software provided under the ASP/SaaS model.
    3. Code Section 67-6-314(7) was enacted to provide an exemption for any syringe used to dispense insulin and diabetic testing supplies for human use.
    4. Section 67-6-102 of the Tennessee Code was amended to include machinery, equipment and associated parts and accessories necessary to and primarily for the purpose of research and development in the definition of nontaxable industrial machinery.

15. Vermont enacted Senate Bill 0138 which provides an exemption for cloud computing services. Further, House Bill 489 revised the definition of food and food ingredients found in 32 V.S.A. § 9701(31) by indicating that nontaxable “food and food ingredients” do not include soft drinks, alcoholic beverages or tobacco.
16. In Canada, the Minister of Finance published a notice indicating that feminine and hygiene products are now exempt from the Federal Goods and Services Tax as well as from provincial tax in those provinces that harmonized their local tax with the federal government. The Finance Ministry in the non-harmonized province of Saskatchewan immediately followed suit, enacting a similar exemption

Of course, there is no rest for the weary. From a sales tax perspective, the approach of August means one thing – Sales Tax Holiday season is upon us. With a new holiday this year in Ohio, a newly combined holiday in Virginia and revised guidance being issued by a number of states, this holiday season promises to be very interesting indeed!