Manufacturing – In a recent case, United Launch Alliance, LLC v. Alabama Department of Revenue, the Alabama Tax Tribunal found certain purchases by a rocket manufacturer qualified for the reduced manufacturing rate. The manufacturer purchased helium and nitrogen used in functional testing and leak testing of launch vehicles. The purchases qualified for the reduced machine rate of 1.50 percent instead of the standard 4.00 percent general state sales tax rate. The gases performed integral, distinct and independent functions in the manufacturing process.
Drop Shipment - Effective November 30, 2021, the California Department of Tax and Fee Administration amended Regulation 1706 clarifying marketplace sales are generally not considered a drop shipment transaction. The regulation also provides additional guidance around drop shipments and methodologies to overcome the presumption a seller qualifies as a drop shipper.
Manufacturing - Effective December 27, 2021, the California Department of Tax and Fee Administration issued amendments to the regulation regarding Manufacturing and Research and Development Equipment. The changes include expanding the definition of a qualified person, qualified tangible personal property, as well as expanding the partial exemption qualifications. The sunset date for the partial exemption historically listed June 30, 2022 but has now been extended to June 30, 2030.
Marketplace Facilitator - Effective January 1, 2022, the California Department of Tax and Fee Administration revised Publication 109, Internet Sales for marketplace facilitators. Currently, marketplace facilitators are required to register to collect, report and pay applicable sales and use tax. However, moving forward marketplace facilitators should also register to obtain accounts to collect, report and pay applicable fees on their retail sales of certain items, outside of sales and use tax.
Sales and Use Tax Exclusion Program - Effective December 9, 2021, the California Alternative Energy and Advanced Transportation Financing Authority published emergency regulation amendments around the Sales and Use Tax Exclusion Program for Alternative Source, Advanced Transportation and Advanced Manufacturing projects. The amendments expire June 8, 2022 and additional details may be found here.
Vehicles - Beginning January 1, 2022, peer-to-peer car sharing programs must collect and remit sales tax in connection with rentals of motor vehicles. Peer-to-peer car sharing programs are required to register in each county in which the business is located. Additional information may be found in Florida Tax Information Publication No. 21A01-14.
Aircraft - Effective November 2, 2021, the Illinois Department of Revenue (IL DOR) amended a regulation to reinstate the aircraft maintenance exemption. The exemption spans January 1, 2010 through December 31, 2024. However, the IL DOR will not allow a claim for credit or refund after February 5, 2020 for taxes paid during the period January 1, 2015 through February 4, 2020.
Food and Beverage - Effective December 3, 2021, the Illinois Department of Revenue amended Ill. Admin. Code § 130.2050 to increase the average cost of free meals provided to employees. Historically, the free meal was limited to $0.75 but has since been raised to $3.50 for purposes of determining the employers use tax liability. Tax should be paid at the rate in effect on the date the employer purchased the goods provided to employees free of charge.
Vehicles - Effective January 1, 2022, the Illinois Department of Revenue issued Informational Bulletin No. FY 2022-03 removing the $10,000 trade in credit limit for sales and purchases of first division motor vehicles. For sales and purchases made on or after this date, the credit for the trade in of a first division motor vehicle may now reflect the full value of or credit given for the trade in.
Energy - On November 19, 2021, the Iowa Department of Revenue published updated guidance around solar energy equipment exemptions. The revised guidance provides additional details regarding the type of equipment which qualifies for the exemption and the type of equipment which remains taxable.
General Taxability - The Maryland Comptroller's Officer recently issued an updated list of tangible personal property and services subject to sales and use tax within the state. Although the list is not all encompassing, it should be utilized as a guide in determining taxability for each category.
Taxable Base - The Minnesota Department of Revenue released Sales Tax Fact Sheet 167 providing guidance around coupons, discounts, rewards, rebates and other forms of payments. Often, it can be difficult for a retailer to determine the appropriate taxable base in order to calculate sales tax properly. The fact sheet defines the various types of categories and explains how each category affects the taxable base.
Fitness Center - The Missouri Department of Revenue (MO DOR) recently published Letter Ruling 8159 confirming fitness center fees are exempt from sales tax. In the taxpayer's specific fitness center, customers are always engaged with an instructor during the workout. Therefore, the MO DOR clarified membership fees, charged by a health and fitness center, are not subject to sales tax as the fitness center's services qualify as instructional classes.
Manufacturing - The New Mexico Taxation and Revenue Department issued FYI-275 around allowable deductions for sales to manufacturers. Under New Mexico Statute 1978 § 7-9-46, a seller may deduct receipts from sales to a manufacturer of tangible personal property which become an ingredient or component part of a manufactured product. The FYI-275 guide includes details around use of nontaxable transaction certificates, reporting deductible receipts, several specific examples and taxpayer specific information.
Contractor - The New York Department of Taxation and Finance released advisory opinion TSB-A-20(69)S, noting the taxpayer's charges for overseeing a third party contractor installation alongside charges for assessing environmental conditions of real property were not subject to sales and use tax. The taxpayer inquired whether either of the charges were subject to sales tax. The department concluded: 1) the design and monitoring of remediation systems constitute nontaxable "engineering services" to the extent the services were legally required to be performed by a licensed engineer; 2) charges solely for overseeing the installation of remediation systems were not subject to sales tax; 3) the taxability of charges for any sampling and testing services were dependent on the purpose for the sampling and testing services; and 4) charges for consulting services unconnected to any planned remediation were not subject to sales tax.
Information Service - The New York Department of Taxation and Finance (NY DOT) published Determination DTA No. 829434 confirming a corporations annual membership fee was not subject to sales and use tax within the state. The taxpayer, an out of state corporation, provided healthcare navigation services. The NY DOT initially issued a notice of determination finding the taxpayers services as taxable information services and imposed a related penalty. The taxpayer applied for a redetermination hearing after asserting its membership fees should be considered nontaxable services. The department concluded: 1) the division's determination regarding the taxpayer's membership fee had a rational basis; 2) the taxpayer's service was not enumerated in the tax law; 3) the division's assessment did not impose a prohibited tax on internet access; 4) the taxpayer failed to establish the tax and penalty imposed for the fixed assets and expenses were incorrect; and 5) the taxpayer showed the primary purpose of its fees was the provision of a non-taxable service, not the taxable sale of software. Accordingly, the NY DOT partly granted the petition in favor of Taxpayer.
Medical Equipment - The New York Department of Taxation and Finance released advisory opinion TSB-A-20(68)S clarifying taxability of a spinal cord stimulator device, comprised of an implant, a wireless remote and charger. The taxpayer sold the system to medical service providers and inquired whether the system was exempt from sales tax as a prosthetic device or medical equipment. The department concluded: 1) the system was not a prosthetic aid but was medical equipment because the implant mitigated and alleviated physical incapacity; 2) the wireless remote and charger were designed specifically for use with the implant and had no other functionality or purpose; and 3) the taxpayer was required to collect taxes on sales of the system to medical service providers because purchases of the product by medical service providers were not exempt purchases of medical equipment.
Software - The New York Department of Taxation and Finance released advisory opinion TSB-A-20(70)S, noting the taxpayer's sales of hosting websites and applications were not subject to sales and use tax. The taxpayer inquired whether its services of creating, operating and hosting websites and applications accessed on mobile devices were subject to tax. The department concluded: 1) website development services were not enumerated services subject to state and local taxes; 2) hosting fees charged by a third party where the taxpayer paid and passed through to its clients were not enumerated services subject to tax; 3) the taxpayer's optimization and reporting service was an information service, but it was not taxable because the taxpayer prepared reports based on information individual in nature and unique to each client; and 4) the taxpayer's mobile website development services and professional services involved updates to a mobile website and were not taxable.
Manufacturing - The North Carolina Department of Revenue (NC DOR) recently published Private Letter Ruling 2021-0026 and Private Letter Ruling 2021-0027, both of which focus on the sales tax exemption for mill machinery used within the state. The NC DOR reiterated the taxpayers purchase of machinery utilized in the production phase qualified as exempt mill machinery due to the specific factors listed in both letter rulings. However, any machinery not utilized in the production phase, including machinery utilized prior to or subsequent to the production phase, will not qualify for the exemption. Each piece of equipment and machinery should be reviewed carefully to confirm how and where in the process the machinery is utilized.
Fire Hydrant Fee - The Rhode Island Division of Taxation recently issued Declaratory Order 2021-02 ruling a fire hydrant fee charged for private fire hydrants located on a residential premise as exempt from sales and use tax. The taxpayer provides water supply services through metered sales and is responsible to operate and maintain the water supply systems. The fire hydrant fee, implemented by the Public Utilities Commission, charges taxpayers for public fire protection services and applies to both public and private fire hydrants. The taxpayer is required to charge, collect and remit tax on all taxable sales as a retailer within the state. However, since the fees relate to operating and maintaining water infrastructure and relate to an exempt sale of water, the fire hydrant fee is exempt from sales tax.
Exemption Certificate - The Tennessee Department of Revenue issued Notice #22-01 around drop shipment documentation rules previously implemented. Effective January 10, 2022, a Tennessee supplier selling to an out of sate dealer's Tennessee customer may accept a resale certificate issued by another state or a fully completed Streamlined Sales and Use Tax Exemption Certificate with a home state ID. The new change will allow an out of state seller to purchase an item for resale from an in state seller without paying sales tax.
Software - The Tennessee Department of Revenue (TN DOR) recently issued Letter Ruling # 21-10 detailing charges for services related to furnishing remotely accessed software. The taxpayer provides onboarding services including integrating, configuring and mapping orders within the customers software system. The taxpayer also provides software training and content fees. The taxpayer reached out to the TN DOR to confirm taxability of the various charges. The TN DOR confirmed all charges are taxable, as the true object of the service is access to and use of computer software. The line items identified above are all considered an essential and integral part of the purchase of the related software and the software would not function correctly without the proper configuration. This is an important reminder of the viewpoint any DOR may take with a taxpayer invoice during review. The true object of the transaction must be considered and may taint the taxability of certain exempt line items.
Digital Goods - The Wisconsin Department of Revenue published Publication 240, Digital Goods discussing taxability of products transferred electronically, not including prewritten computer software. The publication states charges for access to an online database or website which allows the user to perform searches of the database are taxable sales of news or information products. The publication includes definitions, sourcing instructions, details around bundled transactions, exemptions and more.