The final leg of our Midwest SALT Tour through Mankato, Sioux Falls, and Fargo will take place November 8, 9, and 10. This Sales Tax Update will discuss current legislation and the ways in which taxes impact your business, as well as what you can do to limit your exposure and potential liabilities. For more information and to register for one of these sessions, visit www.eidebailly.com/SALTtour.
As a result of a $900 million budget shortfall, Louisiana lawmakers have passed the following tax measures aimed at bridging the revenue gap. Some of the more important changes are as follows:
Income/Franchise Tax Changes (effective 1/1/2017):
- Expansion of franchise tax:
- “Domestic Corporation” now includes partnerships, joint ventures, and LLCs electing to be taxed as C Corporations for federal income tax purposes.
- Expansion of franchise tax nexus for out of state taxpayers – nexus for corporations that own interest in partnerships with Louisiana operations.
- Net Operating Loss (NOL) Reduction – NOL deduction cannot exceed 72% of Louisiana taxable income.
- NOL Carryover ordering – must use loss carryovers starting with the loss for the most recent taxable year. Older NOLs may expire since taxpayers would have to first use newer NOLs.
- Modification of corporation income tax rate to flat rate of 6.5% (contingent).
- Addback of intercompany interest, intangible expenses and management fees unless certain exceptions are met.
- Modification of federal income tax deduction (contingent).
Sale/Use Tax Changes:
- Effective 4/1/16 through 6/30/2018, the legislation increases the sales tax rate by 1% (bringing the rate to 5%). Referred to as the “Clean Penny” Legislation, the legislation includes its own set of exclusions and exemptions apart from the exclusions and exemptions that apply to the original 4% sales tax rate (referred to as “Old Penny”).
- Old Pennies (the original 4% sales tax) – law modifies the list of exclusions and exemptions, specifically as they relate to the 2% basic rate (sub component of the 4% tax). It is important to note the inconsistencies between the exclusions and exemptions offered under the Clean Penny and Old Penny laws.
- Affiliate Nexus provisions – the legislations drastically expands the definition of a “dealer.”
For additional background regarding the legislation, please visit the tax foundation website.
Did you know that there is an easy way to verify your North Dakota sales tax rate? The ND.gov website has just been revamped to include easy navigation to calculate the sales tax rate for a specific location. Eide Bailly has put together a handy step-by-step guide on how to successfully identify your sales tax obligation.
The MN Department of Revenue recently created a flowchart for non-profits answering the question: Do I need to charge sales tax on my fundraising sales? The newly created decision tree will help determine whether to charge and collect sales tax during a charitable fundraising activity. View the MN DOR Flowchart.
While the 2015 Texas Legislature gave taxpayers a significant franchise tax (margin tax) rate cut and repealed some smaller taxes (some of which had not been collected in years), it otherwise left much of the Texas tax code otherwise unchanged. Below, we’ll tell you about the changes the Texas Legislature made and provide links to the underlying bills.
The big tax cut. The franchise tax rate for most taxpayers is reduced from one percent to 0.75 percent. The franchise tax rate for retailers and wholesalers is reduced from 0.5 percent to 0.375 percent. The franchise tax rate for taxpayers using the E-Z Computation is reduced from 0.575 percent to 0.331 percent, and taxpayers with no more than $20 million in total revenue may pay using the E-Z Computation. Previously, only taxpayers with no more than $10 million in total revenue could pay using the E-Z Computation. (HB 32)
- $200 professional fee for attorneys, CPAs, and certain other professionals. (HB 7)
- Tax on alcoholic beverages served on trains and planes. (HB 1905)
- Controlled substances tax. (HB 1905)
- Crude petroleum production tax. (SB 757)
- Sulfur production tax. (SB 757)
- Excise tax on fireworks. (SB 761)
- Inheritance tax. (SB 752)
Big aircraft “clarification” bill. (SB 1396):
- The purchase of an aircraft qualifies for the sale for resale exemption if purchased for the purpose of leasing or renting the aircraft. Leasing or renting the aircraft includes the transfer of operational control under a written lease for consideration. Such a purchase would qualify for the sale for resale exemption regardless of whether the purchaser also used the aircraft, so long as more than 50 percent of the aircraft’s departures are made under the operational control of lessees other than the purchaser under a written lease.
- A transaction between related entities is exempt from sales tax if the same transaction between unrelated entities would also be exempt.
- Aircraft brought to Texas for the purpose of being completed, repaired, remodeled, or restored are not subject to use tax.
- No presumption that an aircraft is subject to Texas use tax if brought into Texas by someone who did not acquire it directly from a seller by means of a purchase.
- An aircraft brought into Texas from out of state is not subject to Texas sales and use tax if it made more than half of its departures from locations outside Texas for a year after either the acquisition of the aircraft or the aircraft’s first flight, whichever date is later.
- Sales tax exemption for “certificated or licensed carriers,” is only available to those authorized under Parts 121, 125, 133, and 135 of the FAA regulations. (Overturns Cirrus Exploration Co. v. Combs, et al., which held that a carrier authorized under Part 91 qualified for the exemption).
Sales and Use Tax
- Classifies certain sales of software to hosting providers as sales for resale. (SB 755)
- Excludes services performed by public insurance adjusters from taxable insurance services. (HB 1841)
- Exempts from sales and use tax telecommunications services used for the navigation of farm and ranch machinery and equipment. (SB 140)
- Exempts digital transmission equipment purchased by radio stations from sales and use tax. (HB 2507)
- Exempts vending machine sales by non-profits from sales and use tax if machine is stocked by individuals with special needs as part of a skills and education program that the nonprofit operates. (HB 2313)
- Extends the temporary sales and use tax exemption for qualifying large data centers from 15 to 20 years. (HB 2712).
- Creates a sales tax holiday for emergency preparation supplies. (SB 904)
- “Clarifies” that sales of motor vehicles from manufacturers to dealers are not retail sales subject to motor vehicle sales and use tax. (HB 2400)
- “Clarifies” that private school bus companies qualify for exemption from motor vehicle sales tax for school buses used to provide transportation services to school districts. (SB 724)
- Allows municipalities to increase and decrease their local sales and use tax rates. (HB 157)
- Allocates sales and use tax from sporting goods sales for parks and wildlife purposes only. (HB 158)
Franchise Tax (Margin Tax)
- Apportions income from licensing or distributing programming or film programming as non-Texas sales unless the broadcaster’s customer is domiciled in Texas. (HB 2896)
- Exempts new veteran-owned businesses from franchise tax for five years. (SB 1049)
- Requires limited partnerships and professional associations to file a public information report with their franchise tax report, but eliminates the requirement that they file a report with the secretary of state. (HB 2891)
- Allows electronic filing of a franchise tax public information report. (SB 1364)
- State Office of Administrative Hearings changes – eliminates the Comptroller’s prior approval for tax judges to work on other cases, removes the Comptroller’s authority to evaluate judge performance, and ends the Comptroller’s obligation to provide input on Comptroller priorities to SOAH. (HB 2154)
- Allows Comptroller to use estimates in annual report on the effectiveness of exemptions, exclusions, etc. if actual data isn’t available. (HB 1261)
If you think that any of these Legislative changes may affect your business, you may wish to seek the advice of a Texas tax professional, such as a Texas tax attorney, to determine how these laws may affect you.
BISMARCK, N.D. – Tax Commissioner Ryan Rauschenberger today released the 2014 annual North Dakota taxable sales and purchases report. Taxable sales and purchases during calendar year 2014 totaled $28.2 billion, an increase of nearly 11 percent over the $25.47 billion in 2013.
“Eleven percent is a substantial increase in North Dakota taxable sales and purchases, well above the 2 percent rate of inflation,” stated Ryan Rauschenberger. “This report shows a continuation of the rapid sales growth experienced nearly every year since 2010.”
Ten of the 15 major industry sectors saw growth from 2013 to 2014. Most notable among those showing increases were the wholesale trade industry with a $955 million increase (14.84 percent), the mining and oil extraction industry with a $806.4 million increase (18.38 percent), and the retail trade industry with a $328.77 million increase (5 percent).
The industry sectors with the most noticeable decreases were the construction industry with a $22 million decrease (-2.23 percent); the utilities industry with a $18.4 million decrease (-7.38 percent); and the educational, healthcare and social services industries with a $3.85 million decrease (5.84 percent).
The annual report includes data for the largest 200 cities in North Dakota, of which 82 reported increases and 116 reported decreases compared to 2013.
Of the 200 largest cities in North Dakota, the highest percent increases of 2014 (compared to 2013) were as follows:
- Burlington – Increase of 198.21 percent
- Davenport – Increase of 126.05 percent
- Sawyer – Increase of 83.71 percent
- Reeder – Increase of 83.28 percent
- Des Lacs – Increase of 82.52 percent
“All of the cities that experienced a near doubling of the sales tax bases are small,” Rauschenberger said. “Significant growth occurred not only in the oil-rich western side of the state, but also throughout nearly every region of the state.”
Rauschenberger went on to point out that a majority of the state’s larger population centers also posted strong growth. Six of the state’s eight major metropolitan/micropolitan areas – Bismarck (.21 percent), Dickinson (19.36 percent), Fargo (West Fargo 14.55 percent; Fargo 4.12 percent), Grand Forks (.38 percent), Minot (.36 percent) and Williston (8.71 percent) – saw an increase in taxable sales and purchases in 2014. Jamestown (-4.75 percent) and Wahpeton (-3.58 percent) are the two that saw decreases.
Statistics for the state’s 53 counties are also included in the report. Counties with the highest percent increases of 2014 (compared to 2013) were as follows:
- Dunn County – Increase of 62.41 percent
- Bottineau County – Increase of 44.33 percent
- McKenzie County – Increase of 39.44 percent
- Slope County – 29.78 percent
- Billings County – 22.95 percent
The 2014 annual North Dakota taxable sales and purchases report serves as a summary of economic activity that occurred in the state. The complete report can be accessed online at www.nd.gov/tax.
Graph: ND Total Taxable Sales & Purchases 5 Year $ Comparison
Graph: ND Taxable Sales & Purchases by Industry 2014
This week’s tax map shows state and local sales tax rates in each state as of January 1, 2015 and comes from our larger report on sales taxes released earlier this week. While consumers might be aware of the statewide sales tax rate, local sales taxes can differ widely, so our population-weighted average allows for comparability across states.
This ranking is useful for a state like Colorado, where the statewide sales tax is 2.9 percent (very low), but local sales taxes add on an additional 4.54 percent on average, meaning consumers face a combined rate of 7.44 percent, the 15th highest in the country.
The five states with the highest average combined state-local sales tax rates are Tennessee (9.45 percent), Arkansas (9.26 percent), Alabama (8.91 percent), Louisiana (8.91 percent), and Washington (8.89 percent).
The five states with the lowest average combined rates are Alaska (1.76 percent), Hawaii (4.35 percent), Wisconsin (5.43 percent), Wyoming (5.47 percent), and Maine (5.50 percent).
These rates are important because sales tax policy is one of the ways that states can compete. At the statewide level, businesses sometimes locate just outside the borders of high sales tax areas to avoid being subjected to their rates. A stark example of this occurs in the Northeast, where even though I-91 runs up the Vermont side of the Connecticut River, many more retail establishments choose to locate on the New Hampshire side to avoid sales taxes. One study shows that per capita sales in border counties in sales tax-free New Hampshire have tripled since the late 1950s, while per capita sales in border counties in Vermont have remained stagnant.
The state of Delaware actually uses its highway welcome sign to remind motorists that Delaware is the “Home of Tax-Free Shopping.” State and local governments should be cautious about raising rates too high relative to their neighbors because doing so will amount to less revenue than expected or, in extreme cases, revenue losses despite the higher tax rate.