Welcome to TWIST for the week of May 16th, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.
First up today is a legislative update. Recently enacted legislation in Florida creates new temporary sales and use tax exemptions and new sales tax holidays for specific types of goods. The Florida Department of Revenue has recently issued guidance on the new holidays and exemptions, which will be implemented at various times in 2022. In Georgia, House Bill 1291 revises the sales tax exemption that is available to certain high technology companies that make at least $15 million of qualifying purchases of computer equipment. Finally, in Kansas, effective January 1, 2023, House Bill 2106 reduces the state sales and compensating use tax rate on food and food ingredients from 6.5 percent to 4.0 percent. The rate will be further reduced to 2.0 percent on January 1, 2024 and reduced to 0.0 percent on January 1, 2025. Sales of food and food ingredients will continue to be subject to sales taxes imposed by cities and counties, as well as the taxes imposed by Washburn University.
In Vermont, a conference committee report would implement significant corporate income tax changes, including moving the state to single-sales factor apportionment and repealing the throwback rule, migrating the state from the Joyce apportionment method to the Finnigan method, including certain domestic corporations with significant foreign operations in the Vermont unitary group, and revising the state’s corporate minimum tax.
In other news, a Kansas appeals court held that a construction contractor was required to collect and remit sales tax on amounts related to the cost of rented construction equipment used in providing its services. The taxpayer passed these costs on to its customers and took the position that it did not need to collect tax on the passed through amounts. The court disagreed, holding that the law simply did not allow the taxpayer to deduct its equipment rental changes from the price of the services it provided to customers.
Finally, effective July 1, 2022, Colorado-licensed retailers, including marketplace facilitators, are required register for a retail delivery fee account and to collect a $0.27 retail delivery fee from purchasers on every retail sale of tangible personal property that is delivered by a motor vehicle to a purchaser in Colorado. The Department of Revenue recently issued the Form DR 1786 that will be used to report the fee and confirmed that as a courtesy, all holders of a retail license that have remitted sales tax after January 1, 2021 will automatically be registered for the fee.
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The Colorado Department of Revenue has issued additional information, including Form DR 1786, on the new retail delivery fee that retailers, including marketplace facilitators, must collect beginning July 1, 2022. Prior to remitting the fee, retailers must register for a retail delivery fee account separate from their sales tax accounts. As a courtesy, all holders of a retail license that have remitted sales tax after January 1, 2021 will automatically be registered for the fee. In addition, retailers may set up a retail delivery account by going to Revenue Online or by completing the initial Form DR 1786 (the form used to report the fee). The Department’s website indicates there will also be an option to sign up for an account on the state’s State and Use Tax System (SUTS).
Recall, in 2021, SB 21-260 established new sources of funding for the state’s transportation system, including the imposition retail delivery fee that is made up of various components. From July 2022 to June 2023, the total retail delivery fee is $0.27. Retailers must collect the fee from purchasers on every retail sale of tangible personal property that is delivered by a motor vehicle to a purchaser in Colorado. The fee, which must be listed separately on the invoice or receipt, is required to be collected only when the retailer is making a taxable retail sale of the underlying goods. In other words, if the tangible personal property sold is exempt from sales tax (e.g., a sale for resale) or the purchaser is exempt (e.g., a qualified charitable organization), then the retail delivery fee will not apply. If a sale transaction includes both exempt and taxable items, the retail delivery fee will be imposed. The fee applies regardless of whether the motor vehicle used to deliver the goods to the customer is owned by the retailer or a third party. A single order will be subject to only one delivery fee, even if multiple deliveries are required. Further, there are no refunds or credits for delivery fees paid when the underlying goods sols are returned.
Retail delivery fees collected will be remitted to the Colorado Department of Revenue on the same filing and payment schedule as the retailer’s state sales tax return. Please contact Steve Metz with questions.
Recently, the Kansas Court of Appeals addressed whether a construction contractor was required to collect and remit sales tax on amounts related to the cost of rented construction equipment used in providing its services. The taxpayer contracted with various customers to perform construction, maintenance, and emergency repairs on those customers' powerlines. Such services are taxable under the Kansas Retailers' Sales Tax Act. At times, the taxpayer rented equipment to use in providing its services. Sales tax was paid on the rentals. The taxpayer later passed the cost of the rented equipment on to its customers with a ten percent markup. The taxpayer collected and remitted sales tax on the 10 percent marked up amount only. On audit, the Department of Revenue assessed sales tax on the full amount that was passed through to customers. The taxpayer protested and the matter came before the Board of Tax Appeals (BOTA). The BOTA concluded that there were two separate taxable transactions at issue— the taxpayer’s rental of the equipment and the subsequent pass through of the cost, plus the markup to customers. BOTA upheld the assessment on the basis that the retail sales tax is imposed on the gross receipts or total cost to the consumer.
Before the appeals court, the taxpayer relied on the Cessna Employees Credit Union case. In that case, another panel of the appeals court held that travel expenses incurred by a seller’s employees and passed on to a customer were not subject to sales and use tax. The Cessna court’s rationale was that the amounts the customer reimbursed for the seller’s employee travel expenses were not a part of the sale of goods and services and were not “sold” at retail. The taxpayer’s position here was that this holding should be expanded to include the equipment rentals at issue. The court disagreed, holding that Cessna was distinguishable. Specifically, in the instant case, the equipment rentals were used to perform the very services for which the taxpayer was charging its customers. In comparison, the travel expenses were not used in performing the services in Cessna. In response to the taxpayer’s argument that this conclusion would result in impermissible double taxation, the court noted that the sales tax law did not allow a deduction for taxes imposed on the seller or any other expense of the seller" as well as "charges by the seller for any services necessary to complete the sale . . . .” In other words, the law simply did not allow the taxpayer to deduct its equipment rental changes (and the taxes imposed on those charges) from the price of the services it provided to customers. Please contact Jeff Cook with questions on Matter of the Appeal of Capital Electric Line Builders, Inc.
Recently, the Vermont House and Senate approved a conference committee report that would make significant corporate income tax changes. Currently, overseas business organizations that ordinarily have 80 percent or more of their property and payroll outside the U.S. are excluded from the definition of an “affiliated group.” The conference report would replace the term “overseas business organizations” with “foreign corporations,” meaning that U.S. formed corporations with significant foreign activity would nevertheless be included in the Vermont affiliated group. Under Vermont law, affiliated groups engaged in a unitary business are required to file a group return. The conference report would revise the law to make clear that an affiliated group is treated as a single taxpayer and that the income, gain, or loss from members of the combined group should be combined to the extent allowed under the IRC for consolidated filings, except that credits would not be combined and would be limited to the member of the group to which the credit is attributed. Currently, Vermont adopts the Joyce apportionment method; the report would transition the state to Finnigan and require the Department of Taxes to adopt rules governing the move to Finnigan and the other combined group changes.
In addition, the report would replace the current three factor apportionment formula with a single-sales factor apportionment method and would repeal the throwback rule that applies to sales of tangible personal property. Finally, the bill would revise the state’s minimum tax structures. Under current law, if a corporation has zero or negative taxable income, it is subject to Vermont’s corporate minimum tax. The current highest minimum tax of $750.00 is imposed on corporations with Vermont gross receipts greater than $5 million. The minimum tax would increase to $2,000 for taxpayers with Vermont gross receipts from $1 million to $5 million, to $6,000 for taxpayers with Vermont gross receipts of greater than $5 million; and to $100,000 for taxpayers with Vermont gross receipts of over $300 million. The fiscal note for the report estimates that there are about 10 such corporations. All changes would take effect on for tax years beginning on or after January 1, 2023. Currently, Vermont adopts the Internal Revenue Code as of December 31, 2020. The state’s conformity date would be advanced to December 31, 2021 effective retroactively to tax years beginning on or after January 1, 2021. Please contact Jennifer Bates with questions on these pending changes.
In Florida, recently enacted House Bill 7071 adopted several new temporary sales and use tax exemptions and sales tax holidays, ostensibly to share the state’s budget surplus with individuals. The Department of Revenue recently issued guidance on these new holidays and exemptions, some of which overlap. Specifically, the new sales tax holidays and exemptions include:
There is also a motor fuel tax holiday during the month of October; however, the Florida Department of Revenue has not yet issued guidance and information on this holiday.
In Kansas, effective January 1, 2023, House Bill 2106 reduces the state sales and compensating use tax rate on food and food ingredients from 6.5 percent to 4.0 percent. The rate will be further reduced to 2.0 percent on January 1, 2024 and reduced to 0.0 percent on January 1, 2025. Sales of food and food ingredients will continue to be subject to sales taxes imposed by cities and counties, as well as the taxes imposed by Washburn University. The definition of "food and food ingredients" includes bottled water, candy, dietary supplements, food sold through vending machines, and soft drinks, but excludes most prepared foods. Governor Laura Kelly has asked the Kansas Legislature to enact additional legislation to fully implement the elimination of the state sales tax on food and food ingredients effective July 1, 2022.
In Georgia, House Bill 1291 was signed into law on May 9, 2022. This bill revises the sales tax exemption that is available to certain high technology companies that make at least $15 million of qualifying purchases of computer equipment. On or after January 1, 2024, (1) any person claiming the exemption must pay 10 percent of the sales taxes due on the first $15 million of eligible purchases only, and (2) the definition of “computer equipment” will no longer include prewritten computer software or computers or devices issued to employees. The bill also extends the exemption until December 31, 2028, as it was currently scheduled to sunset on June 30, 2023. Under current Georgia law, a separate exemption applies to high technology data center equipment that is incorporated or used in a high-technology date center that has made certain investments in the county where the center is located. House Bill 1291 extends the sunset date of the high technology data center exemption to December 31, 2031 and revises the number of new “quality jobs” that must be created in counties based on population levels to qualify for the exemption.
Please stay tuned to TWIST for additional sales and use tax legislative developments.