To tax more Or to tax less

To tax more? Or to tax less?

Originally posted by Avalara

Spend a little time with sales tax and it’s easy to see how maddening it can be. Skimming headlines the other day, I saw that Arkansas is being advised to broaden its sales tax, while some lawmakers in Guam think more products should be exempt from a sales tax that isn’t yet in effect. The juxtaposition caught my eye: tax more, tax less. And these headlines aren’t unusual.

Different situations call for different tax policies, I know, and Arkansas and Guam are quite distinct. But the conversations going on in each place are often mirrored across the United States. In fact, both can occur in one state at the same time.

Ohio would tax e-cigarettes but exempt cosmetic surgery

Last year, for example, Ohio Governor John Kasich’s budget plan proposed removing the sales and use tax exemption from cable subscriptions, cosmetic surgery, interior design and decorating services, lobbying, repossessions, and travel services. At the same time, his plan proposed taxing vapor products such as electronic cigarettes, as well as eliminating a deduction for early payment of beer and wine tax.

Instead, the budget that landed on his desk included a sales tax exemption for prescription optical aids. He vetoed it. A few months later, the House approved an exemption for optical aids. That bill (HB 116) was last seen in the Senate Ways and Means Committee, but sellers of optical aids should still keep an eye on Ohio.

Pennsylvania eliminates tax on computer support services, taxes online sales

Pennsylvania Governor Tom Wolf has been calling for a broader sales tax since he took office. His 2017 budget proposal sought to eliminate sales and use tax exemptions for aircraft sales, use, and repairs; airline food and (non-alcoholic) drink purchases; commercial storage; custom computer and software programming; data processing; and design services.

He didn’t get that, but the budget eventually adopted did exempt help desk/call center support for canned support services, as well as beer kegs.

On the other hand, certain online sales became subject to tax in Pennsylvania on March 1, 2018.

Louisiana doesn’t know what to do

Louisiana’s quest for a stable, predictable budget has made sales tax more complex. In 2016, the state temporarily suspended the sales tax exemption on numerous goods and services, from event admissions to Girl Scout cookies. It also temporarily raised the state sales tax rate on some — but not all — goods and services. And it imposed a tax on internet sales, many of which had previously gone untaxed (though they were subject to consumer use tax).

Aside from the internet sales tax, most of the changes were to expire June 30, 2018. To avoid a looming fiscal cliff, however, legislators are talking about extending some them. Last year, measures seeking to permanently extend sales tax to data processing services, information services, security services, and more were introduced. They failed to pass.

Efforts to extend the temporary state sales tax hike have also been rebuffed. In fact, all attempts this year to come up with a workable budget that would stave off the fiscal cliff have failed. Stay tuned: As soon as Louisiana knows what it will and won’t tax come July 1, we’ll let you know.

And what about Arkansas and Guam?

Arkansas should eliminate sales tax exemptions

The Arkansas Tax Reform and Relief Legislative Task Force suggests eliminating numerous sales and use tax exemptions. Last week, each member of the 16-strong task force came up with a list of sales tax exemptions that should be considered. The combined list spans more than two pages and includes:

  • Feedstuff used in the commercial production of livestock and poultry
  • Hospitals, sanitariums, or not-for-profit nursing homes operated for charitable and nonprofit purposes
  • Manufacturing machinery and equipment
  • Prescription drugs

The list is for consideration only. If any of the proposed exemptions become law, we’ll report it here.

Guam considers exemptions from a sales tax that hasn’t yet taken effect

Guam is considering the opposite. Although it won’t have a sales tax until October 1, 2018, some lawmakers are already looking to carve out exemptions.

Newly introduced Senate Bill 264 seeks to exempt diapers, feminine hygiene products, groceries, and medicine from the new 2 percent sales tax. Senate Bill 263 would exempt many products, including but not limited to:

  • Adult incontinence products
  • Baby products
  • Casual sales
  • Feminine hygiene products
  • Food products
  • Food or drink delivered to persons confined to their homes
  • Meals provided free of charge or at a reduced rate to an employee of a food service establishment or hotel during work hours
  • Prescription drugs
  • Real property transactions (when the assessed value is under $400,000)

Sales tax in and of itself may not be maddening, but trying to comply with mercurial state sales tax laws sure can be. This is especially true for anyone doing business in more than one state (or territory).

Automating sales tax compliance can help keep you sane. Take the Sales Tax Assessment to find out how you can improve your sales tax strategy.