2016 Sales Tax Changes: What to Expect in the New Year

Like every New Year, 2016 is bringing many sales tax changes. Rates are decreasing or increasing, there are new product taxability rules, exemptions are expiring or taking effect, and there are reporting changes. The only thing certain when it comes to sales tax is that change happens. And if often happens without much warning.

Traditionally, New Years resolutions are formulated at the end of the prior year or at the coming of a New Year. It is a time to reflect on the past — what went well and what you wish you’d done differently.  It's not too late to formulate those resolutions.  This new year, have no regrets when it comes to sales tax. Resolve to streamline your sales tax compliance. You’ll find that it’s easier than losing weight.   

Resolution: Streamline Sales Tax Compliance.

Rates. Nearly a dozen states, including Illinois and Maine and Minnesota, have announced local sales tax rate changes for 2016. In addition, there is talk of increasing the state sales tax rate in both Oklahoma and Florida. State departments of revenue often — but don’t always — announce rate changes in time for businesses to account for them. However, in tricky home rule states like Colorado and Louisiana, local governments may not notify state revenue departments of such changes in a timely manner, or at all.

Resolution: Be sure you have a reliable system in place to manage sales tax rate changes.

Product taxability. Businesses also need to account for changes in product taxability. Sales tax can be expanded to services or slapped onto previously exempt tangible personal property. States generally announce changes in time for sellers to account for them; yet unfortunately, that’s not always the case. For example, on June 30, 2015, Governor Jay Inslee of Washington signed legislation reforming the regulation and taxation of the marijuana market. It took effect the following day.

Product taxability coming in 2016 includes the following:

• Martial arts classes and many other physical fitness services will become subject to sales tax in Washington State
• North Carolina will extend sales tax to installation, maintenance and repair services
• Retail sales of prepaid wireless communications access will become subject to retail sales tax in Wyoming
• The list of foods considered to be prepared food (and taxable) will be expanded in Homer, Alaska

Resolution: Successfully process changes in product taxability and do it quickly.

Exemptions. Changing sales tax exemptions are also a bear, whether at the state or local level. While many, like the exemption for gun safety devices recently approved by the Michigan Senate, make headlines, many others slip into law virtually unnoticed.

Some exemption changes under consideration or set to take effect in 2016 include the following:

• California’s partial tax exemptions will decrease
• Florida’s exemption for college textbooks is set to expire but its manufacturing exemption may be extended
• Iowa’s machinery and equipment sales tax exemption may be expanded
• North Carolina will provide a sales tax exemption for electricity used in qualifying datacenters
• Senior sales tax exemptions will be scaled back in Juneau, Alaska

Resolution: Have a fail-safe solution to managing sales tax exemptions and exemption and reseller certificates.

Reporting. Last to be considered here (but certainly not the last issue sellers will confront) are changes to the way sales tax is reported. Some of the changes planned for 2016 include:

• New reporting requirements for exempt entities in Alabama (this is a big deal)
• New reporting requirements for sales of consumable vapor products in Alabama
• Colorado will stop mailing sales and use tax forms to businesses

Resolution: Get reporting and filing right.

Be ready.  Sales tax changes are coming in 2016. There will be new rates, product taxability rules, exemptions and filing requirements, and the onus is on you — the seller — to comply with those changes. Failure to do so can lead to negative audit findings, penalties, interest, and a whole lot of hassle. So what’s your plan?

Resolution: Make sales tax less taxing with Sage Sales Tax by Avalara.

For more details, including a state by state analysis of what’s changing in the coming year, download Avalara’s 2016 Sales Tax Changes guide.

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