State and local taxes impact almost every taxpayer, and developments in any one jurisdiction can be frequent and sometimes confusing. ln this newsletter edition, we will briefly summarize selected state and local tax (SALT) developments in several states which may be important to you.
Alabama
Sales Tax Exemption for Hearing Instruments: On August 16, 2024, the Alabama Department of Revenue (Department) issued a publication addressing the sales and use tax exemption for hearing instruments including hearing aids, which commences on October 1, 2024 and ends on September 03, 2029. The Department states in this publication that hearing instruments are defined as any wearable instrument or device designed for or offered for the purpose of aiding or compensating for impaired human hearing. The Department also noted in this publication that the exemption shall not apply to county or municipal sales or use taxes unless approved by resolution or ordinance adopted by the local governing body. The Department's contact information is provided in this publication. More information can be found here.
District of Columbia
Updated Tax Notice Regarding Purchase Money Mortgage Exemption: On August 5, 2024, the Office of Tax and Revenue (OTR) published Tax Notice 2024-03, superseding Tax Notice 2022-09, regarding the application of the purchase money exemption to security interest instruments. As the OTR stated in this Notice, District law provides a recordation tax exemption for a purchase money mortgage or purchase money deed of trust that is recorded simultaneously with the deed conveying the real property for which the purchase money mortgage or purchase money deed of trust was obtained. The OTR notes that the requirements for purchase money mortgage or purchase money deed of trust requires that the instrument must be recorded with the deed conveying title to the real property to the purchaser, and executed by the purchaser of the real property. Further, the OTR states in this Notice that the instrument may qualify to receive the purchase money exemption to the extent its amount does not exceed the purchase price of the real property. The OTR then notes that since exemptions are narrowly construed, notice is given that for an instrument to qualify for a purchase money exemption and to be consistent with the requirements of the statute, the instruments must encumber only the real property purchased by the purchaser (which may consist of more than one lot or parcel) and be executed only by the purchaser of such real property. Other properties may not be encumbered by, or other property owners may not be parties to, the instrument. Additionally, the OTR states that if the lots or parcels of real property acquired by the purchaser are conveyed by separate deeds of title, an allocation of the principal amount of the mortgage or deed of trust must be made among the deeds; and that the purchase money exemption, including the requirements of simultaneous recording, must be satisfied with respect to the security interest instrument and the amount of indebtedness allocated to each deed of title. Contact information for the Recorder of Deeds Customer Service Center is provided in this Notice. More information can be found here.
Florida
Tax Credit for Individuals with Unique Abilities: The Florida Department of Revenue (Department) recently issued Tax Information Publication No: 24C01-01 advising that, for taxable years beginning during the 2024, 2025, and 2026 calendar years, a tax credit against the Florida corporate income/franchise tax is available to qualified taxpayers that employ a qualified employee during the taxable year. The tax credit, according to the Publication, is equal to one dollar for each hour the qualified employee worked during the taxable year, up to 1,000 hours; and that the maximum credit per taxpayer is $10,000 per taxable year, although taxpayers may carry forward unused credits for up to five taxable years. The Department states in this Publication that a qualified taxpayer means a taxpayer that employs a qualified employee at a business located in Florida; and that a qualified employee means an individual who has a physical or intellectual impairment that substantially limits one or more major life activities, a person who has a history or record of such an impairment, or a person who is perceived by others as having such an impairment. Further, the Department notes in this Publication that the individual must have been employed for at least six months by the qualified taxpayer. The Department goes on to note in this Publication that the program credit cap is $5 million in each of the state fiscal years 2024-25, 2025-26, and 2026-27. Further, and beginning July 1, 2024, an application for the tax credit must be submitted to the Department and the Department must approve the application prior to the taxpayer taking the credit. Information is provided in the Publication as to the application process. The Department further states that these tax credits will be approved on a first-come, first-served basis. More information can be found here.
Georgia
Ruling as to Job Tax Credits: The Georgia Department of Revenue (Department) recently issued Letter Ruling IT-2024-01 addressing certain questions relative to the application of the job tax credit. Although the background facts are recited in this Ruling, the two questions presented by the taxpayer are as follows: (1) do jobs that did not constitute new full-time employee jobs under Georgia law in prior years become new full-time employee jobs in the current year due to an increase in salary, but without any other change in job function or structure of such positions, and (2) do jobs constitute new full-time employee jobs or transferred jobs under Georgia law when the organization makes separate and unrelated business decisions to create jobs in one location and to remove similar jobs in another location? The Department in this Ruling reviews Georgia law, and then issues decisions based upon the facts set forth in the Ruling as follows: (1) the taxpayer cannot claim the job tax credit for any taxable year for jobs that did not meet the pay requirements for a new full-time employee job in the year of the job creation even though such pay requirements are met in a subsequent taxable year; and (2) the taxpayer can claim the job tax credits for jobs created in a Georgia location in one county even though similar jobs are removed in a Georgia location in a different county, and that no "transferred jobs" occurred because the addition of jobs by the taxpayer in one Georgia location was not caused or affected by the removal of jobs in another location. These decisions are based solely upon the facts set forth in this Ruling and the Department's analysis of the law in regard to such facts. More information can be found here.
Louisiana
Annual Second Amendment Weekend Sales Holiday: The Louisiana Department of Revenue (Department) recently issued Revenue Information Bulletin No. 24-014 announcing that 2024 Annual Second Amendment Weekend Sales Holiday begins September 6, 2024 and ends September 8, 2024. The Department states in this Bulletin that the Holiday provides a state and local sales and use tax exemption on any consumer purchase of firearms, ammunition, and hunting supplies occurring the first consecutive Friday through Sunday of each September; but the exemption does not apply to business or commercial purchases. Firearms eligible for the exemption, according to the Bulletin, include shotguns, rifles, pistols, revolvers or other handguns which may be legally sold or purchased in Louisiana. Additionally, and according to the Bulletin, ammunition fired from a gun or firearm is eligible for the tax exemption, as is hunting supplies which are used and designed for hunting are eligible for the exemption. A list of eligible hunting supplies is set forth in the Bulletin, together with a list of purchases not eligible for the exemption. Further, the Bulletin sets forth conditions for the exemption, together with special provisions pertaining to the exemption. The Department sets forth contact information in this Bulletin for any questions. More information can be found here.
Louisiana
Annual Second Amendment Weekend Sales Holiday: The Louisiana Department of Revenue (Department) recently issued Revenue Information Bulletin No. 24-014 announcing that 2024 Annual Second Amendment Weekend Sales Holiday begins September 6, 2024 and ends September 8, 2024. The Department states in this Bulletin that the Holiday provides a state and local sales and use tax exemption on any consumer purchase of firearms, ammunition, and hunting supplies occurring the first consecutive Friday through Sunday of each September; but the exemption does not apply to business or commercial purchases. Firearms eligible for the exemption, according to the Bulletin, include shotguns, rifles, pistols, revolvers or other handguns which may be legally sold or purchased in Louisiana. Additionally, and according to the Bulletin, ammunition fired from a gun or firearm is eligible for the tax exemption, as is hunting supplies which are used and designed for hunting are eligible for the exemption. A list of eligible hunting supplies is set forth in the Bulletin, together with a list of purchases not eligible for the exemption. Further, the Bulletin sets forth conditions for the exemption, together with special provisions pertaining to the exemption. The Department sets forth contact information in this Bulletin for any questions. More information can be found here.
Mississippi
Sales Use Tax Notice Regarding Mineral Resources: The Mississippi Department of Revenue (Department) recently issued Notice 72-24-03 which notifies mineral resource service businesses that, effective July 1, 2024, the 3.5 percent contractor's tax no longer applies to drilling, redrilling, completing, or working over an oil or gas well; and also notifies such businesses that the sales tax on services provided on a oil or gas field has been changed from the regular 7 percent rate to a new 4.5 percent sales tax rate. The Department in this Notice states that the new 4.5 percent rate will apply to services performed in connection with geophysical surveying, exploring, developing, drilling, redrilling, completing, working over, producing, distributing, or testing of oil, gas and other mineral resources, and that this tax should be added to all charges or fees for providing such services. The Department also states in this Notice that the new 4.5 percent sales tax rate will also replace the 7 percent retail sales tax rate on sales or rentals of equipment and purchases of materials used in connection with physical surveying, exploring, developing, drilling, redrilling, completing, working over, producing, distributing, or testing of oil, gas, and other mineral resources. Contact information is provided in this Notice for any questions. More information can be found here.
North Carolina
Flagging Type Services Not Subject to Sales Tax: The North Carolina Department of Revenue (Department) recently issued a Private Letter Ruling addressing whether a taxpayer should charge sales tax in regard to flagging type services which include use of stop and slow paddles to flag traffic around the closed portion of a street where the taxpayer's customers are performing some type of road repair, maintenance, or construction. According to the facts in this Ruling, a typical job for the taxpayer would involve shifting traffic or closing a lane of traffic, and the taxpayer would use its own equipment such as cones, barrels, and signs to prevent drivers from entering the closed portion of a road which is the subject of the contractor's work. On each day, according to the Ruling, the taxpayer collects its equipment and reopens the road. In addition, the Ruling noted that the taxpayer provides a copy of an estimate, a service agreement, and an invoice for this type of work for the contractors. Further, the Ruling noted that a plan is developed by an employee of the taxpayer with specific training and certification and the job is staffed by employees with various certifications; and, importantly, the Ruling further states that taxpayer's employees and temporary employees have control over the taxpayer's equipment at all times. Based upon these facts, the Department concluded in this Ruling that the receipts from this particular service by the taxpayer for its construction customers are not subject to sales and use tax. The Department noted that to qualify as a taxable lease or rental, North Carolina law requires a transfer of possession or control of the tangible personal property; whereas, in this particular situation, the taxpayer's employees maintain control and possession of the items owned by the taxpayer and used for the flagging services. Further, the Department noted that this particular type of service is not included in the definition of taxable repair, maintenance, and installation services; nor is this type of service otherwise subject to North Carolina sales and use tax. The Department did note that while the service itself is not subject to the sales and use tax, the taxpayer must pay the appropriate sales and use tax on the items it uses to provide the service; and the taxpayer must maintain records establishing its sales and use tax liability including the appropriate tax paid on items so used to deliver such service. More information can be found here.
South Carolina
Durable Equipment Exemption Found Unconstitutional: The South Carolina Department of Revenue (Department) recently issued Information Letter #24-10 addressing a recent South Carolina Supreme Court's ruling on the constitutionality of the sales and use tax exemption for durable medical equipment (DME). The Department states in this Information Letter that the South Carolina Supreme Court has ruled that the sales and use tax exemption for DME is unconstitutional because certain language within the exemption discriminates against interstate commerce, which is prohibited under the dormant Commerce Clause. The Department goes on to state that this Information Letter gives notice that the sales and use tax exemption for DME is now invalid and that sellers of DME are required to collect and remit sales tax on their sales within the State after June 26, 2024, the date on which the Court's ruling became final. The Department further notes in this Information Letter that the Court found the entire exemption to be invalid, determining that the discriminatory language is not independent and severable from the remainder of the exemption. As to severability, the Department notes that the requirement within the exemption that the DME must be sold by provider whose principal place of business is located in South Carolina, discriminated against interstate commerce because it treated out-of-state providers differently from in-state providers; and that since that portion of exemption was not shown to be independent of and severable from the remainder of the exemption, the Court therefore deemed the entire exemption invalid. More information can be found here.
Tennessee
Application of Sales/Use Tax to Repair Services Performed in Tennessee: The Tennessee Department of Revenue (Department) recently posted to its website Letter Ruling #24-05 which addresses the application of the sales and use tax to repair services performed in Tennessee on traffic management equipment which is then shipped to customers outside the state. As noted by the Department in this Ruling, the taxpayer in question manufactures and sells traffic management equipment, including cameras installed on roadway intersections that assist in regulating traffic flow that is increasing in a particular direction and adjusting traffic light timing intervals to mitigate roadway congestion. In the event that this equipment purchased for use in the United States needs to undergo repairs, the taxpayer's out-of-state customers ship the equipment to the taxpayer's repair center located in Tennessee. As noted in this Ruling, the taxpayer completes the needed services at its Tennessee facility and then ships the repaired equipment back to the out-of-state customer via common carrier, FOB origin, such that possession of the equipment transfers to the taxpayer's customers upon shipment from the taxpayer's Tennessee facility. In response to questions in that Ruling, the Department states that with respect to transactions occurring before July 1, 2024, repair services on tangible personal property are subject to the sales tax, and the exemption for machinery and equipment necessary for building or improving roads or highways is not applicable since the equipment in question is not used to build roads, nor does it improve the physical structure of the road itself. However, the Department also states in this Ruling that pursuant to the Tennessee Tax Works Act that was enacted in 2023, and beginning July 1, 2024, the repair of tangible personal property, for sales tax purposes, is not sourced to Tennessee when the sale is made from a place of business within the physical limits of Tennessee, and where the serviced tangible personal property is delivered by the seller to the purchaser or the purchaser's designee outside the physical limits of Tennessee or to a carrier for delivery to a place outside the physical limits of Tennessee. More information can be found here.
Texas
Sales Tax Application to Separately Stated Credit Card Processing Fees: The Comptroller's Office (Comptroller) has recently issued a Memorandum addressing the application of Texas sales tax to separately stated credit card processing fees billed by a retailer and the sales price of the taxable items sold. By way of background, the Comptroller in this Memorandum states that retailers who accept credit card payments for sales of taxable items may choose to pass on a credit card processing fee to their customers or cover the processing fee at the retailer's own expense, and these processing fees represent charges to the retailer by the person settling the credit card transaction. The Comptroller further noted that retailers frequently claim that separately stated credit card processing fees passed on to the customer are not part of the sales price for one of two reasons, those being: (1) the processing fees are excluded from the sales price under Texas law as finance, carrying and service charges or interest from extending credit to the purchaser, or (2) the processing fees are excluded from the definition of "data processing service" and thus are not included in the sales price. In analyzing the issue, the Comptroller concluded that separately stated credit card processing fees are taxable as part of the total sales price of a taxable item, and that such separately stated charges are not finance, carrying and service charges, or interest from credit extended for sales of taxable items, because the retailer is not extending credit to the customer for the purchase of a taxable item. Further, Comptroller determined that a retailer selling a taxable item is not acting in the capacity of a credit card payment processor or financial institution settling an electronic payment transaction; and, therefore, when a retailer chooses to pass on a credit card processing fee to its customer, it is passing on a cost or expense incurred in connection with the sale of a taxable item, which amounts are included under Texas law in the sales price of taxable items. Accordingly, the Comptroller determined that a retailer's charges for reimbursement of credit card processing fees, even when separately stated, are taxable as part of the total price of the taxable items sold. This Memorandum supersedes some previous decisions by the Comptroller relating to service charges for credit card sales. More information can be found here.
Virginia
Employee or Independent Contractor for Withholding Purposes: The Virginia Tax Commissioner (Commissioner) recently issued Document No. 24-60 pertaining to the application of the withholding tax to a taxpayer operating a drywall and painting business in Virginia. Upon audit of the taxpayer, the Virginia Department of Taxation (Department) concluded that some of the taxpayer's workers who were classified as independent contractors should have been classified as employees. An assessment was issued to the taxpayer for withholding tax as well as civil penalties; and thereafter the taxpayer filed an application for correction, contending that the workers in questions were independent contractors. The Commissioner in this Document noted that Virginia law provides if an individual performs services for an employer for remuneration, that individual shall be considered as an employee by the party that pays that remuneration unless such individual or his employer demonstrates that such individual is an independent contractor. Pursuant to IRS guidelines, the Commissioner noted that the Department adopted the common-law analysis to determine whether an individual is an employee or independent contractor. The Commissioner in this Document then reviewed various tests which include not only behavioral control, but also financial control, and the type of relationship between the employer and the worker performing the services. With respect to behavioral control, the Commissioner noted in the Document that the Department's auditor concluded that employee relationship existed because the taxpayer told the workers what job to perform; however, the audit did not explain how the taxpayer controlled the work, and merely communicating to a worker about what job to perform is insufficient by itself to support a conclusion that an employee relationship exists. With respect to the financial control, the auditor indicated that the workers did not carry their own liability insurance and that the taxpayer carried the risk of the work; however, the Commissioner noted in the Document that the fact that a worker does not have insurance does not necessarily mean that the worker did not at least share in the risk of loss since even an uninsured contractor can be sued for damages even though they do not have liability insurance. With respect to the type of relationship, the audit report stated that the taxpayer's workers did what regular employees do for their employer but the Commissioner noted in the Document that the report failed to identify any other factor as to the type of relationship upon in which to base a finding that an employee relationship existed. In particular, the Commissioner noted in the Document the taxpayer did not have a written contract with any of its workers, they were engaged orally for a particular job, and that the taxpayer further indicated that the workers were only used for one or two projects a year and were provided with Form 1099 for each year as required. Based on the foregoing and other facts as set forth in the Document, the Commissioner determined that the Department's audit report and documentation failed to show that the taxpayer improperly characterized the workers as independent contractors and, thus, the assessment was abated. The Commissioner noted, however, that the Department has the authority to conduct similar worker classification audits in subsequent years. More information can be found here.
