Archive for Sales And Use Taxes

Indiana Economic Nexus Threshold Amended

Indiana Economic Nexus Threshold Amended

On March 13, 2024, Indiana Governor, Eric Holcomb, signed an emergency law amending Sales and Use Tax provisions in the state. The most notable of these provisions was to amend the economic threshold for sales tax nexus by removing the number of annual sales transactions in the state as one of the two triggers that require retail merchants to collect and remit state sales tax.

Background Of Economic Nexus

In a past blog, we discuss the origins of economic nexus and where we were in 2023 – 5 years after the Wayfair case was decided:

https://milesconsultinggroup.com/blog/2023/06/13/on-the-5th-anniversary-of-the-wayfair-decision-the-impact-of-economic-nexus-on-small-and-mid-sized-businesses/

Have questions about economic nexus in Indiana or another state? Click here to schedule a free consultation:

In most states, the threshold began as either a sales limit or a transaction limit. For example, when South Dakota’s economic nexus law was enacted, it established a threshold of 200 transactions or $100,000, which many states later modeled  as they passed their own economic nexus legislations.

Indiana’s original economic nexus law came into effect on October 1, 2018, and before this law change, the threshold was the lesser of $100K of sales OR 200 transactions.

Transaction Threshold Often An Unnecessary Burden

Read More

Written by | Posted in Economic Nexus • Indiana • Sales And Use Taxes

Preparing For A Sales Tax Voluntary Disclosure Program: Best Practices And Strategies

Preparing For A Sales Tax Voluntary Disclosure Program: Best Practices And Strategies

Voluntary disclosure programs stand as important points of resolution for businesses navigating potential sales tax and state income tax non-compliance issues. Understanding the nuances of these programs is crucial for enterprises seeking to rectify their tax affairs. In this article we’ll focus on voluntary disclosure agreements (known as “VDAs” in the state tax arena) as they relate mostly to sales tax and state income tax.  Note that each state has its own process for engaging in these remedies and there is no “one-size fits all” although there are similarities among the programs.

We’ll cover some of those nuances here:

1. Understanding Voluntary Disclosure Programs:

2. Risks of Non-Compliance:

  • Overview:
    Explore risks related to non-compliance, emphasizing proactive mitigation.
  • 1. Audits and Investigations:
    Non-compliance increases the risk of time-consuming audits as happens when a state identifies a company as non-compliant before the company is able to come forward voluntarily
  • 2. Financial Penalties:
    Non-compliance leads to financial penalties and interest.
  • 3. Legal Actions:
    Non-compliance may escalate to legal actions.
  • 4. Reputational Damage:
    Non-compliance can harm a business’s reputation.
  • 5. Loss of Business Opportunities:
    Non-compliance limits opportunities.
  • 6. Unpredictable Financial Impact:
    The financial impact of non-compliance is unpredictable.

3. Benefits of Participation:

Read More

Written by | Posted in Sales And Use Taxes • Voluntary Disclosures

Sales Tax And Due Diligence In An M&A Deal

Sales Tax And Due Diligence In An M&A Deal

The fast-paced world of private equity investment, mergers and acquisitions (M&A) and the art of aligning business interests in the perfect deal certainly sounds glamorous. It’s often where Wall Street meets Hollywood and depicts people reaping lots of money in the process! There are so many components in the making of a successful merger, including synergies between the companies’ cultures and employees, financial aspects, logistics, and other important areas. Tax matters (and in our world, state tax matters) are often the last pieces of the puzzle to be brought to the deal process. And while taxes are rarely the things making the headlines in a transaction, they really are an important piece of the overall transaction – both on the state income tax side (which we’ll discuss briefly below) and the sales tax side. And all the things that we discuss regularly here in our blog – nexus, taxability, look-back, exposure and remediation – they all come up in an M&A transaction. And if the exposure is big enough, it can derail a deal. Unfortunately, we’ve seen it happen!

Some Basics

In an acquisition of a company the deal is structured as either the purchase of the stock of a company (an equity deal) or its assets (an asset deal). From an income tax perspective (federal or state), the structure of the deal makes a difference as well.

Regarding sales tax, on the actual purchase itself, there is generally no sales tax due on the consideration paid for a company in equity-based deals. However, there may be sales tax ramifications on the purchase of assets in an asset-based deal. Most states have exemptions for assets transferred as part of an acquisition (for instance an “occasional sale” exemption), but it is always important to understand the transaction itself, including the actual assets transferred, timing of such transfers, etc.
Read More

Written by | Posted in M&A Deals • Sales And Use Taxes

Texas Sales And Use Tax Treatment of Software And Computer Programs

Texas Sales And Use Tax Treatment of Software And Computer Programs

The function and utility of computers has changed and evolved at an exponential rate over the last several years, and will likely continue to do so, particularly as advancements like artificial intelligence become integrated in more industries. Unsurprisingly, current Texas sales and use tax authority surrounding the use of computers is complex and can create problems for taxpayers who provide computer programs and software, and perform related services. The following types of transactions involving software and computer programs are discussed briefly below:

Sale of a computer program to a customer;
Providing “contract programming” services; and
Providing repair, maintenance, and restoration services for a computer program
Sales of Computer Programs or Software

Comptroller Rule 3.308(c)(1) provides that “[t]he sale, lease, or license of a computer program is a sale of tangible personal property. Tax is due when the computer program, or a license to use the computer program, is transferred for consideration in Texas, or stored, used, or consumed in Texas, in electronic form or on physical media.” [1] This stems from the Comptroller’s treatment of software as “tangible personal property”, the sale of which is generally taxable in Texas. [2]
Read More

Written by | Posted in Sales And Use Taxes • Texas Tax

Texas Sales And Use Tax Implications Of Oil And Gas Well Servicing

Texas Sales And Use Tax Implications Of Oil And Gas Well Servicing

In certain circumstances, services performed on oil and gas wells or related equipment may be subject to Texas sales or use tax. The taxability of these services is fraught with complexity, but is discussed briefly below.

General Taxability

At a high level, services performed on oil and gas wells are generally subject to tax as either (i) commercial repair and remodeling services (i.e., services performed on real property) or (ii) repair, remodeling, or maintenance of tangible personal property (i.e., services performed on portions of the well or related equipment). [1]

Nontaxable Services

Comptroller Rule § 3.324 carves out certain services as specifically nontaxable. This Rule lays out two general categories of nontaxable services.

First, no Texas sales or use tax is due on “[t]he labor to perform those services subject to the 2.42% oil well service tax imposed under Tax Code, Chapter 191”. [2] In this context, Chapter 191 applies “oil well services” which are defined to include:
Read More

Written by | Posted in Oil And Gas Well Servicing • Sales And Use Taxes • TaxConnections

Sales Tax And Due Diligence In An M&A Deal

Sales Tax And Due Diligence In An M&A Deal

The fast-paced world of private equity investment, mergers and acquisitions (M&A) and the art of aligning business interests in the perfect deal certainly sounds glamorous. It’s often where Wall Street meets Hollywood and depicts people reaping lots of money in the process! There are so many components in the making of a successful merger, including synergies between the companies’ cultures and employees, financial aspects, logistics, and other important areas. Tax matters (and in our world, state tax matters) are often the last pieces of the puzzle to be brought to the deal process. And while taxes are rarely the things making the headlines in a transaction, they really are an important piece of the overall transaction – both on the state income tax side (which we’ll discuss briefly below) and the sales tax side. And all the things that we discuss regularly here in our blog – nexus, taxability, look-back, exposure and remediation – they all come up in an M&A transaction. And if the exposure is big enough, it can derail a deal. Unfortunately, we’ve seen it happen!

Some Basics

In an acquisition of a company the deal is structured as either the purchase of the stock of a company (an equity deal) or its assets (an asset deal). From an income tax perspective (federal or state), the structure of the deal makes a difference as well.

Regarding sales tax, on the actual purchase itself, there is generally no sales tax due on the consideration paid for a company in equity-based deals. However, there may be sales tax ramifications on the purchase of assets in an asset-based deal. Most states have exemptions for assets transferred as part of an acquisition (for instance an “occasional sale” exemption), but it is always important to understand the transaction itself, including the actual assets transferred, timing of such transfers, etc.
Read More

Written by | Posted in M&A Deals • Sales And Use Taxes

Sales Tax, Software, SaaS & Consulting- How They Work Together

Sales Tax, Software, SaaS & Consulting- How They Work Together

There are sales tax software companies out there (some of whom are our strategic partners, so this is where this fine line we walk gets a little curvy) who will tell companies how easy it is to “bolt on” their solution to billing or CRM systems. With the flip of a switch, sales tax compliance can be done monthly…if only the company knows where it has created nexus, knows exactly how to code its products, and has properly contemplated the ramifications of dealing with retroactive liability and also, possibly, income tax. We built a lot into that last sentence. Here’s why – it is never as easy as flipping a switch. We all know that, and yet, we realize how tempting it is for companies out there to want to jump to the “easy” software solution.

In this blog, we want to share some very common questions we get from clients and prospective clients, and share why the “people element” is still a necessary (and vital) element in the sales tax compliance equation. Let’s start with a few basic requests that we frequently encounter.

Can You Help us with Sales Tax Registrations in Multiple States?

Of course we can! But let’s ask a few questions first.

Do you have nexus? Nexus can be of the physical presence type (employees or independent contractors, an office, or inventory within the state), or economic nexus (a certain threshold amount of sales – often referred to as Wayfair nexus in honor of the 2018 US Supreme Court case).If so, when did you create it?

Many of the sales tax compliance software companies don’t talk much about retroactive exposure. Their sales people are focused on signing clients up for future software sales. We know, that sounds a bit cynical. But, we’ve had many conversations with clients who buy the software without really considering their potential retroactive exposure (more on that below).

If you have created nexus some time ago (2020, 2021), are you prepared to deal with paying any tax which may have been due from those time periods?
Have you considered voluntary disclosure agreements (see below)?

Have you reached out to any customers to determine if they may have self-remitted the tax already, OR can you go back to customers to collect that back tax that you may not have collected? (Oh what a Pandora’s Box!)
Read More

Written by | Posted in Sales And Use Taxes

On-Line Retailers And Remote Sellers: Sales And Use Taxes

On-Line Retailers And Remote Sellers: Sales And Use Taxes

The Supreme Court of the United States’ decision in Wayfair, in June 2018, changed the landscape for sales and use taxes nexus for on-line retailers and remote sellers.  Due to budgetary deficits the states are facing due to the downturn in the economy and the Covid-19 Pandemic, states will increase audit activity to raise money.  Companies must be prepared and be proactive in order to avoid or reduce any state tax assessments.

The Wayfair decision lowered the bar in which a company has nexus with a state.   Prior to Wayfair, a company needed a physical presence in the state to be required to collect and remit sales and use taxes.  After Wayfair, states now require an economic presence, generally based on a threshold of sales into the state to create nexus with the state.  Please note, even if a company does not meet the economic thresholds for sales or transactions, as the case may be, but has a physical presence in the state, then the company has nexus with the state because of the physical presence and must register for sales and use taxes in such state.

Read More

Written by | Posted in Remote Sellers • Sales And Use Taxes