Michigan Gov. Jennifer Granholm has signed into law a bill that expands the use tax to 23 services. Act 93 (HB5198) of 2007 is effective Dec. 1, 2007.
The services subject to tax include the following:
Business service center services
Consulting services
Investment advice services
Janitorial and landscaping services
Warehousing and storage services
Packaging and labeling services
Document preparation services
Many personal services, such as concierge and psychic services
Taxpayers must source the services in the same manner as products. In response to the amendment of Michigan's Use Tax Act to impose a 6% use tax on an expanded list of services, the Michigan Dept. of Treasury has issued an index of service transactions and their respective taxability as determined by the department. North American Industry Classification System (NAICS) codes are given for each service listed, according to Services Index, released Nov. 7, 2007.
California: Sales Tax Prepayment Rates for 2009
California sales tax prepayment rates for fuels for the period of April 1, 2008, through March 31, 2009, are announced. Effective April 1, 2008, the per-gallon rates are as follows: (1) decreased from $0.17 to $0.165 for gasoline; (2) decreased from $0.16 to $0.155 for diesel fuel; and (3) unchanged at $0.125 for jet fuel. (News Release NR 62-G, State Board of Equalization, Oct. 19, 2007)
Connecticut: Applicability of Sales and Use Tax to Employment Services Updated
Information regarding the applicability of sales and use taxes to services provided by employment agencies and agencies that provide personnel services is updated. The term "employee" is defined, detail is provided regarding the determination of whether a contract is for personnel services or for another service, and the exclusion for professional employee organizations, which is in addition to the exclusion for leased employees, is discussed.
Additionally, the policy statement explains the terms "leased employee" and "professional employer organization" and other requirements for excluding from gross receipts and sales price certain amounts paid with respect to leased employees and employees of professional employer organizations. (Policy Statement 2007[7], Dept. of Revenue Services)
Florida: Estimated Sales and Use Tax Payments Explained
Estimated Florida sales and use tax payments for businesses with multiple locations using the same taxpayer identification number are explained. Dealers who paid sales and use tax in excess of $200,000 for the period of July 1, 2006, through June 30, 2007, are required to make estimated sales tax payments beginning with their December 2007 sales tax returns. This estimated payment requirement applies to the January 2008 through December 2008 collection periods.
The first 2008 estimated tax payment is reported on Line 9 of the December 2007 return, which is due on Jan. 1, 2008, and is late after Jan. 22, 2008. Electronic payments must be initiated on or before Friday, Jan. 18, 2008, 5:00 p.m. Eastern. An estimated tax payment (Line 9) made on the December 2007 return should be recorded as a credit on Line 8 of the January 2008 return. Such taxpayers must continue to make estimated tax payments on each return throughout 2008. All consolidated accounts are required to file and pay electronically. (Tax Information Publication, No. 07A01-12, Dept. of Revenue)
Kansas: Revised Sales and Use Tax Exemption Certificate Publication
The Dept. of Revenue has revised its publication on the usage of sales and use tax exemption certificates to include the most recent version of Form PR-70b: Request for Project Exemption Certificate Pursuant to K.S.A. 79-3606(cc). (Information Guide No. KS-1520, DOR)
Louisiana: Construction Barricades Subject to Sale and Use Tax
Charges for the temporary use of construction barricades, lighting, and fencing are subject to sales and use taxes as leases and rentals. The taxable base includes the charges for the lease or rental as well as any charges for bulb replacement or other maintenance of the property while the property is in service to the contractor, regardless of whether those charges are separately stated. Barricades, lights, temporary fencing, and other durable tangible personal property that providers acquire for the exclusive purpose of lease or rental as tangible personal property are eligible for tax-free purchase, as provided. (Revenue Ruling No. 07-007, Dept. of Revenue)
Maine: Casual and Infrequent Sales Instructions
Maine Revenue Services has revised its instructional bulletin on the sales and use tax treatment of casual and infrequent sales to reflect changes in the law that went into effect on Sept. 20, 2007. Revisions reflect that sales and use tax now applies to casual sales of all trailers. Previously, sales and use tax applied to casual sales of camper trailers and livestock trailers. The sale by a lessor of personal property previously rented or leased has been added as an example of a transaction that appears similar to a casual sale, but is treated like a taxable retail sale.
Maryland: Governor Signs Tax Reform Act of 2007
On November 19, 2007, Maryland Governor Martin O'Malley signed the Tax Reform Act of 2007, which, among other provisions, affects the sales and use tax law. The legislation alters the definition of "taxable services" under the sales and use tax law to impose the tax on computer services, as defined. The phrase "computer service" includes:
Computer facilities management and operation
Custom computer programming
Computer system planning and design that integrate computer hardware, software and communication technologies
Computer disaster recovery
Data processing, storage and recovery
Hardware or software installation, maintenance and repair
Computer service does not include:
Internet access, as defined in the federal Internet Tax Freedom Act
Typing or data entry on word processing equipment
Computer training
The installation, maintenance or repair of tangible personal property other than computer hardware or software that includes computer hardware or software as a component part
A service otherwise described, as defined, that is provided as part of or in connection with (1) electronic fund transfers, financial transactions, automated teller machine transactions, or other banking or trust services; (2) business management, account management, personnel, payroll, employee benefit, or other administrative services; (3) educational, legal, accounting, architectural, actuarial, medical, medical diagnostic, or other professional services; or (4) telecommunications services.
In addition, sales and use tax does not apply to a sale of computer services for use by an individual participating in a home school program as an alternative to attendance at public or private school for elementary or secondary education. Currently, the sales and use tax was inapplicable to the sale of (1) custom computer software services that related to certain procedures and programs; and (2) an optional computer software maintenance contract if the buyer did not have a right, as part of the contract, to receive at no additional cost software products that were separately priced and marketed by the vendor. The provisions regarding computer services are effective July 1, 2008, and are terminated June 30, 2012.
Missouri: Emergency Rule on Electrical Energy Enacted
The Missouri Department of Revenue has issued a new emergency rule explaining the application of the previously enacted sales and use tax exemption for electricity, gas (natural, artificial, or propane), water, coal, and energy sources used or consumed in manufacturing, processing, compounding, mining, or producing any product, or used or consumed in the processing of recovered materials, or used in research and development related to manufacturing, processing, compounding, mining, or producing any product. The exemption applies to state sales and use tax and local use tax, but not local sales tax. The rule also contains numerous examples of qualifying exemptions.
Missouri: Internet Advertising Services
Monthly fees paid for Internet advertising services are not subject to sales or use tax. Advertising on the Internet is not the sale of tangible personal property and not one of the enumerated services subject to tax. (Letter Ruling No. LR3995, Dept. of Revenue)
West Virginia: Publications Revised
The West Virginia State Tax Department has revised its publication on the application of consumers' sales and service and use tax to the sale or installation of mobile homes. As revised, the publication states that dealers must use Form WV/MFH-100 to remit the additional $20 fee that must be collected on each sale of a mobile home beginning January 1, 2008. The return due date for collected fees is the 20th day of the month following the month in which the fees were collected. The first return date is February 20, 2008. The updated publication also includes the most recent version of the Manufactured or Mobile Homes Certificate of Principal Use (Form WV/CST-281).
The West Virginia State Tax Department has updated its publication on the sales tax responsibilities of agricultural producers. The publication is revised to reflect that taxpayers who claim an exemption and use a consumers' sales tax exemption certificate must complete Form WV/BUS APP, the application to obtain a registration certificate (business license). The publication is also revised to reflect that agricultural producers are exempt from the annual $30 license fee.
The West Virginia State Tax Department has revised its publication that discusses the sales and use tax collection and payment obligations of travel agents, travel agencies, and travel services. The publication details the tax treatment of commissions, service fees, vendor charges, and purchases of tangible personal property and services by a travel agent.
Wisconsin: Use Tax Publication for Individuals Updated
An updated Wisconsin use tax publication for individuals contains a consumer use tax return (Form UT-5) revised in October 2007, and an updated chart of codes for cities and counties imposing local taxes as of July 1, 2007. The publication provides guidance for individuals in determining whether they owe use tax and explains use tax payment procedures. Individuals may report use tax on their personal income tax return or on Form UT-5. (Publication 205, Wisconsin Department of Revenue, November 2007)
The Illinois Department of Revenue has announced the following Illinois sales and use tax rate changes for counties, cities, and business districts, effective January 1, 2008.
County Rate Changes: The following Illinois counties will increase their county sales tax rate on general merchandise, resulting in a combined state and local rate as noted:
Bureau County, 6.75% (formerly, 6.25%)
Moultrie County, 6.75% (formerly, 6.25%)
City Rate Changes: The following Illinois cities will increase their municipal sales tax rate on general merchandise, resulting in a combined state and local rate as noted:
Chicago (DuPage County) will impose a 0.25% home rule tax and repeal the 0.25% DuPage Water Commission Tax, resulting in an unchanged combined state and local rate of 6.75% on general merchandise. A separate release discusses the rate changes listed below for West Chicago.
South Pekin (Tazewell County) 7% (formerly, 6.75%)
West Chicago (DuPage County) will impose a 0.25% home rule tax and repeal the 0.25% DuPage Water Commission Tax, resulting in an unchanged combined state and local rate of 6.75% on general merchandise. A separate release discusses the above rate changes in West Chicago.
Belleville (St.Clair County) will impose a 1% Frank Scott Pky Business District tax, resulting in a combined state and local rate of 8.6% inside this district.
Bloomingdale (DuPage County) will impose a 1% Indian Lakes Resort Business District tax, resulting in a combined state and local rate of 8.25% inside this district.
Bloomingdale (DuPage County) will also impose a 1% Bloomingdale Stratford Sq. Business District tax, resulting in a combined state and local rate of 8.25% inside this district.
Mackinaw (Tazewell County) will impose a 1% Mackinaw First St. Industrial Park Business District tax, resulting in a combined state and local rate of 7.75% inside this district.
Mackinaw (Tazewell County) will also impose a 1% Mackinaw Industrial Park Business District tax, resulting in a combined state and local rate of 7.75% inside this district.
Mackinaw (Tazewell County) will also impose a 1% Mackinaw Downtown Business District tax, resulting in a combined state and local rate of 7.75% inside this district.
Mattoon (Coles County) will impose a 1% South Route 45 Business District tax, resulting in a combined state and local rate of 7.75% inside this district.
Indiana: Prepayment Rate on Gasoline Increased
The prepayment rate of Indiana sales tax on gasoline for the six-month period January 1, 2008, through June 30, 2008, has been set at 12.4¢ per gallon. The rate for the current six-month period (July 1, 2007, through December 31, 2007) is set at 9.9¢ per gallon. Prepayment of sales tax on gasoline must be collected by refiners, terminal operators, and qualified distributors. The prepayment rate is calculated twice a year and is determined in part by the statewide average retail price of gasoline excluding taxes. (Departmental Notice #2, December 2007)
Iowa: Local Option Tax Changes Announced
New Iowa local option sales tax (LOST) jurisdictions are effective January 1, 2008. The new jurisdictions are: (1) Rathbun in Appanoose County (1%); (2) Wilton in Cedar County (1%); (3) Dawson in Dallas County (1%); (4) Bevington in Warren County (1%); and (5) Allerton, Clio, Corydon, Humeston, Lineville, Millerton, Promise City, Seymour and Unincorporated Area (including all unincorporated towns) in Wayne County (1%). Local option taxes are in addition to the state sales and use tax rate, which is currently 5%. (New Iowa Local Option Tax Jurisdictions, Iowa Department of Revenue, November 2007)
Maryland: State Tax Rate Increased to 6%
Maryland Governor Martin O'Malley has signed legislation that, effective January 3, 2008, increases the state sales and use tax rate from 5% to 6% for each exact dollar on a taxable price of $1 or more. For that part of a dollar in excess of an exact dollar, the rate on a taxable price of $1 or more is increased as follows:
1 cent if the excess over an exact dollar is at least 1 cent but less than 17 cents
2 cents if the excess over an exact dollar is at least 17 cents but less than 34 cents
3 cents if the excess over an exact dollar is at least 34 cents but less than 51 cents
4 cents if the excess over an exact dollar is at least 51 cents but less than 67 cents
5 cents if the excess over an exact dollar is at least 67 cents but less than 84 cents
6 cents if the excess over an exact dollar is at least 84 cents
Currently, the sales and use tax rate on a taxable price of $1 or more is 5 cents for each exact dollar and 1 cent for each 20 cents or part of 20 cents in excess of an exact dollar. In addition, the sales and use tax rate on a taxable price of less than $1 is:
1 cent if the taxable price is 20 cents
2 cents if the taxable price is at least 21 cents but less than 34 cents
3 cents if the taxable price is at least 34 cents but less than 51 cents
4 cents if the taxable price is at least 51 cents but less than 67 cents
5 cents if the taxable price is at least 67 cents but less than 84 cents
6 cents if the taxable price is at least 84 cents
New Mexico: Local Tax Rate Changes Announced
The New Mexico Taxation and Revenue Department has issued the gross receipts tax rate schedule for counties and municipalities for the period January 1, 2008, through June 30, 2008. Those listed below will have new rates.
Bernalillo County: The Mesa Del Sol Tax Increment Development District (TID) District 1 Residential and Commercial will each have a new rate of 6.875% (new location codes).
Dona Ana County: The Regional Spaceport District will have a new rate of 6.1875% (new location code).
Harding County: The municipality of Mosquero will have a new rate of 6.375% (previously, 6.125%).
Lincoln County: The municipality of Corona will have a new rate of 6.8125% (previously, 6.5625%).
Quay County: The following municipalities will have new rates: House, 7.625% (previously, 7.125%); Logan, 8% (previously, 7.5%); San Jon, 8% (previously, 7.5%); and Tucumcari, 8% (previously, 7.5%). The remainder of the county will have a new rate of 6.3125% (previously, 5.8125%).
Sandoval County: The municipalities of Santo Domingo Pueblo (1) and (2) will each have a new rate of 6% (new location codes).
San Juan County: The Valley Water and Sanitation District will have a new rate of 6.4375% (new location code).
San Miguel County: The municipality of Mosquero will have a new rate of 6.9375% (previously, 6.6875%).
Santa Fe County: The following municipalities will have new rates: Edgewood, 7.625% (previously, 7.5625%); Espanola (Santa Fe), 7.9375% (previously, 7.875%); Espanola/Santa Clara Grant (1), 7.9375% (previously, 7.875%); Espanola/Santa Clara Grant (2), 7.9375% (previously, 7.875%); Nambe Pueblo (1), 6.625% (previously, 6.5625%); Nambe Pueblo (2), 6.625% (previously, 6.5625%); Pojoaque Pueblo (1), 6.625% (previously, 6.5625%); Pojoaque Pueblo (2), 6.625% (previously, 6.5625%); Pueblo de Cochiti (1), 6.625% (previously, 6.5625%); Pueblo de Cochiti (2), 6.625% (previously, 6.5625%); Santa Clara Pueblo (1), 6.625% (previously, 6.5625%), Santa Clara Pueblo (2), 6.625% (previously, 6.5625%); Santo Domingo Pueblo (1), 6.625% (new location code); Santo Domingo Pueblo (2), 6.625% (new location code); and Santa Fe (city), 7.9375% (previously, 7.875%). The remainder of the county will have a new rate of 6.625% (previously, 6.5625%).
Taos County: The following municipalities will have new rates: El Prado Water and Sanitation District, 7.125% (new location code); El Valle de Los Ranchose Water & Sanitation District, 7.125% (new location code); Questa, 7.9375% (previously, 7.625%); Questa Airport, 6.875% (previously, 6.4375%); Red River, 8.1875% (previously, 7.875%); Taos (city), 7.9375% (previously, 7.625%); Taos Airport, 6.875% (previously, 6.4375%); and Taos Ski Valley, 8.4375% (previously, 7.875%). The remainder of the county will have a new rate of 6.875% (previously, 6.4375).
Union County: The following municipalities will have new rates: Clayton, 7.75% (previously, 7.5%); Des Moines, 7.375% (previously, 7.125%); Folsom, 7.375% (previously, 7.125%); and Grenville, 7.375% (previously, 7.125%). The remainder of the county will have a new rate of 5.9375% (previously, 5.6875%).
Valencia County: The municipality of Peralta will have a new rate of 7% (new location code).
New York: Local Rates on Clothing and Footwear Revised
The New York Department of Taxation and Finance has revised its publication listing local sales and use tax rates on clothing and footwear, effective December 1, 2007. Clothing and footwear worn by humans and costing less than $110 per item are exempt from the state sales and use tax. This exemption does not apply to any locally imposed sales and use tax, unless the county or city elects to provide for it.
The revised publication identifies the jurisdictions that have adopted the local exemption, and provides the rates of tax on sales of eligible clothing and footwear in localities that have not adopted the exemption. The revised publication also reminds taxpayers that sales in New York City of clothing and footwear (including items used to make or repair clothing) costing $110 or more per item or pair, are also exempt from New York City sales tax. These sales remain subject to the state sales and use tax and the sales and use tax imposed by the state in the Metropolitan Commuter Transportation District (MCTD).
Oklahoma: Local Rate Change Announced
Effective December 1, 2007, the local sales and use tax rate for the city of Wetumka, Oklahoma decreases from 4% to 3%.
Utah: Local Rate Changes Announced
The following changes affecting state and local Utah sales and use tax take effect on January 1, 2008.
Municipal Rate and Jurisdiction Changes:
Brian Head increases its highway tax rate from 0.25% to 0.3%
Brigham increases its mass transit tax rate from 0.25% to 0.3%
Bryce Canyon (a new city) imposes a local option tax at a rate of 1% and a resort communities tax at a rate of 1%
Ephraim increases its highway tax rate from 0.25% to 0.3%
Erda increases its mass transit tax rate from 0.25% to 0.3%
Grantsville increases its mass transit tax rate from 0.25% to 0.3%
Green River increases its highway tax rate from 0.25% to 0.3%
Gunnison increases its highway tax rate from 0.25% to 0.3%
Heber increases its highway tax rate from 0.25% to 0.3%
Hurricane increases its highway tax rate from 0.25% to 0.3%
Hyrum increases its mass transit tax rate from 0.25% to 0.3%
Ivins increases its highway tax rate from 0.25% to 0.3%
Lakepoint increases its mass transit tax rate from 0.25% to 0.3%
La Verkin increases its highway tax rate from 0.25% to 0.3%
Lincoln increases its mass transit tax rate from 0.25% to 0.3%
Logan increases its mass transit tax rate from 0.25% to 0.3%
Midway increases its resort communities tax rate from 1% to 1.1% and its highway tax rate from 0.25% to 0.3%
Moab increases its resort communities tax rate from 1.5% to 1.6% and its highway tax rate from 0.25% to 0.3%
Mt. Pleasant increases its highway tax rate from 0.25% to 0.3%
Nephi increases its highway tax rate from 0.25% to 0.3%
Nibley increases its mass transit tax rate from 0.25% to 0.3%
North Logan increases its mass transit tax rate from 0.25% to 0.3%
Park City increases its resort communities tax rate from 1% to 1.1% and its mass transit tax rate from 0.25% to 0.3%
Perry increases its mass transit tax rate from 0.25% to 0.3%
Price increases its highway tax rate from 0.25% to 0.3%
Providence increases its mass transit tax rate from 0.25% to 0.3%
Provo Canyon is dissolved as a taxing jurisdiction and included in Utah County
Richfield increases its highway tax rate from 0.25% to 0.3%
Riverdale imposes a new municipal transient room tax at a rate of 1%
Roosevelt increases its highway tax rate from 0.25% to 0.3%
St. George increases its highway tax rate from 0.25% to 0.3% and imposes a new municipal transient room tax at a rate of 1%.
Salina increases its highway tax rate from 0.25% to 0.3%
Santa Clara increases its highway tax rate from 0.25% to 0.3%
Smithfield increases its mass transit tax rate from 0.25% to 0.3%
Snyderville Basin increases its mass transit tax rate from 0.25% to 0.3%
Springdale increases its resort communities tax rate from 1.5% to 1.6%
Stansbury Park increases its mass transit tax rate from 0.25% to 0.3%
Tooele increases its mass transit tax rate from 0.25% to 0.3%
Vernal increases its highway tax rate from 0.25% to 0.3%
Washington City increases its highway tax rate from 0.25% to 0.3%
Wellington increases its highway tax rate from 0.25% to 0.3%
Willard increases its mass transit tax rate from 0.25% to 0.3%
County Rate and Jurisdiction Changes:
Emery County imposes a new county option tax at a rate of 0.25%
Kane County imposes a new county option tax at a rate of 0.25%
Millard County imposes a new county option tax at a rate of 0.25%
Salt Lake County increases its mass transit tax rate from 0.25% to 0.3%
Utah County repeals its mass transit tax and increases its county option tax for highways, fixed guideways, or systems for public transit from 0.25% to 0.3%. In addition, Provo Canyon is dissolved as a taxing jurisdiction and is included in Utah County.
State Rate Changes:
Taxpayers are reminded that effective January 1, 2008, the general state sales tax rate decreases from 4.75% to 4.65%.
In addition, the reduced rate for food and food ingredients decreases to 3% statewide. This reduction reflects the local option rate of 1.0%, the county option rate of 0.25%, and the decrease in the state rate from 2.75% to 1.75%. Details of these rate changes were previously reported.
The Dept. of Revenue has updated information related to the Streamlined Sales and Use Tax Agreement. The sales tax boundary database, that includes changes effective Jan. 1, 2008, has been added to the DOR's Web site.
The Dept. of Revenue has also added a supplemental taxability matrix to the Streamlined Sales and Use Tax Agreement page on its Web site. The supplemental matrix lists taxable services, product-based exemptions and other sales and use tax exemptions that are not defined or included in the agreement and includes changes effective Oct. 1, 2007. Information regarding the SSTA may be viewed here.
All States: Congress Beats the Clock on Expiring Internet Tax Freedom Act; New Law Extends the Ban on Internet Taxation Together with Existing Grandfathering Provisions Until 2014
In what amounted to a whirlwind of legislative maneuvering and negotiation, Congress swung into action in the waning days of October to pass legislation designed to maintain the notorious and rapidly expiring Internet Tax Freedom Act (ITFA). Under provisions of the most recent law affecting ITFA known as the Internet Tax Nondiscrimination Act, or ITNA for short, the federal moratorium against the taxation of Internet access charges would have automatically expired on November 1st. Instead, Senate lawmakers, in a frenzy of legislative activity, galvanized support for a measure dubbed the "Internet Tax Freedom Act Amendments Act of 2007" which amended prior legislation enacted by the U.S. House, bill H.R. 3678. The substitute bill cleared the Senate on October 25th and the House swiftly followed suit on October 30th, approving the same piece of legislation by a unanimous vote of 402-0. President Bush signed the measure into law a day later.
The original House legislation would have extended the ban on Internet taxation only until the year 2011, but the Senate version of the bill more generously maintains the status quo for a full seven years. Thus, under terms of the newly signed legislation, states and municipalities continue to be barred from taxing Internet access charges and related services until November 1, 2014 at the earliest. At the same time, however, the final legislation re-established ITFA's hotly debated "grandfathering clause" whereby a finite group of states whose taxes applied to Internet access prior to the original cut-off date of October 1, 1998 may continue to collect such tax revenue. Among the states that shall continue to reap the benefits of Internet taxation are: Ohio, Texas, Wisconsin and North Dakota, whose sales tax permissibly applies to charges for Internet access.
But the ITFA extension bill adopted by the House and Senate at the very last minute didn't stop there. Instead, the sponsors of the tax moratorium replacement legislation ambitiously sought to resolve a set of controversial legal issues which previously cast a dark shadow over ITFA's application to offshoots of Internet access and variations of state taxes that potentially fell outside the law's scope of authority.
One particularly thorny issue involved the question of whether certain states that failed to meet the conditions of the original grandfathering clause under ITFA (otherwise known as Grandfather Clause 1) were nevertheless still allowed to tax charges for telecommunications on-ramp type services to the Internet such as DSL Lines or cable modem service. The confusion over this issue arose as a result of the enactment of the prior ITFA extension bill, ITNA, which added a second grandfathering clause allowing states whose taxes applied to such on-ramp services before November 1, 2003 to continue to tax such charges until November 1, 2005; however, in a clever attempt to stretch the provisions of this amendment, certain states such as Illinois and Pennsylvania have taken the position that since ITNA amended the definition of the term "Internet access" to also include telecommunications service used in the provision of Internet access, the new, expanded definition retroactively applied to taxes imposed prior to October 1, 1998 since both grandfathering clauses reference "Internet access".
Accordingly, these maverick states have since gone on record to claim that their state-level taxes qualify under Grandfather Clause 1, not Grandfather Clause 2, and therefore may continue to tax DSL service. But the new law quickly dispels that notion. As per Section 3 of H.R. 3678, captioned "Grandfathering of States That Tax Internet Access", the term "Internet access" under ITFA shall, on a going-forward basis have a "time-sensitive" meaning. Namely, "Internet access", as associated with Grandfather Clause 1 shall henceforth mean pure Internet access, minus telecom-related on-ramp services while "Internet access", as connected with Grandfather Clause 2 shall refer to the blended form of Internet access, i.e., Internet access plus on-ramp services like DSL.
Therefore, since Grandfather Clause 2 has now expired, only the original "bare bones" definition of Internet access remains as the yardstick which permissible taxation must be measured against. Accordingly, the claims of the various "quasi-grandfathered states" that they are still allowed to tax DSL-type service has now been authoritatively refuted, rendering the entire issue moot.
Although Congress has adopted a rather strict interpretation of its own legislative handiwork, it has also chosen to delay implementation of this "clear-cut" reading until June 30, 2008, thereby giving the states that have issued a contrary interpretation a window of time before they must pull the plug on DSL taxation. At the same time, however, Congress has chosen to limit the time frame available to non-conforming states to continue to tax DSL and similar on-ramp services only to those states that have issued an official public ruling prior to July 1, 2007 staking out the position that such services remain subject to taxability in spite of ITFA. As a result, the state of Florida which did not issue its version of a qualifying public ruling in the form of Technical Assistance Advisement 07A19-001 until July 24, 2007, has seemingly missed the boat on this one-time tax authorization exception (see separate feature article in this same newsletter edition.)
The recently signed extension of ITFA also made other significant changes to the taxability of Internet access, some of which may have immediate impact. For instance, the amended version of ITFA now contains a streamlined, yet considerably more elaborate definition of the term "Internet access" which provides taxing authorities and Internet Service Providers alike with a much clearer understanding of exactly what kinds of Internet-related product offerings fall either inside or outside the protected domain of non-taxability. As an example of this clarification, the revised definition explicitly states that incidental services like web hosting, e-mail services, and instant messaging service each enjoy the same degree of tax-free protection as actual Internet connectivity, even when such product offerings are sold on an independent, stand-alone basis. Telecommunication-type on-ramp services are also separately identified as being tax-free. In sharp contrast, meanwhile, audio and video-related transmission services, such as Voice over Internet Protocol (VoIP) service are categorically excluded from the definition of Internet access.
As a final measure of clarification, the new law explicitly provides that effective November 1, certain taxes presently in existence that are levied upon such tax base definitions as commercial activity, taxable margin, gross income or modified gross receipts also fall beyond the scope of a prohibited tax on Internet access, thereby giving states like Ohio, Michigan and Texas a "blank check" to apply taxability to Internet access for purpose of already codified "franchise fee" kinds of taxes established in these various states. Yet another thinly-veiled provision grants similar taxing authority to the state-level Business and Occupation Tax imposed in Washington State.
Accordingly, the newly revised Internet Tax Freedom Act, as re-shuffled by Congress, offers a mixed deck of taxability results for states and localities throughout the country, the impact of which is certain to be felt for several years to come.
Florida: Charges for Internet Access On-Ramp Telecommunications Services Subject to Communications Services Tax; ITNA No Bar to Enforcement, Says Florida DOR
In the context of a taxpayer letter ruling issued in the form of a detailed legal memorandum, the Florida Department of Revenue has publicly asserted taxability jurisdiction over charges for DSL and similar telecommunications services sold to Internet Service Providers (ISPs) as a means of providing high-speed "on ramp" type access to the Internet for customers of such ISPs. Namely, according to Technical Assistance Advisement ("TAA") 07A19-001, issued on July 24th, any vendors of telecommunications services who provide such on-ramp services to ISPs must collect and remit state and local Communications Services Tax from such customers, notwithstanding the fact that terms of the Internet Tax Nondiscrimination Act (ITNA), the federal law which re-extended the moratorium on Internet taxation until November, 2007, has been widely interpreted as barring such application of tax among "non-grandfathered states."
As part of the published fact pattern which precipitated this letter ruling, a taxpayer reported that among the wide range of communications services it sells to buyers inside Florida are high-speed data transmission and transport services delivered to ISPs who in turn, re-package such services to offer a fast connection to the Internet for their consumers. The taxpayer seeking advisement speculated that although such services were once subject to taxation, any ongoing responsibility to collect tax upon such charges ended abruptly on November 1, 2005, the cut-off date for liability as per the rules established by ITNA. More precisely, the taxpayer reasoned that the expiration of one of two "grandfather clauses" contained in the amended version of the Internet Tax Freedom Act on that date completely severed any claims on the part of Florida to continue to tax Internet-related "on-ramp services."
But the Florida Department of Revenue begged to differ. In its TAA, the DOR energetically countered such an argument, claiming that the state is fully authorized to tax DSL-type service (never mentioned by name), even in the post-November, 2005 ITNA era. In its defense, the DOR explained that the taxpayer was referencing the wrong grandfather provision; i.e., Florida falls under the exception set forth in Section 1104(a) of ITFA which allows grandfathered states to continue to tax charges for Internet access until November 1, 2007, according to the state DOR. According to this theory, Florida satisfied the necessary conditions attached to Section 1104(a) (as opposed to Section 1104(b) which automatically expired in 2005) given that Florida's Communications Services Tax is a broad and inclusive tax levied upon telecom services of virtually every shape and size.
Intrinsic to this line of reasoning was the argument that the tax upon telecommunications in its present form, i.e., the CST, merely replaced and carried forward an existing patchwork of telecommunications taxes that well preceded the October 1, 1998 cut-off date underlying ITFA's original grandfathering clause. Hence, given that these earlier set of taxes also applied to on-ramp services purchased by ISPs as a means of providing Internet access - services which by virtue of ITNA now fit under the label "Internet access" - Florida easily beat the 1998 deadline requirement with time to spare. Furthermore, Internet access providers were given ample notice of the application of such taxability rules through the publication of various administrative code regulations and knowledge of the agency's internal audit procedures. Thus, on-ramp services sold to ISPs remain fully subject to the Communications Services Tax.
Oklahoma: Adopts Legislation in Conformity With the Streamlined Sales Tax Agreement; Marginal Changes to the Taxability of Various Phone Services Took Effect November 1
Oklahoma is one of 15 states that have been approved as full members of the Streamlined Sales Tax group of states. In fulfillment of its side of the bargain, the state has adopted key provisions of the Streamlined Sales Tax Agreement, including the standardized set of definitions governing the taxability of telecommunications service. The implementation of these canned provisions came in the form of state legislation (Oklahoma Senate Bill 1076) which was signed into law by the Governor of Oklahoma, Brad Henry, on May 18, 2007. The bill takes effect November 1st.
Among the legislative changes approved was the replacement of the original imposition of taxability upon "telecommunications" based upon the infamous "2 out of 3, Goldberg vs. Sweet sourcing rule" with new "boiler-plate language" which levies taxability upon telecom service on all levels: intrastate, interstate and international. In addition, the new definition makes clear that the particular "routing mechanism" responsible for the transmission of voice or data messages is irrelevant in determining taxability, i.e., the tax on telecommunications service is essentially "technology neutral." Accordingly, Voice over Internet Protocol Services (VoIP) is henceforth explicitly taxable. More crucially perhaps, S.B. 1076 takes the required step of imposing taxability upon "ancillary services" as a separate enumerated item, thus roping in services which would otherwise fall outside the scope of taxability such as directory assistance, vertical features and voice mail, given that these product offerings are decreed by the SSTP to be examples of "non-telecommunications service".
The revised statute likewise builds in the mandatory set of "exclusions" to the definition of telecommunications service above and beyond "ancillary services" including any electronic information or data processing services, equipment installation charges, Internet access, ring tones, digitized media, directory advertising, and the sale of tangible personal property. The approved legislation also carries forward the state's pre-existing "bundling rule" which allows telecom providers to separate out non-taxable portions of a mixed or "bundled transaction" in their administrative back-office that are ordinarily exempt from taxability if such providers can adequately identify such non-taxable charges based upon their regularly kept books and records.
But the new law didn't stop there. Instead, the Oklahoma Legislature utilized the opportunity presented by the need to change its statutory definition of telecommunications service to also modify various taxability rules at the margin. For instance, a statutory exemption will now exist for "telecommunications nonrecurring charges." Accordingly, any one-time expenses billed to a customer related to such transactions as the connection or disconnection of a particular feature or service offering shall now be tax-exempt on a "going-forward" basis. An exemption has likewise been carved out for both interstate/international 800 number and 900 number telephone service.
In sum, Oklahoma has now taken official legislative action to comply with provisions of the Streamlined Sales Tax Agreement as those requirements apply to the taxability of phone service in a way which may also work to the advantage of certain consumers, depending upon the varied nature of charges such consumers routinely incur.
Pennsylvania: Revenue Department Strands Together Policy Ruling on the Taxability Status of Fiber-Optic Cable Leases
In a tightly woven letter ruling released to the public on September 10th, the Pennsylvania Department of Revenue (DOR) has disclosed its taxability policy towards the lease of a fiber optic cable network under the state's sales tax law. The issuance of the ruling came in response to a query posed by a potential taxpayer. The petitioner in question described itself as a provider of "network infrastructure services" whose clients include both enterprise customers like banks, as well as actual telecommunications carriers. According to the concise fact pattern offered, the taxpayer is engaged in the leasing of fiber optic cable services which come in two varieties: "dark fiber" (i.e., fiber cable that is unlit) and "lit fiber."
The "raw" fiber in question is leased to a customer in the form of bundles which are buried underground and essentially "off-limits" to the customer in the sense that the customer can neither sub-lease nor repair the fiber without the taxpayer's explicit approval. Accordingly, the terms of the leasing agreement restrict the lessee solely to usage rather than ownership rights over the fiber-optic cable infrastructure. The lease arrangement for "dark fiber" is so-called because until the customer activates the fiber-optics with the necessary telecommunications equipment, it would be unable to transmit data or voice messages. Hence, the leasing customer has the option of either procuring its own equipment to light the fiber or alternatively utilizing the taxpayer's own resources for such purposes. Implicitly, the customer would be charged a fee above and beyond the cost of leasing the stand-alone dark fiber for this enhanced, value-added, fiber-activation service. The taxpaying vendor insisted that in either case, it has no control, nor any knowledge of the volume of traffic ever transmitted over the leased fiber-optic network.
The taxpayer floated the contention that the flat monthly charge for the mere usage rights over the network should fall outside the realm of sales tax liability, reasoning that the leased fiber loses its identity as taxable "tangible personal property" once it becomes merged with the taxpayers' entire fiber optic network, thereby rendering it a non-taxable fixture to real property. The decision issued by the Pennsylvania DOR, i.e., Sales & Use Tax Ruling 07-005, offered a divided response. Specifically, the DOR agreed with the taxpayer's first characterization of the transaction as a non-taxable lease of real property, but only insofar as such a determination applies to a scenario involving the leasing of dark fiber.
In contrast, however, when it came to the provision of the value-added "lit fiber" transactions, the revenue agency swiftly parted company with the taxpayer-petitioner, ruling that sales of "lit fiber" clearly fall within the scope of a taxable telecommunications service given that such transactions meet the definition of the transmission of sounds, signals or other intelligence meant to effect meaningful communications. Thus, the DOR was not persuaded by the taxpayer's claim that the taxability of such transactions hinges upon such factors as who initiates the traffic or how the service is billed to the customer - variables which the DOR claimed were immaterial to the ultimate outcome of the issue at hand.
Oklahoma: Definition of All Terrain Vehicle Amended
Effective November 1, 2007, the sales tax treatment of sales of all terrain vehicles (ATVs) changes due to a change in the statutory definition of ATV. Under the new definition, ATVs are motorized vehicles manufactured and used exclusively for off-highway use, are 48 inches or less in width, have an unladen dry weight of 800 pounds or less, travel on two or more low-pressure tires, have seats designed to be straddled by the operator, and have handlebars for steering. Under the previous definition, the maximum width for an ATV was 60 inches and the maximum unladen dry weight was 1,500 pounds.
Retailers must collect sales tax on sales of vehicles that fall outside the new definition and these vehicles are not to be titled or registered. ATVs that fall under the new definition that are purchased on or after November 1, 2007, must be registered and titled through an Oklahoma tag agency. The tag agency will collect excise tax in lieu of sales tax. H.B. 1606, Laws 2007, effective November 1, 2007; Public Notice, Oklahoma Tax Commission, November 9, 2007.
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