Coronavirus Impact on State and Local Tax Landscape
Sales and use tax consequences impacts remote employees and the nation’s battle to cease the spread of coronavirus cases.
The federal statutory protection, P.L. 86-272, the Interstate Income Act of 1959, states the overall threshold can be lower for nexus determination for sales and use tax.
Two questions to ask yourself at this time: (1) Do employees trigger nexus for their employer based on their physical presence in a state? (2) Do those employees remain at the office location?
Everyone is at home and if they need something, they will purchase from Amazon because of fast shipping, discounts, and item is stocked.
The spike in online shopping made Wayfair economic nexus is more significant for businesses selling goods online. For example, PPE items include face shields, doorknob covers, face masks, gowns, gloves, googles, respirators and more.
With increased number of cases in California, businesses and individuals selling PPE (face masks) are more prone to obscure sales tax requirements because some are unaware of state nexus rules and sales tax regulation requirements or unfamiliar with applying sales tax to sales transactions.
If PPE is purchased and used by hospitals, sales tax requirements related to PPE is exempt from sales tax. It’s important to not assume sales of face masks are always exempt from sales tax.
Businesses that donate PPE to doctors and mutual aid organizations are likely to struggle with use tax issues.
Use tax depends on each state’s rules. Use tax is typically due on items withdrawn from inventory for either personal use or donation, if sales tax is not paid on their original purchase.
With 144,000 cases in Indiana, the state provides direct relief by waiving use tax on COVID supplies donated by manufacturers.
With 840,000 cases in California, Governor Newsom exempts sale of PPE to the State from sales and use taxes before acquiring 200 million PPE items monthly
Alcoholic manufacturers of hand sanitizer could face the same sales tax nexus as businesses selling PPE, and alcohol excise (sin) tax.
Some states are making relief from alcohol excise taxes by providing a deduction from the tax base or a direct exemption for alcohol purchases.
In Illinois, distilleries are instructed to report alcohol purchased as an expense deduction on their monthly excise tax return.
As economic effects continue to affect homeowners, lessors, and property owners, local taxing authorities are implementing property tax relief by extending payment deadlines and/or waiving penalties for late payments.
Each county is different so it is essential that affected taxpayers understand specific local relief efforts. By 2021, real estate assessors expect reduced 2020 property values and property tax bills.