At Skoda Minotti, we continually monitor news and events surrounding state and local tax issues and keep you apprised of the latest developments. In this blog, we highlight news regarding Nevada’s Commerce Tax; Pennsylvania’s adoption of taxation of digital goods; and federal legislation that attempts to address the physical presence test for state sales tax purposes.
Nevada’s Commerce Tax that was enacted during 2015 has its first required filing on Aug. 15, 2016. This return is based on the tax period July 1, 2015 through June 30, 2016. The Commerce Tax is a gross receipts tax on taxpayers doing business in Nevada. Even if operating as a sole proprietor in Nevada, you would still be subject to the Commerce Tax. The first $4 million of Nevada sales is exempt from the Commerce Tax. The rate of tax depends on the business activity of the taxpayer. The rates range from a low of .051% for mining activity to a high of .281% for educational services. A Commerce Tax return is required to be filed even if the tax due is zero (i.e., sales under the $4 million exclusion). Click here for more information on the Nevada Commerce Tax.
The Pennsylvania Legislature passed legislation to adopt taxation of digital goods. The governor of Pennsylvania has signed the legislation, which took effect Aug. 1, 2016. The legislation basically treats digital goods as tangible personal property and as such, becomes subject to Pennsylvania sales tax. The legislation taxes goods whether delivered electronically or streamed. Maintenance services and updates, along with satellite radio charges, will all be considered taxable as part of this legislation. If a business provides these types of digital products, they basically have two weeks to get their systems up and running and charge sales tax on these charges. I believe this is why the governor has signed the legislation—so that businesses have time to react.
Legislation was recently introduced to attempt to address the physical presence test for state sales tax purposes: “No Regulation without Representation of 2016.” The legislation is an attempt to codify the physical presence standard established in Quill vs North Dakota. The bill would establish a de minimis physical presence standard and limit the states’ attempt to expand the definition of physical presence and overturn Quill. The legislation is an attempt to limit the state’s ability to enact “click through nexus” and “affiliated nexus.” If the legislation is enacted, it will be effective Jan. 1, 2017. The legislation has a long way to go before it is enacted, and we will continue to monitor it and keep everyone informed of the latest developments.