Tax Guru-Ker$tetter Letter
Thursday, March 11, 2004
Sales Tax Complications
Anyone who thinks income tax laws are overly complicated and impossible to follow, doesn't know the half of it when compared to sales tax laws. My concerns over requring sales taxes to be collected for transactions over the Internet have not been just about the money involved for the customers. As I've explained before, I see it making a bigger impact from the perspective of the retailers having to keep straight what things are taxed and the appropriate rates for over 7,500 jurisdictions around the USA. The expense and hassle factor of just complying with all of that will be tremendous for web based businesses, most of which don't have huge accounting departments.
I came across this interesting article about this burden in the same isue of Accounting Technology that I referenced earlier today. I liked their list of weird sales tax laws as an illustration of how tricky this issue is.
• In Minnesota, non-edible cake decorations are taxable, but edible cake decorations are exempt.
• In Tennessee, the sale of a good is subject not only to the state sales tax of 7 percent, but a local sales tax on the first $1,600, plus an additional state sales tax of 2.75 percent on the second $1,600.
• In Illinois, cooking wine is taxable as an alcoholic beverage, even though it only contains a nominal amount of alcohol.
• In Texas, plain nuts are an exempt food, but once a candy coating is added, they become taxable.
• Missouri does not impose a state-level tax on utilities, but some localities impose a "domestic utilities tax" at a rate that is different from the local sales tax rate.
• In Rhode Island, fruit juice that is less than 100 percent pure is taxable. But cranberry juice cocktail, a mixture of juice and water or concentrate, is exempt.
• In Massachusetts, a clothing item costing up to $175 is exempt from sales tax. However, any item costing $175.01 and above is subject to the 5 percent state sales tax.
• In New Jersey, naturally carbonated water is exempt, but artificially carbonated water is taxable.
• Maryland's unique rounding rules can potentially result in the collection of a sales tax rate as high as 8 percent, instead of the statutory 5 percent.
• In Pennsylvania, state and U.S. flags are not subject to tax, but if either is sold with a pole, the entire purchase becomes taxable.