The SALT Shaker - November 2017
November 7, 2017
By Keith Habel, CPA, Partner, SALT Practice Leader
Scott Brawdy, CPA, Tax Manager, SALT Practice Leader
A monthly pinch of SALT. The HK SALT Shaker is a monthly update on state and local tax laws and regulations. For questions regarding these updates or Sales & Local Tax (SALT), please contact us using our online contact form.
Sales/Use Taxability of Nonprofit Organizations Discussed in Information Letter
The Illinois Department of Revenue (DOR) has issued a general information letter discussing the measures to be taken by a nonprofit organization to conduct an inaugural event and the sales and use tax liability for certain sales activities that would be part of this event. According to statute, persons who promote, organize, or provide retail-selling space for concessionaires or other types of sellers at events such as conventions, county fairs, flea markets, and similar exhibitions or events are required to file a report with the DOR.
Any person engaged in the business of selling tangible personal property at retail at these events may be required to make a daily report of the amount of such sales to the DOR and make a daily payment of the full amount of tax due. The DOR would impose this requirement in case of a significant risk of loss of revenue to the state at such an exhibition or event, and in the absence of any such notification by the DOR, the concessionaires and other sellers should file their returns as otherwise required by statute.
Generally, the sale of an admission ticket is the sale of an intangible which is not subject to tax. Food and beverages that are sold separate from the admission price, and sales of clothing, programs, uniforms, and other souvenirs where the seller is acting as a retailer are all taxable sales. Further, pursuant to Illinois law, caterers are considered retailers of tangible personal property, and therefore, tax is imposed on their entire gross receipts from sale, without any deduction for service costs or other overhead costs.
For more details, view this document: Sales Tax General Information Letter ST 17-0028-GIL
Sale of Licensed Software Not Exempt From Sales/Use Tax
A taxpayer’s sales of artificial intelligence technology software offered through URL downloads did not qualify for an Illinois sales tax exemption because such sales did not meet the requirements to qualify as a license agreement. According to statute, one of the requirements exemption of a software license is that the license must restrict a customer’s duplication and use of the software.
In this case, the taxpayer’s records indicated that it allowed for unlimited downloads and duplication. While the taxpayer stated it controlled and managed how and where the software could be used by its customers, it failed to provide any explanation of the nature and extent of the terms surrounding such transactions.
For more details, view this document: Sales Tax General Information Letter ST-17-0027-GIL
Application of Manufacturing Machinery and Equipment Exemption to Butane Blending System Discussed
The DOR has issued a private letter ruling discussing whether a taxpayer’s use of butane blending system equipment qualified for the manufacturing machinery and equipment exemption from sales and use tax.
The taxpayer engaged a contractor to design and construct a butane blending system for the purpose of blending butane and gasoline to increase the butane content of the gasoline to create a final product meeting state and federal volatility requirements for motor fuel. Under Illinois law, sales tax does not apply to sales of machinery and equipment used primarily in the manufacturing or assembling of tangible personal property for wholesale or retail sale or lease. However, the exemption is not available for equipment used prior to the production cycle. In this case, butane storage vessels and certain equipment located at the taxpayer’s butane offload station did not qualify for the exemption because they were used to handle or store butane prior to the production process.
Generally, the use of machinery or equipment to inspect, test, or measure tangible personal property to be sold where the function is an integral part of the production flow constitutes an exempt use. Here, the equipment used to take samples of gasoline, test gasoline in the gasoline stream, and handle the tested gasoline prior to reinserting the tested gasoline into the gasoline stream qualified for the exemption.
Further, a programmable logic controller which automatically calculated the amount of butane that could be added to the gasoline stream based on the selected volatility limits qualified for the exemption. Finally, equipment used to enable the injection of butane into the gasoline stream and to control the injection rate of butane into the gasoline stream qualified for the exemption.
For more details, view this document: Private Letter Ruling ST-17-0007-PLR
Information Bulletin Released Concerning State’s New Gross Receipts Nexus Threshold
Sales Tax Information Release ST 2017-02 has been issued by the Ohio Department of Taxation discussing a new law, effective Jan. 1, 2018, that provides “substantial nexus” with Ohio is presumed to exist for sales/use tax purposes if the seller:
- Uses in-state software to sell or lease taxable tangible personal property or services to consumers, provided the seller has gross receipts more than $500,000 in the current or preceding calendar year from the sale of tangible personal property for storage, use, or consumption in Ohio or providing services the benefit of is realized in Ohio; or
- Provides or enters into an agreement with another person to provide a content distribution network in Ohio to accelerate or enhance the delivery of the seller’s website to consumers, provided the seller has gross receipts more than $500,000 in the current or preceding calendar year from the sale of tangible personal property for storage, use, or consumption in Ohio or from providing services the benefit if which is realized in Ohio.
The release goes on to instruct that an out-of-state seller that falls within Ohio’s jurisdiction and makes taxable sales, must obtain a seller’s use tax permit, collect tax on taxable sales made to consumers in Ohio, file returns, and remit the appropriate tax.
Multiple Tax Law Changes Enacted as a Result of Budget Legislation
Recently enacted legislation consists of several changes including:
- Updating references to the Internal Revenue Code as amended through Dec. 31, 2016.
- Modification of sourcing rules for certain service revenue effective for tax years beginning after 2016. Gross receipts from service revenue are considered sourced to Wisconsin if the service relates to tangible personal property delivered directly or indirectly to customers in Wisconsin, or if the service is purchased by an individual who is physically present in Wisconsin at the time the service is received.
- Limiting the number of years that taxpayers may retroactively recompute their net operating losses to no more than four years following the due date of the loss year return.
- Repealing the current grandfathered-in state sales tax on internet access charges effective July 1, 2020.
- Modifies Wisconsin’s manufacturing and agriculture credit claimed by individuals, and introduces a partially refundable research and development tax credit.
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