The SALT Shaker - September 2017
September 25, 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.
New Sales / Use Tax Enacted for Consumer Rentals
Illinois has enacted two 6.25% taxes on transactions involving merchandise rented or used by consumers. The rental purchase agreement occupation tax (rental sales tax) is imposed on transactions where a consumer rents merchandise. And the rental purchase agreement use tax (rental use tax) is imposed on a consumer’s use of rented merchandise. Both taxes go into effect on January 1, 2018. Transactions subject to these taxes will not also be subject to Illinois sales and use tax. In addition, the legislation includes a one-time use tax credit for taxpayers that will be liable for the new taxes.
Transactions Subject to the Taxes
Under the legislation, the rental sales tax is imposed on persons engaged in the business of renting merchandise under a rental purchase agreement. The rental use tax is imposed on the privilege of using merchandise which was rented from a merchant under a rental purchase agreement. A rental purchase agreement includes rental agreements between merchants and consumers where the consumer may become the owner of the merchandise. Also, the agreement must:
- Be for the use of merchandise by the consumer for personal, family, or household purposes; and
- Have an initial period of four months or less, but that is automatically renewable with each payment after the initial period.
The taxes do not apply to tangible personal property that must be titled and registered by a state agency.
As noted, transactions subject to the new taxes are exempt from sales and use tax. When buying merchandise, the purchaser must certify that the item is being purchased for rental under a rental purchase agreement. In addition, the purchaser must provide proof that it has registered with the Department of Revenue (DOR) as a renter of merchandise.
Administering the Taxes
Businesses that rent merchandise must register with the DOR and collect both the rental sales tax and rental use taxes. Businesses are liable for the rental sales tax. However, if a consumer does not pay use tax to a merchant, the consumer owes the tax. Returns for the rental sales and rental use taxes must be filed electronically.
Where relevant, sales and use tax statutes will apply to the new taxes. Also, as with other sales and use taxes, the legislation gives the DOR the power to administer and enforce the taxes, and the authority to make rules for such purposes.
One-Time Use Tax Credit
A merchant may apply for a credit for use tax paid on purchases of rental merchandise during the six months before January 1, 2018. Merchants must file an application with the department to receive the one-time credit within three months after January 1, 2018. The department will issue a credit which the merchant may apply against the rental sales tax or rental use tax.
Take Away: Businesses who rent consumer or household goods should examine their inventory purchases within the last six months to recover use tax paid on those items.
New Credit Enacted for Contributions to Scholarship Granting Organizations
Invest in Kids Credit
Effective for taxable years beginning on or after January 1, 2018 and ending before January 1, 2023, taxpayers who have been awarded a tax credit certificate by the Illinois DOR for making a qualified contribution to nonprofit organizations that use at least 95% of the contribution received during a taxable year for scholarships to low-income elementary or high school students may claim a credit against Illinois income tax liability. A credit may not be claimed for any contribution if the taxpayer claims a federal income tax deduction.
Credits claimed by S corporations, partnerships, and limited liability companies (LLCs) classified as partnerships for income tax purposes pass-through to shareholders, partners, and members according to their distributive share of income.
Contributions by corporations, including S corporations, partnerships, and trusts may not be directed to a particular subset of schools, a particular school, a particular group of students, or a particular student. Contributions by individuals may be directed to a particular subset of schools or a particular school, but may not be directed to a particular group of students or a particular student.
The credit is equal to 75% of the total amount of qualified contributions made by the taxpayer during a taxable year up to a maximum of $1 million. The total amount of all credits the DOR may award in any calendar year may not exceed $75 million. If the annual cap is not reached by June 1 of a given year, remaining credits will be awarded on a first-come, first-served basis.
A taxpayer must apply to the DOR for a contribution authorization certificate before making a contribution to a scholarship granting organization.
Taxpayers must maintain records each taxable year of contribution authorization certificates obtained from the DOR and certificates of receipt for contributions obtained from scholarship granting organizations. Unused credits may be carried forward and applied to a taxpayer’s tax liability for up to five taxable years following the excess credit year.
Take Away: Businesses or individuals considering educational based contributions should consider aligning their gifts to qualify for this new credit.
New Regulation Creates “Bright Line” Nexus Standard for Internet Vendors
Effective September 22, 2017, the state has finalized a new regulation that adopts “bright line” economic nexus for some remote sellers that will be implemented as follows:
- For the period beginning October 1, 2017 through December 31, 2017, if during the preceding twelve months, October 1, 2016 to September 30, 2017, it had more than $500,000 in Massachusetts sales from transactions completed over the Internet and made sales resulting in a delivery into Massachusetts in 100 or more transactions; and
- For each calendar year beginning with 2018, if during the preceding calendar year it had more than $500,000 in Massachusetts sales from transactions completed over the Internet and made sales resulting in a delivery into Massachusetts in 100 or more transactions.
The regulation can be found by visiting the Massachusetts Department of Revenue website at http://www.mass.gov/dor/businesses/help-and-resources/legal-library/regulations/64h-00-sales-and-use-tax/830-cmr-64h-1-7.html
Take Away: Remote vendors making sales into Massachusetts exceeding $500,000 should take note of this new nexus standard, and register for sales tax if needed.
Two Month Amnesty Program Announced Running Through November 14, 2017
The Department of Taxation announced that its tax amnesty program will run from September 13, 2017 through November 14, 2017. The amnesty program is open to individuals and businesses for taxes owed before June 15, 2017, that are related to an amnesty-eligible period.
During the amnesty period, the department will waive all civil and criminal penalties assessed or assessable and one-half of the interest assessed or assessable. Eligible tax liabilities that remain unpaid at the end of the amnesty program will be subject to a 20% penalty.
There are 42 different tax types eligible for amnesty, some of which are corporate and individual income tax, retail sales and use tax, and employer withholding tax.
A taxpayer will not be eligible to participate in the program if it is currently under investigation or prosecution for filing a fraudulent return or failing to file a return with the intent to evade tax. In addition, amnesty does not apply to: (1) bills and accounts paid before September 13, 2017; (2) federal tax assessments; (3) local tax assessments; (4) tax bills with an assessment date after June 15, 2017 (certain exceptions for bills issued during the amnesty period); and (5) obligations of a taxpayer with an active jeopardy or fraud assessment.
For further information, please see the Virginia Department of Taxation website at https://www.tax.virginia.gov/laws-rules-decisions/rulings-tax-commissioner/17-156
Take Away: Businesses and individuals with Virginia tax exposure should take advantage of this opportunity to limit their liability by taking advantage of the amnesty program.
For more information or assistance on state and local tax (SALT), call 888-556-0123, email email@example.com or submit our online form.