If you are involved in interstate commerce, you may be subject to pay sales and use tax in the states in which you conduct business. Commonly referred to as sales and use tax nexus, or having a “sufficient physical presence,” this definition has been expanded to include online sales in some states.
The rules on sales and use tax vary from state-to-state and constantly change. As reported by Vertex, a leading developer of sales tax software, 556 sales and use tax changes were made in 2016. Since 2007, there have been 2,172 new sales and use taxes and 3,985 sales and use tax changes. The combined number of new and changed sales and use tax rates since 2007 is 6,157, an average of 616 per year.
New Jersey is reducing its sales tax rate in two phases between 2017 and 2018. Effective on or after January 1, 2017 the tax rate dropped from 7% to 6.875% and it will be reduced to 6.625% on and after January 1, 2018. Counties and cities are not allowed to collect local sales taxes in New Jersey and it has no special sales tax jurisdictions with local sales taxes in addition to the state sales tax. Businesses located within Urban Enterprise Zones (UEZs) are required to collect a reduced sales tax of 50% of the state sales tax rate.
Although the state sales tax rate in Pennsylvania is 6%, on average the rate is 6.34% after local surtaxes. Counties and cities can charge up to 2% in local tax, for a maximum possible combined sales tax of 8%. Pennsylvania has 227 special sales tax jurisdictions that impose local sales taxes in addition to the state sales tax.
The New York state sales tax rate is 4%, but on average could be as high as 8.48% when you factor in local surtaxes. Counties and cities can charge up to 4.875%, for a maximum possible combined sales tax of 8.875% in local surtaxes. New York has 2,158 special sales tax jurisdictions with local sales taxes in addition to the state sales tax.
As if keeping up with the new and changed state sales tax rate isn’t difficult enough, each state also has different rules on what is taxed. For example, generally groceries (but not soft drinks, candy or prepared foods), prescription drugs and non-prescription drugs are exempt from the sales tax in Pennsylvania, New Jersey and New York. Clothing is not taxed in Pennsylvania and New Jersey, but is in New York (there is an exemption if the clothing is priced under $110).
It is important that you keep up to date on the requirements of each state. The penalty for not being in compliance can be costly.
We are happy to discuss this with you. Feel free to contact either Michael Sexton, CPA, CCIFP, Director – Tax Services (Michael.Sexton@MCC-CPAs.com) or me (Marty.McCarthy@MCC-CPAs.com) at 610-828-1900.