Last-minute sales tax changes create difficulties for businesses

You need to be on your toes if you work in sales tax, as states are known to make substantial sales tax policy changes with little to no notice. Vermont, North Carolina, New Jersey and Ohio provide standout examples this summer. 

Vermont taxes remotely accessed prewritten software, short-term rentals

On June 6, 2024, Governor Phil Scott received a bill that (among other things) extended Vermont sales and use tax to remotely accessed prewritten computer software. He promptly vetoed it, but the Vermont Legislature overrode the veto and delivered the measure to the Secretary of State on June 25. H.887 took effect less than a week later.

If your eye wasn't on H.887, you may have missed that prewritten software accessed remotely became subject to Vermont sales and use tax on July 1, 2024. Even if you'd heard about the proposed tax change, you wouldn't know whether to prepare to tax remotely accessed prewritten software until the fate of H.887 was sealed.

Companies that buy and sell prewritten software as a service aren't the only ones affected by H.887. The bill also imposes a 3% short-term rental (STR) impact surcharge on the rent of every STR in the state as of August 1, 2024. This gives short-term rental businesses a bit more time than their software-selling counterparts to prepare, but just a bit. 

Plus, there's an added hurdle for STR businesses: They're required to file and pay the 3% surcharge electronically. Vermont doesn't mandate electronic filing or remittance for the 9% rooms tax or 1% local option taxes, which also apply to short-term rentals. At least not yet.

Another potential hiccup: The 3% surcharge applies to periods on or after Aug. 1 even if the reservation or contract was made prior to Aug. 1. Short-term rental operators will either need to figure out how to best break the news to their guests or absorb the additional surcharge to help ensure a friction-free stay and hopefully a return visit.

While STR hosts are responsible for applicable taxes and surcharges on direct bookings, STR platforms are required to collect and remit the 3% surcharge and other applicable taxes on the bookings they facilitate. This is another detail affected businesses need to know to get tax compliance right.

North Carolina repeals remote seller transaction threshold 

The North Carolina General Assembly also made a last-minute sales tax policy change that will have a significant impact on some out-of-state businesses: It repealed the 200-transactions threshold for economic nexus. 

From Nov. 1, 2018, through June 30, 2024, businesses with no physical presence in North Carolina needed to register for North Carolina sales tax if they had more than $100,000 in gross sales or 200 separate transactions in North Carolina in the current or previous calendar year.

Now, remote sellers that do 200 or more transactions but less than $100,000 in gross sales in the state in the current or previous year no longer need to register for sales tax. If no other nexus exists, they must collect and remit North Carolina sales tax only if they meet the $100,000 sales threshold.

While this is a positive change for out-of-state businesses with a high volume of low-value transactions in North Carolina, it may have caught them off guard. The bill repealing the transaction threshold was presented to Governor Roy Cooper on June 28 and signed into law on July 1, 2024 — the same day it took effect. 

Had House Bill 228 created a new sales tax obligation rather than potentially removing one, affected businesses would have needed to scramble.

New Jersey repeals its sales tax holiday

Like North Carolina, New Jersey made a change that should alleviate some sales tax pain for some retailers. In the near term, however, affected businesses will need to act quickly to ensure they remain sales tax compliant.

The fiscal year 2025 budget that Governor Phil Murphy signed on June 28, 2024, repealed the state's annual sales tax holiday. As a result, New Jersey sales tax will apply to the computers, school supplies, and sports and recreational equipment that would have been sales tax exempt Aug. 24 through Sept. 2, 2024. 

Retailers have a couple of months to prepare for the tax policy change. It's something, but it's not a lot of time to update systems. 

Ohio expands its sales tax holiday

Businesses are facing a similar but different situation in Ohio, which expanded its sales tax holiday for 2024.

In past years, Ohio provided a tax-free weekend in early August for the following items:

• Clothing priced $75 or less;
• School instructional materials priced $20 or less;
• School supplies priced $20 or less.

Ohio's 2024 sales tax holiday will run longer this year, July 30 through Aug. 8, 2024. Furthermore, the sales tax exemption will apply to almost all tangible personal property priced up to $500. That's a big change, and Ohio is giving retailers just two months to prepare for it. Businesses that didn't sell any products eligible for Ohio's prior sales tax holidays may be particularly stressed.

Ending on a positive yet proactive note

On the bright side, Minnesota gave retailers plenty of advance notice about the retail delivery fee that took effect on July 1, 2024. It adopted the fee in May 2023 and published guidance in early 2024 (unlike Colorado, which sprang its retail delivery fee on businesses in very short order in 2022).  

States will certainly continue to leverage tax policy for a multitude of purposes. Indeed, Nebraska Governor Jim Pillen recently announced a plan to slash property taxes to help at-risk homeowners while simultaneously increasing the sales tax rate and broadening the tax base. If his plan succeeds, let's hope he gives businesses plenty of time to prepare.

To stay sales tax compliant in the face of last-minute changes, businesses need to be ready to pivot.