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Oregon: One of the few remaining states without sales taxes may join the majority

Oregon is one of five states without a state sales tax. However, recent legislative and constitutional proposals would change that. Not only would these measures add a state sales tax, but they would effectively overhaul Oregon’s tax structure.

First, a proposed bill (S.B. 824) would impose a new five percent sales tax. Items excluded from sales tax would include food, water, clothing, drugs, medical equipment, and utilities. The new sales tax bill would also overhaul Oregon’s tax structure in many ways, including:

  • Directing the Department of Revenue to enter into the Streamlined Sales and Use Tax Agreement
  • Reducing personal income tax rates
  • Subtracting from taxable income net long-term capital gains attributable to the sale of property used in a revenue-producing enterprise
  • Increasing the percentage of federal earned income credit permitted as a credit against Oregon personal income taxes
  • Creating an income tax credit to taxpayers certified as eligible for business investment (limited to $50 million per tax year)
  • Creating a refundable income tax based upon household income and size
  • Exempting the first $50,000 of assessed property value of a taxpayer’s home from property tax assessment

This bill would only take effect if a constitutional amendment (S.J.R. 36) is approved by the citizens of Oregon. Oregon has a history of opposing attempts to impose a state sales tax.

Click here to read the text of S.B. 824.

Click here to read the text of S.J.R. 36.

Connecticut: Controversial credit card sales tax bill proposed

Connecticut lawmakers are considering alternative methods to enhance the collection of sales tax. Under S.B. 1110, the Commissioner of Revenue would have flexibility to consider several collection alternatives and implement those alternatives if the Commissioner of Revenue determines that such alternatives are effective. One of the alternatives being considered would require credit card companies to do the heavy lifting by requiring such companies to collect sales tax on sales made to consumers located in Connecticut.

Under this alternative, the Commissioner of Revenue must consider “the benefits and drawbacks of instituting a payment system whereby the state may receive payment of said taxes electronically not later than two business days after the date of the taxable transaction, from an institution processing a credit or debit card payment or electronic funds transfer from a consumer[.]” In certain circumstances, this measure would make the credit card company ultimately responsible for collecting and remitting sales tax instead of the retailer.

This may sound like ingenuity at work; however, due in part to the brevity of the bill, citizens and the private sector are left with more questions than answers as far as how to practically implement such a measure. Among the many questions left unsettled by the bill are:

  • Would this bill require credit card companies to collect sales tax on remote sales?
  • If credit card companies are collecting sales tax on transactions involving payment by credit and debit cards, would the retailer still have to collect sales tax on transactions involving payment by cash and checks? This seems like a duplication of resources.
  • Who is ultimately responsible for the calculation, collection and remittance of sales taxes? In the event the consumer returns an item the sale of which is subject to sales tax, who is ultimately responsible for refunding the sales tax portion of the sale—the credit card company or the retailer?
  • How do the constitutional limitations on requiring remote sellers to collect and remit sales tax impact this proposal? Would requiring credit card companies to collect and remit sales tax withstand constitutional challenges?

Proponents argue the bill would raise at least $130 million a year without raising other taxes. It remains questionable how this bill would raise this level of revenue without collecting and remitting sales tax revenue on remote sales. However, S.B. 1110 is another example of a state getting creative in its efforts to expand the scope of its sales tax collection activities in order to generate additional tax revenue.

Click here to read the text of S.B. 1110.

Tennessee: Good news for beer connoisseurs—state enacts beer tax reform

Tennessee beer connoisseurs will soon be provided with a greater selection of beer at lower prices, according to the proponents of Tennessee’s beer tax reform (S.B. 422), which was signed into law by Governor Bill Haslam on April 23, 2013.

Under this legislation, a 31-gallon barrel will be taxed at a flat rate of $35.60, and barrels containing smaller amounts will be taxed at a proportionate rate. Currently, wholesale beer is taxed at 17 percent of its price in Tennessee, plus federal and state taxes per 31-gallon barrel. Any beer sold to consumers in Tennessee is also subject to sales tax, which is as much as 9.75 percent.

Proponents of this change to a volume-based tax stated that Tennessee has the highest beer tax in the country because the tax is based on price, not volume. In addition, such tax structure hurts local microbreweries whose beer is usually more expensive due to lower production volumes.

The new beer tax is effective July 1, 2013.

Click here for the text of the S.B. 422.

For additional information regarding these subjects or any other multistate tax issues, please contact:

David M. Kall
216.348.5812
dkall@mcdonaldhopkins.com

Susan Millradt McGlone
216.430.2022
smcglone@mcdonaldhopkins.com

Jeremy J. Schirra
216.348.5444
jschirra@mcdonaldhopkins.com

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. We understand this can be a daunting task. McDonald Hopkins Multistate Tax Services provides a broad range of state and local tax services including tax controversy, tax evaluation, tax planning, and tax policy. With professionals who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.

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