Sales Tax News for February 2025

All in one

When Louisiana voters cast ballots on March 29 on a state constitutional amendment, they’ll also decide key sales tax issues.

The state’s House Bill 7 proposes to rewrite Article VII of the Louisiana Constitution to require that any new sales tax exclusion or exemption be applicable to both state and local sales and use taxes. The bill also maintains the state sales tax exclusions for food for home consumption, residential utilities, and prescription drugs. Louisiana also recently passed an expansion of sales tax to digital products, internet, and streaming services.

In March, voters will also decide on reducing the state income tax rate and adding a bigger standard deduction for taxpayers age 65 and older; and requiring a two-thirds vote of each house of the legislature for the enactment of an exemption, exclusion, deduction, credit, among other measures.

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Transaction action

A bill in Trenton will, if enacted, see New Jersey join the growing number of states that have eliminated the transaction threshold for economic sales tax nexus. New Jersey currently has an economic nexus threshold of 200 or more separate transactions or $100,000 in gross sales annually involving state residents. The bill is currently being read in the state Senate.

The U.S. Supreme Court 2018 Wayfair decision ignited economic nexus thresholds nationwide based on transaction counts, gross sales, or both. Many states never had transaction thresholds and over 10 have eliminated them. Transaction thresholds are generally considered biased against small businesses, though, and New Jersey’s business community supports the bill.

Opponents say the bill could hurt state revenues even as New Jersey is running a deficit, though studies have shown that eliminating transaction thresholds ultimately has little impact on revenues.

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Let freedom ring

A U.S. District Court for the Northern District of Illinois has agreed in part with banks and credit unions for a preliminary injunction of a new law prohibiting swipe fees on some tax and tip amounts.

Last year, the state enacted the Illinois Interchange Fee Prohibition Act, which as of July 1 prevents entities from collecting swipe fees (aka interchange fees) on certain tax and tip amounts of credit or debit card transactions. (Illinois is the first state to try to ban these fees.) Challengers argued in their lawsuit that federal law preempted this type of statutory prohibition on collecting interchange fees.

U.S. District Judge Virginia M. Kendall granted a preliminary injunction for the Illinois Bankers Association ruling that its members “face irreparable harm” without an injunction, but dismissing other Association claims related to the state not representing their interests.

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Gaming experience

The Indiana Department of Revenue has ruled that optional items offered by an out-of-state video game publisher are not subject to state sales tax.

The out-of-state company uses a related entity to sell an electronic video game directly to customers and through third-party vendors such as Steam, PlayStation, and others. The company does not sell video games, and its related entity and/or its wholesalers collect applicable sales tax on the sale of the games.

The company does offer purchasers optional items after the sale of the game, including a monthly online subscription that allows the player to play the game in an online, multi-player setting; in-game items such as costumes, weapons or time saving enhancements; and virtual currency for the purchaser to acquire in-game items or pay for the monthly online subscription within the game. The DOR ruled that such optional items are not subject to Indiana sales tax because they do not constitute tangible personal property or specified digital products.

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SaaS-sy

The North Carolina Department of Revenue has issued a Private Letter Ruling. SUPLR 2024-0011, that a taxpayer’s subscription fees for access to digital videos, books, and audiobooks incur sales and use tax unless the transaction is exempt as a bundled transaction.

In another opinion in the wrangling over cloud-based Software-as-a-Service (SaaS) and sales tax, the DOR clarified that the taxpayer is not selling SaaS or an information service when providing access to digital content, as the customers are paying for the content itself and not the software used to deliver it. North Carolina also doesn’t impose sales and use tax on revenue from access to cloud-based software accessed via internet connection.