Sales Tax News for January 2025

Tax-Free Groceries

Sales tax on food in Kansas has finally hit 0%. In 2023, the Kansas state portion of sales tax on food and food ingredients for human consumption (and certain prepared food) began phasing down, most recently to 2% for last year. Now, starting Jan. 1, 2025, the state rate will be 0%.

For Kansas state sales tax purposes, food products are generally “food and food ingredients” and “prepared food,” a differentiation that sets the rate of state sales tax. The reduced rate generally applies only to food and food ingredients; prepared food continues to be taxed at the full 6.5% state sales tax rate. City and county grocery taxes, ranging from 0% to a high of 2.25%, will still apply.

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Permit Perils

Holders of an Illinois “Direct Pay Permit” (DPP) must now annually review their purchase activity to verify that the purchases made in the preceding year were sourced correctly and had the correct tax rate.

Following findings that many DPP participants aren’t in compliance, the new law provides that “by March 31, 2025, and by March 31 of each year thereafter” each holder of a DPP must review its purchase activity. If the holder discovers an error in sourcing or the tax rate during this review process, the holder must file an amended return correcting the error by April 20 of the calendar year in which the review occurs. Failure to do so could incur a $6,000 fine.

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NFT + TPP = TAX

Michigan now treats sales of non-fungible tokens as taxable if the NFTs represent ownership interest in tangible personal property such as artwork or collectibles. This "tokenizing" of real-world items means the buyer of the NFT can prove ownership of the specific NFT; similar to a certificate of authenticity.

Because most NFTs represent digital goods, the majority of  NFTs are not subject to Michigan sales tax. But be aware that those that they represent an interest in tangible personal property can be subject to the state sales tax.

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Franchise Fee-Free TV

A state court has determined that streaming and satellite TV companies aren’t subject to video service provider fees.

Last fall, Netflix Inc. and DirecTV LLC won their challenge to the fees imposed by the Missouri city of Creve Coeur, which had joined more than 400 other municipalities in the state to try to impose franchise fees on streaming companies. That legal move had come after Missouri lawmakers amended the state’s tax-related definition of “video services” last summer to exclude streaming services.

In late December, the Missouri Circuit Court of St. Louis County ruled for the steaming giants. The Missouri decision came as such TV services began incurring sales tax in other states, namely Louisiana.

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Tax Blame Backfires

Pointing fingers over sales tax obligations rarely works in court. Vishal Dhar, co-founder and president of the now-defunct tech support company iYogi, was held personally liable for $19.3 million in unpaid sales and use taxes by the New York Division of Tax Appeals. Dhar argued that an overseas holding company was responsible for the taxes, but the court was unconvinced.

The judge noted Dhar was a co-founder, majority shareholder, and had authority to sign tax forms and invoices. Despite claiming his actions were directed by others in India, Dhar failed to prove he lacked authority to ensure tax compliance or that he was prevented from fulfilling his responsibilities.

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