A Useful Guide To Economic Nexus And New Missouri State Tax Updates

[Originally published December 22, 2022. Updated May 2025]

Are you a remote seller, marketplace facilitator, or business operating in multiple states, including Missouri? If so, understanding and complying with Missouri’s economic nexus laws is essential to avoid costly penalties and ensure smooth operations. As one of the latest states to adopt such laws, Missouri’s rules are now in full effect—and they impact thousands of businesses. In this guide, we’ll break down what economic nexus is, how Missouri’s legislation applies to your business, and what steps you need to take to stay compliant. We also include references to official Missouri Department of Revenue (DOR) resources to support your compliance journey.

Here's an overview:

Article Index

Step 1: Understand What Economic Nexus Means for Your Business

  • Definition of economic nexus and its origin from the Wayfair decision.
  • Explanation of how states use thresholds to determine nexus.
  • Missouri’s late adoption and its significance.

Step 2: Learn the Details of Missouri’s Economic Nexus Law

  • Missouri’s $100,000 sales threshold for remote sellers and marketplace facilitators.
  • Key distinctions between remote sellers, marketplace facilitators, and marketplace sellers.
  • When and how nexus obligations begin.

Step 3: Register Promptly Once You Hit the Threshold

  • Overview of Missouri’s registration process and required forms.
  • How to register online through Missouri’s MyTax portal.
  • Vendor’s use tax return filing requirements and tax code guidance.

Step 4: Collect the Right Tax, Avoid Double Taxation

  • Clarification between sales tax and use tax in Missouri.
  • Understanding how local use tax is distributed based on buyer location.
  • Importance of verifying local rates and tax jurisdictions.

Step 5: Stay Ahead of Compliance Challenges

  • National compliance trends and stats post-Wayfair.
  • Common struggles for businesses navigating multiple state laws.
  • The push for federal standardization of economic nexus rules.

Want to know more? Let’s talk. Reach out to us at info@miles.roomworksmedia.co.uk.

1. What Is Economic Nexus?

Economic nexus is a state’s ability to require a business to collect and remit sales tax based on economic activity—such as revenue or transaction volume—rather than physical presence. This concept emerged from the 2018 South Dakota v. Wayfair U.S. Supreme Court decision, which overturned the long-standing physical presence requirement. The ruling granted states authority to impose tax obligations on businesses with substantial economic activity within their borders.

Typically, states set a sales threshold—either based on dollar volume, number of transactions, or both—to determine nexus. Since Wayfair, nearly every state with a sales tax (45 states) has adopted some form of economic nexus law. Missouri was the final state to enact such legislation, with the law going into effect on January 1, 2023.

2. Missouri Economic Nexus Law: Key Details

Under Missouri’s economic nexus law, remote sellers and marketplace facilitators must collect and remit sales tax if they exceed a $100,000 cumulative gross receipts threshold from sales of tangible personal property delivered into Missouri during the previous or current calendar year.

It’s crucial to understand the distinctions:

  • Remote sellers: Businesses with no physical presence in Missouri but who sell directly to customers in the state.
  • Marketplace facilitators: Third-party platforms that facilitate sales on behalf of others (e.g., Amazon, eBay).
  • Marketplace sellers: Third-party businesses making sales via a facilitator.

All sales—whether made directly or through a marketplace—count toward the $100,000 threshold. Once that threshold is crossed, the obligation to collect and remit Missouri sales tax begins immediately. Companies must carefully track their sales volumes to determine when they become liable.

3. Registration and Reporting Requirements

Once a business crosses the threshold, it must register with the Missouri Department of Revenue. Here's how:

Registration Process:

  1. Complete Form 2643 (Missouri Tax Registration Application) and, if applicable, Form 2643A (Additional Business Locations).
  2. Register online through Missouri's MyTax portal: https://mytax.mo.gov.

Filing Requirements:

  • Businesses file a vendor’s use tax return (not a sales tax return).
  • If acting as a marketplace facilitator, you must report your own sales and third-party sales separately.
  • Use item tax codes to designate transaction types:
    • Code “0010” is used for sales made as a marketplace facilitator.

Timely Payment Discount:

Missouri offers a 2% discount on timely tax payments. Businesses that file and pay on time can retain this small percentage of the taxes due—an incentive to stay compliant.

4. Sales Tax Collection and Use Tax Clarifications

In Missouri, businesses must take care to avoid double taxation. A purchaser should not be charged both sales tax and use tax for the same transaction.

Additionally, when collecting local use tax, the funds are distributed based on the location of the buyer, not the seller. This distinction is important, especially for remote sellers. For example:

  • A sale shipped to a customer in Kansas City may be subject to different local use tax rates than one shipped to a customer in Springfield.

It’s important to confirm local rate application and collection timing to avoid over- or under-collecting.

5. Economic Nexus Compliance Challenges and Trends

Economic nexus compliance continues to pose challenges for businesses—especially those selling into multiple states. According to a 2022 Avalara study:

  • 83% of businesses say the Wayfair ruling has impacted how they do business—the highest figure in the survey's history.
  • Only 46% of respondents reported full compliance with economic nexus laws—an all-time low.

Even with four or more years of legislation in effect in many states, companies still grapple with:

  • Navigating differing state thresholds
  • Understanding marketplace facilitator laws
  • Filing the correct returns across jurisdictions

This has led to renewed conversations around the possibility of federal standardization. In late 2022, the Government Accountability Office (GAO) recommended that Congress step in to create a uniform framework. While no legislative action has occurred yet, the demand for clarity and consistency remains strong.

Still Have Economic Nexus Questions?

Complying with Missouri’s economic nexus law—and similar laws in other states—can be complex. But with the right tools and guidance, your business can stay compliant and avoid costly mistakes. If you have questions about your obligations or need help with sales tax compliance in multiple jurisdictions, contact Miles Consulting Group today. We’re here to help simplify the process and keep your business moving forward.

by Monika Miles

Does Your Business Need A Nexus Study? Everything You Should Know Now

[Originally published February 16, 2023. Updated May 2025]

These days, most companies conduct business across state lines. Even if you think you’re compliant, there may be taxes and fees you’re unaware of. A nexus study may be the best step for your organization to take to ensure you are meeting all of your sales tax liabilities.

Keep reading to learn what a nexus study is, if your organization needs one, and how Miles Consulting Group can help.

Here’s what we’ll cover:

Article Index

Step 1: Understand What a Nexus Study Is

  • Explanation of sales tax nexus and how it’s created (physical, economic, affiliate, click-through, and cookie nexus).
  • Examples of business activities that trigger nexus in different states.
  • Overview of economic nexus thresholds in key states.
  • Definition of a nexus study and what it uncovers about your tax obligations.

Step 2: Know Why a Nexus Study Matters

  • The risks of registering without knowing when nexus began.
  • How a nexus study helps quantify exposure and plan next steps.
  • The role of a nexus study in ensuring accurate registration and avoiding penalties.
  • How it supports due diligence in M&A transactions.

Step 3: Let the Experts Guide You

  • How Miles Consulting Group customizes each nexus study.
  • Key questions we help answer (e.g., nexus type, product taxability, exemptions).
  • Support with Voluntary Disclosure Agreements (VDAs), registration, and documentation.
  • Next steps after a nexus study is complete—ongoing compliance and strategic support.

Want to know more? Want to know more? Let’s talk. Reach out to us at info@miles.roomworksmedia.co.uk.

1. What Is a Nexus Study?

Let’s first clarify what nexus is. Sales tax nexus occurs when your company has some sort of connection to a state that has a sales tax. Although 45 states and the District of Columbia have a state-level sales tax, the laws that create sales tax nexus can vary slightly state by state. Overall, most states agree that a physical or economic presence creates nexus.

These days, the definition of nexus has broadened significantly. In addition to physical and economic nexus, companies must now consider affiliate nexus, click-through nexus, and even cookie nexus in some states. For instance, click-through nexus rules can apply if you generate sales via affiliates (such as bloggers or influencers) located in another state, like those under the Amazon Associates Program. Cookie nexus, as seen in Massachusetts and Colorado, applies when a company installs cookies or tracking scripts on devices in a state, thereby establishing nexus without any physical or affiliate presence.

To better understand the different types of nexus, here’s a high-level summary:

Types of Nexus

Type of Nexus

Description

Physical Nexus

Created by offices, warehouses, employees, trade shows, or temporary presence

Economic Nexus

Triggered by sales thresholds in a state (e.g., $100K or 200 transactions)

Affiliate Nexus

Established through relationships with in-state affiliates

Click-Through Nexus

Triggered by referrals from in-state websites that result in sales

Cookie Nexus

Based on use of cookies or tracking code on in-state devices

What are ways that a business can create nexus in a state? Below are examples of physical presence creating nexus:

  • Having an office in a state
  • Having an employee, salesperson, contractor, or remote worker in a state
  • Owning a warehouse or storage facility in a state
  • Storing inventory in a state (such as in an Amazon FBA warehouse or other 3rd party fulfillment center)
  • Temporarily doing physical business in a state for a limited amount of time, such as at a trade show or craft fair

And of course, economic nexus is created by crossing certain sales thresholds—either dollar or number of sales. To give some perspective, here’s a quick comparison of economic nexus thresholds for 10 popular states:

<h3>State

Thresholds</h3>

CA

$500,000 in sales

NY

$500,000 in sales + 100 transactions

TX

$500,000 in sales

FL

$100,000 in sales

IL

$100,000 in sales or 200 transactions

PA

$100,000 in sales

GA

$100,000 in sales or 200 transactions

NJ

$100,000 in sales or 200 transactions

WA

$100,000 in sales

AZ

$100,000 in sales

Now that you know how nexus is created, what is a nexus study?

A nexus study is a comprehensive process to analyze and review all your business activities and sales in a state (or states) to determine if—and when—they create sales tax nexus. A nexus study is often the first step toward compliance. It tells you where you have sales tax obligations, when they started, and what next steps should be taken.

We often describe it as a snapshot of your sales tax situation at a moment in time to determine:

  • a) if you have created nexus in the past and therefore have a retroactive filing responsibility
  • b) the dollar amount of retroactive exposure, interest, and penalties
  • c) a remediation and forward-looking compliance plan

2. What Are the Benefits of Doing a Nexus Study?

We talk daily with potential clients who want to be compliant but are unsure where to begin. A common question is, “Can I just register and start collecting now?”

Unfortunately, no. Most states require companies to indicate exactly when nexus was created on their registration forms—often signed under penalty of perjury. If it was three years ago, the state may want tax and interest for those three years. Many companies are unaware of this or unprepared to pay those back taxes.

That’s where a nexus study comes in. It helps you:

  • Diagnose the extent of your exposure
  • Develop a remediation plan (such as a Voluntary Disclosure Agreement, or VDA)
  • Understand ongoing obligations and filing requirements
  • Clarify registration timelines and nexus triggers

It’s also a useful tool if you believe you’ve been compliant but want to confirm your current status—especially when considering nexus duration rules, like trailing nexus, which may require continued filings even after business activity ceases in a state.

A nexus study is particularly helpful ahead of a merger or acquisition. Buyers always conduct sales tax due diligence. Sellers can strengthen their position by proactively resolving any exposure before the deal is on the table.

3. How Can Miles Consulting Group Help?

We tailor each nexus study to the specific client, asking the right questions to ensure your obligations are clearly understood and documented:

  • Do you have physical presence nexus?
  • Do you have economic nexus?
  • Are your products or services taxable?
  • Are there available exemptions (e.g., food, medical, nonprofit sales)?
  • Do you need to collect and remit sales and use tax?
  • Have you collected but not remitted tax?
  • Are you involved in an M&A transaction? Let’s find those skeletons before the buyer does.

If we uncover exposure, we can assist with:

  • Voluntary Disclosure Agreements (VDAs)
  • Registration support
  • Documentation of exposure

Once you have completed a nexus study and established where you have liabilities, what are the next steps? 

After we determine your liabilities, Miles Consulting Group can continue to support you through your compliance journey. When we determine possible exposure, we help clients receive maximum benefit from available amnesty programs, contract for voluntary disclosure agreements or simply document their exposure if that is all that is needed at that point. 

If you have any questions or are interested in moving forward with a nexus study, contact Miles Consulting now.

by Monika Miles

What is Global SaaS Tax Compliance?

For international SaaS businesses entering the U.S. market, tax compliance can be surprisingly complex. Unlike countries that apply a single national tax system, the U.S. relies on a decentralized approach—each state sets its own rules, rates, and definitions of what’s taxable. That means what applies in California may not apply in Texas or New York. Things can get decidedly sticky if you’re doing business here, from abroad.

If you're selling cloud-based software to U.S. customers, it's essential to understand how sales tax works across state lines—and where your business might have obligations. In this guide, we’ll walk through the fundamentals of U.S. SaaS tax compliance for global sellers and highlight the steps you need to take to stay on the right side of the rules.

Here’s what we’ll cover:

Article Index

  1. The Global SaaS Marketplace
    Understanding the expanding reach of SaaS and why global tax compliance is a strategic necessity.
  2. VAT, GST, and Sales Tax—Same Idea, Different Execution
    A comparison of tax systems around the world and how U.S. sales tax differs significantly from VAT and GST.
  3. Nexus: The Rulebook for U.S. Sales Tax
    Explains the concept of nexus and how economic thresholds trigger tax obligations in the U.S.
  4. Why Global SaaS Tax Compliance Gets Complicated
    Outlines the challenges businesses face when managing tax compliance across multiple jurisdictions.
  5. Staying Compliant Without Losing Sleep
    Options for SaaS companies to manage compliance.
  6. Key Takeaways: Global Tax, Local Rules
    A summary of best practices for handling SaaS tax compliance when expanding into new markets.

Would you like more information? Let’s talk. Reach out to us at info@miles.roomworksmedia.co.uk.

1. Welcome to the Global SaaS Marketplace

SaaS is booming. These days, customers can sign up for your product with a credit card and an email address. But as your customer base grows across continents, so does your tax responsibility.

Global tax compliance isn’t just a box to tick—it’s a strategic imperative. Whether you’re collecting VAT in Europe or GST in Australia, staying compliant keeps you on the right side of tax authorities and preserves your reputation with customers.

But what happens when you enter the U.S. market? Things can get even more complicated.

2. VAT, GST, and Sales Tax—Same Idea, Different Execution

If you’re doing business in the EU, the UK, or Australia, you're probably familiar with VAT (Value-Added Tax) or GST (Goods and Services Tax). These are credit-based systems: businesses charge tax on sales but can usually reclaim tax on purchases. It’s structured, centralized, and relatively predictable.

Now, cross over to the U.S., and things take a turn.

Instead of VAT or GST, you’re dealing with sales tax. It’s not federal—it’s state-driven. That means 50 different states (and thousands of local jurisdictions) with their own rules, rates, thresholds, and filing requirements.

Also, there’s no reclaiming input tax. The U.S. system leans on exemptions, not credits. So, if you're selling B2B, your customers might be exempt—but they’ll need to provide valid resale or exemption certificates. No certificate? You collect the tax. And when it comes to B2C sales, it’s almost always taxable.

We have our own handy, comprehensive breakdown of SaaS tax by state.

3. Nexus: The Rulebook for U.S. Sales Tax

Here’s where things get even trickier: nexus.

In U.S. tax speak, nexus means a sufficient connection between your business and a state. It used to be about physical presence—offices, employees, inventory. But since 2018’s South Dakota v. Wayfair decision, economic activity counts too.

Translation: If you cross a state’s sales or transaction threshold (often $100,000 in revenue or 200 transactions), you have nexus—and tax obligations—in that state.

4. Why Global SaaS Tax Compliance Gets Complicated

Managing global SaaS tax compliance is a full-time job. Here’s why:

  • Every jurisdiction is different. What’s taxable in one place might be exempt in another (again, our SaaS sales tax by state will give you a full breakdown).
  • Rules change constantly, especially in digital services and SaaS.
  • Customers expect clarity. If you charge them tax incorrectly—or fail to explain why—it reflects poorly.
  • Non-compliance isn’t cheap. Penalties, interest, backdated taxes… plus the cost of an audit or investigation.

5. Staying Compliant Without Losing Sleep

So, what’s a growing SaaS company to do? Navigating global tax compliance doesn’t have to keep you up at night. You have two main options: handle it in-house or enlist the help of the experts.

  • In-house: This can work for smaller teams or businesses operating in just a few markets. However, managing tax compliance internally requires a skilled, tax-savvy team, staying on top of ever-changing tax laws, and implementing robust reporting systems to ensure everything is accounted for correctly. If your business is expanding rapidly or entering new jurisdictions, this approach can quickly become overwhelming.
  • External Tools & Advisors: Most global SaaS companies eventually turn to automation—tools that can streamline the calculation, collection, and remittance of taxes in real time. These platforms integrate seamlessly with your billing system, apply the correct tax rate for each jurisdiction, and help you manage filings effortlessly. Many also assist with exemption certificate collection and validation. While these tools significantly reduce the manual burden, they still require ongoing monitoring to ensure accuracy and to manage any exceptions that might arise.

But here’s the key takeaway: While automation is incredibly effective, nothing beats the human touch.

At Miles Consulting, we know that tax compliance can be daunting, especially when you're on the other end of the globe, navigating multiple regions in the U.S. with different rules. That's where we come in. Our team of experts is here to support you, offering tailored guidance to ensure you stay compliant without the hassle. Automation and technology are valuable tools, but human expertise is indispensable when it comes to complex compliance challenges. Let us take the weight off your shoulders—our team will help you stay ahead of the game.

For personalized assistance with your US SaaS sales tax strategy, no matter where you are in the world, contact Miles Consulting.

6. Key Takeaways: Global Tax, Local Rules

Here’s the cheat sheet for SaaS businesses expanding across borders:

  • Understand what tax applies where: VAT/GST outside the U.S., sales tax inside.
  • Track where you have nexus: Especially in the U.S., monitor thresholds and stay proactive.
  • Don’t assume exemptions are automatic: Especially with B2B sales, documentation is everything.
  • Invest in technology: Manual processes don’t scale.
  • Work with advisors: Tax is too complex (and risky) to go solo in new markets.

Going global is exciting—but staying compliant is essential. A smart tax strategy protects your business, your customers, and your bottom line.

by Monika Miles

Tariffs and Sales Tax: Are They Taxable?

In my 20+ years of sales tax consulting, it’s not often that a completely new question comes across my desk. But last week, someone asked something that made me pause:

“Are tariffs subject to sales tax?”

It might seem straightforward at first glance, but the answer, as with so many things in sales tax, is nuanced, state-dependent, and evolving.

With global trade playing a bigger role in supply chains and import duties making daily headlines, I suspect this question will only become more common. So this month, I’m taking a slightly different approach and dedicating the entire edition of Making Sales Tax Easy to unpacking this one topic.

Let’s explore how five key states, California, New York, Washington, Texas, and Illinois handle tariffs in the context of sales tax.

While each state has its own set of rules and interpretations, they all point in a similar direction: in most cases, tariffs that are passed on to the customer as part of the sale price are subject to sales tax.

But, of course, the details matter. And because this is such a pressing and current topic, new state guidance is being released regularly. We’ll continue to keep you up to date as things evolve.

Here’s an overview of what we’ll cover:

  1. California Sales Tax Tariffs: The Role of the Consignee
  • When tariffs are included in the taxable sale price

  • Consignee vs. buyer: Who is the importer of record?
  • How brokers and agents affect sales tax compliance
  1. New York Sales Tax Tariffs: Broad Definitions, Broad Exposure
  • No specific rule, but an inclusive “sales price” definition
  • The risk of bundling tariff costs into the sales invoice
  1. Washington: Explicit Guidance on Taxable Surcharges
  • Tariff-related surcharges as taxable surcharges

  • Full invoice value, including tariff lines, is taxable
  • Applies to goods and services alike
  1. Texas: Total Revenue Definition Includes Tariffs
  • Texas’s inclusive take on what constitutes taxable revenue

  • Separately stated fees often still taxable
  • The seller’s burden to prove exemption
  1. Illinois: Clear Direction That Tariffs Are Not Deductible
  • Tariffs passed on by the importer of record are taxable
  • Inclusion applies even when itemized separately
  • What happens when the buyer pays the tariff?
  1. What This Means for Your Business: Practical Takeaways
  • Evaluating how tariffs appear on customer invoices
  • Preparing for audits in states with differing sales tax laws

  • Aligning sales tax strategies with evolving international procurement practices

Would you like more information? Reach out to us at info@miles.roomworksmedia.co.uk.

1. California: The Consignee Is Key

California is one of the few states that provides clear guidance on this matter. According to the California Department of Tax and Fee Administration (CDTFA), tariffs are subject to sales tax in California when they are passed on to the customer. If an importer incurs a tariff and includes it in the sale price, that amount must be included in the taxable base.

But California goes a step further and provides clarity around who pays the tariff. The identity of the importer of record, also known as the consignee, determines whether the tariff should be taxed.

If the seller is the importer of record and passes the cost of the tariff on to the buyer, then that charge is part of the taxable sale. However, if the buyer is the importer, and thus pays the tariff directly, then the tariff is not included in the seller’s taxable sales amount.

California also considers scenarios where a broker is involved. If the broker is the consignee and is acting on behalf of the seller, the tariff is taxable. But if the broker is the customer’s agent, then it is not.

This distinction is subtle, but significant. Businesses operating in California must be crystal clear on how their import transactions are structured and who is legally responsible for each part of the supply chain.

See more: CDTFA Ruling

2. New York: Broad Definition of Sales Price Implies Taxability

New York does not provide tariff-specific guidance, but instead relies on well-established principles of sales tax law. The state’s definition of “sales price” includes all receipts received by the seller, without any deduction for expenses or charges including shipping, delivery, or other fees. This includes, arguably, tariffs that are incorporated into the total price charged to the purchaser.

New York’s laws emphasize that even transportation and distribution charges, whether provided by the seller or a third party, are included in the taxable base unless they are separately stated and meet exemption criteria. So while tariffs aren’t specifically called out, their nature as a non-deductible seller cost, when passed through to the buyer, means they likely fall within the taxable “sales price” umbrella.

This matters for businesses importing goods into New York and passing along costs to customers. Even without a direct reference to tariffs, businesses must understand that bundling these charges into the sales invoice could result in increased sales tax exposure.

3. Washington: Explicit Guidance Confirms Taxability

Washington has now issued direct guidance stating that surcharges added to invoices to cover expenses like tariffs, fuel, or credit card processing fees are generally subject to tax.

Washington Department of Revenue has made it clear that these charges are not deductible from the selling price, even if they appear as a separate line item. The entire amount billed, including the tariff, is subject to both retail sales tax and B&O tax, and must be reported accordingly.

For example, if a business imports sweaters and adds a $5 tariff surcharge to a $60 sale, the entire $65 is taxable. Similarly, surcharges related to services, such as legal or moving services, are also fully taxable when included in the invoice.

This updated guidance leaves no ambiguity for Washington sellers. If you’re invoicing customers for imported goods and adding tariff-related surcharges, those charges must be included in your sales tax calculation.

4. Texas: Revenue-Focused Definitions Lead to Inclusion

Texas takes a slightly different route. While not directly commenting on tariffs, Texas tax law hinges on the concept of “total Texas revenue” for determining sales tax obligations. That definition includes all receipts related to the sale of tangible personal property and related services, such as handling, transportation, and installation.

Even if these fees are separately stated on an invoice, they are considered part of the taxable base unless a specific exemption applies. Tariffs, if passed through to the customer as part of the sale price, fall squarely within the kinds of costs that are likely to be included in Texas’s expansive definition of taxable revenue.

Additionally, Texas presumes that any sale of tangible personal property delivered in the state is taxable unless proven otherwise. The burden is on the seller to demonstrate a valid exemption, something that becomes even more important when importing goods that may be subject to additional charges like tariffs.

5. Illinois: Tariffs Are Not Deductible

Illinois has recently issued a General Information Letter (GIL) that confirms tariffs are not deductible when calculating sales tax.

Specifically, when a seller is the importer of record and passes the cost of the tariff along to the customer, whether itemized separately or included in the total price, the tariff becomes part of the gross receipts and is subject to Illinois’s Retailers’ Occupation Tax.

Illinois law does not allow deductions for costs of doing business, including importation taxes. Therefore, the full amount charged to the customer, including any separately stated tariffs, must be included in the sales tax calculation.

If the customer is the importer of record and pays the tariff directly, however, the seller is not required to include the tariff in the taxable amount.

This clarification reinforces the need for businesses importing goods into Illinois to carefully assess their invoicing practices and ensure that tariffs are properly treated for tax purposes.

6. What This Means for You and Your Business

Across the board, we see a commonality: when tariffs are included in the sales price and passed on to the buyer, they are typically subject to sales tax. However, the specific taxability can hinge on a variety of factors - who the importer is, whether charges are separately stated, and how each state interprets its sales tax laws.

For your business, this isn’t just a compliance box to check. It impacts how you invoice customers, how you handle international procurement, and how you prepare for potential audits.

If tariff charges are making their way onto your customer invoices, it’s critical to evaluate whether you’re applying sales tax correctly, especially if you’re dealing with multi-state filings or complex supply chains.

This is where having the right sales tax advisor makes a real difference. If you’re unsure how your business should be handling tariff-related charges, or want a fresh look at your taxability strategy, I’d be happy to help.

Need guidance tailored to your business?
Let’s talk. You can reach us at info@miles.roomworksmedia.co.uk or visit www.milesconsultinggroup.com to learn more.

 

by Monika Miles

Illinois & Indiana and Sales Tax – SaaS, Software & Other

This month, we continue our blog series with a contrast of a couple of Central North states – Illinois and Indiana – specifically their treatment of technology items for sales tax purposes.

Here’s an overview:

  1. SaaS Taxation in Illinois vs. Indiana
  • Illinois:
    • Cloud computing services, where software is accessed remotely, are generally not subject to sales tax in Illinois.
    • SaaS is considered the lease of tangible personal property in Chicago and is subject to the Personal Property Lease Transaction Tax (PPLTT), which applies to SaaS used within city limits.
    • The state's tax regulations on cloud computing are more focused on specific jurisdictions like Chicago, where tax rates can be as high as 11%.
  • Indiana:
    • SaaS is not taxable in Indiana as it is considered a service rather than tangible property.
    • There are no specific taxes on cloud computing or SaaS transactions in Indiana.
    • SaaS products sold electronically are not subject to sales tax, providing a favorable tax environment for digital service providers.
  1. Prewritten Software Taxation in Illinois vs. Indiana
  • Illinois:
    • Prewritten software (whether downloaded or delivered via tangible media) is subject to sales tax in Illinois.
    • This applies to both physical software and software delivered electronically to consumers.
    • Prewritten software is taxed at a general sales tax rate of 6.25%, but special taxes can apply in cities like Chicago.
  • Indiana:
    • Prewritten software, whether downloaded or physically transferred, is subject to gross receipts tax in Indiana.
    • This includes software sold electronically, as it is treated as tangible personal property under Indiana law.
    • Indiana offers some exemptions based on the use of the software, such as when used exclusively for business purposes.
  1. Custom Software Taxation in Illinois vs. Indiana
  • Illinois:
    • Custom software that is tailored for a client’s specific needs is not subject to sales tax, regardless of the delivery method.
    • This includes custom software that is delivered either electronically or through tangible media.
    • The key factor is whether the software is customized or generic; custom software is exempt.
  • Indiana:
    • Custom software is not subject to sales tax in Indiana, regardless of the delivery method.
    • Like Illinois, Indiana distinguishes between custom and prewritten software, applying taxes only to the latter.
    • This provides businesses with clarity on the tax-exempt status of custom-designed software solutions.
  1. Digital Goods Taxation in Illinois vs. Indiana
  • Illinois:
    • Digital products, including e-books, music, and streaming video, are generally not taxable in Illinois.
    • The state exempts digital products from sales tax, which encourages the consumption of digital goods.
    • However, businesses need to verify that the digital goods are not bundled with taxable services.
  • Indiana:
    • Indiana taxes digital products, including e-books, music, and movies, but only when they are sold with a transfer of rights.
    • Digital products are subject to sales tax when they are sold in a manner that conveys ownership to the buyer, such as with downloadable media.
    • Sales tax applies to retail sales of digital goods to end users.
  1. Sales Tax Holidays in Illinois vs. Indiana
  • Illinois:
    • Illinois does not offer any sales tax holidays. Consumers do not experience temporary sales tax exemptions during certain times of the year.
    • This may limit consumer purchasing opportunities in comparison to other states that offer temporary sales tax relief.
  • Indiana:
    • Indiana also does not have statewide sales tax holidays. However, the state has occasionally provided local exemptions or incentives, but nothing like a traditional sales tax holiday for back-to-school or similar events.
  1. Economic Overview
  • Illinois:
    • Illinois is a highly diversified state, with strong industries in manufacturing, agriculture, and services.
    • The state is home to major corporations.
    • Illinois also has a thriving tourism industry.
  • Indiana:
    • Indiana’s economy is heavily influenced by its manufacturing base, particularly in the automotive industry.
    • The state is also a major agricultural hub.
    • Indiana's major sectors include manufacturing, pharmaceuticals, and biosciences.

Wait! Already know you need help with Illinois or Indiana issues? Please reach out to us at info@miles.roomworksmedia.co.uk

1. Software as a Service (SaaS) in Illinois vs. SaaS in Indiana

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country.  Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states are similar regarding their treatment of sales tax.

Cloud Computing Services are nontaxable in Illinois.

Computer software provided through a cloud-based delivery system is not subject to tax. A cloud-based delivery system is one in which computer software is never downloaded onto a client's computer and only accessed remotely. If a provider of a service provides to the subscriber an API, applet, desktop agent, or a remote access agent to enable the subscriber to access the provider's network and services, the subscriber is receiving computer software.

But wait!  Before we get too comfortable, please note that SaaS is subject to a special tax if delivered to (used by) a customer in the city of Chicago. Chicago subjects SaaS to its Personal Property Lease Transaction Tax. Under statute, Chicago considers SaaS the lease of tangible personal property and therefore subject tax when used in Chicago.  While not technically a sales tax, it looks and feels like a sales tax and can be passed through to the purchaser. The rate has steadily increased over the last several years, and as of 1/1/25, the rate is 11%.

SaaS is nontaxable in Indiana.

A transaction in which an end user purchases, rents, leases, or licenses the right to remotely access prewritten computer software over the Internet, over private or public networks, or through wireless media, is not considered to be a transaction in which prewritten computer software is delivered electronically, and does not constitute a retail transaction. A SaaS application hosted on servers and accessed by customers over the internet is not subject to sales tax.

2. Software in Illinois vs. Software in Indiana

Illinois does impose sales and use tax on prewritten computer software sold electronically.

The sale at retail, or transfer, of canned software intended for general or repeated use is taxable when it is delivered electronically.

Prewritten computer software delivered electronically is subject to tax in Indiana.

Indiana imposes gross receipts tax and use tax on prewritten computer software regardless of the method by which the software is delivered (e.g., via a tangible medium, load and leave, or electronically).

The sale of custom computer software delivered electronically is not subject to tax in Illinois.

Custom computer programs prepared to the special order of the customer are not subject to tax under the retailers’ occupation tax, use tax, service occupation tax or service use tax in Illinois.

The sale of custom computer software delivered electronically is not subject to tax in Indiana.

Custom computer software is not subject to gross retail tax, regardless of the method by which the software is delivered (e.g., via a tangible medium, load and leave, or electronically).

3. Digital Goods

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video.  Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In Illinois, digital products are nontaxable.

Generally, digital products are not taxable in Illinois.

In Indiana, digital products are generally taxable.

Digital products in Indiana are taxable if the seller grants the end user a right of permanent use that is not conditioned upon continued payment by the purchaser.

4. Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These holidays vary greatly by state. Here’s how Illinois and Indiana shake out:

  • Illinois does not have any sales tax holidays.
  • Indiana does not have any sales tax holidays.

For more information on sales tax holidays, click here.

5. Economy

Illinois is the fifth largest state in the nation with approximately 12.8 million residents.  The strength of the economy in the state is based on professional and business services, education, healthcare, leisure and hospitality services.  While the state’s manufacturing industry has declined over the years, it is consistent with national trends.  The largest private employers in Illinois are major retailers, large healthcare providers, equipment manufacturers, and nationwide financial service providers.

Indiana’s five leading exports are motor vehicles and auto parts, pharmaceutical products, industrial machinery, optical and medical equipment, and electric machinery. Northwest Indiana has been the largest steel producing center in the U.S. since 1975 and accounted for 27% of American-made steel in 2016.

Indiana is home to the international headquarters and research facilities of pharmaceutical company Eli Lilly in Indianapolis, the state’s largest corporation. Evansville is also home to the world headquarters of Mead Johnson Nutritionals. Overall, Indiana ranks fifth among all U.S. States in total sales and shipments of pharmaceutical products and second highest in the number of biopharmaceutical related jobs.

Along with corn, soybeans are also a major cash crop. Other crops include melons, tomatoes, grapes, mint, popping corn and tobacco in the southern part of the state. Most of the original land was not prairie and had to be cleared of deciduous trees. Many parcels of woodland remain and support a furniture-making sector in the southern portion of the state.

Fun Facts

Illinois Fun Facts:

  • World’s first skyscraper was a home insurance building built in Chicago in 1885.
  • Illinois is home to the first McDonald’s.
  • Of the 44 presidents of the United States, only 1 was born in Illinois: Ronald Reagan.
  • In 1922, the first radio station broadcast was made in Illinois from Tuscola.
  • The largest pinball machine ever made can be seen in the Chicago Museum of Science. The machine is about 15 feet wide and 7 feet high.
  • After Wyoming and Kentucky, Illinois is the country’s third-largest bituminous coal producer. It has one-fifth of the nation’s demonstrated coal reserves.
  • Morton, Illinois, is dubbed as “the Pumpkin capital of the world.”
  • About three-fourths of the state’s area is covered under farms. The rich black soil in the state helps in producing a lot of corn and soybeans.

Indiana Fun Facts:

  • The first long-distance auto race in the U.S. was held on May 30, 1911 at the Indianapolis Motor Speedway.
  • Explorers Lewis and Clark set out from Fort Vincennes on their exploration of the Northwest Territory.
  • Marcella Gruelle of Indianapolis created the Raggedy Ann doll in 1914.
  • Indiana ships over 70 million tons of cargo by water each year, which ranks 14th among all U.S. states.
  • In 1862, Richard Gatling, of Indianapolis, invented the rapid-fire machine gun.
  • At one time, 12 different stagecoach lines ran through Indiana on the National Road (now U.S. Interstate 40).
  • Indiana is the first state to have a chapel in its state capitol. It was built in memory of former first lady Beth Bowen.
  • There have been six men from Indiana who have been elected vice president: Schuyler Colfax, Thomas A. Hendricks, Charles W. Fairbanks, Thomas Marshall, Dan Quayle and Mike Pence. They have earned Indiana the nickname “Mother of Vice Presidents.”
  • The Indiana Dunes region on the shore to Lake Michigan provides habitats for many unusual plants, including prickly pear cactus, lichen mosses, bearberry and more than 20 varieties of orchids. Mount Baldy, the largest of the sand dunes, is a living dune that moves away from shore a few feet a year.

Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Illinois, Indiana, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Book a consultation, drop us a line, or send us an email at info@miles.roomworksmedia.co.uk.

Additional Reading

Feel free to take a look at our past blogs with focus on Illinois and Indiana.

Focus on Illinois - Multi State Tax Solutions | Miles Consulting Group

Focus on Indiana - Multi State Tax Solutions | Miles Consulting Group

by Monika Miles

Louisiana Administers the Taxability of Software as a Service (SaaS)

As the digital economy continues to grow, states are reevaluating their tax policies to include Software as a Service (SaaS) within their sales tax base. Louisiana is the latest state to impose sales tax on SaaS. This change, effective January 1, 2025, marks a significant shift in Louisiana’s tax landscape. Previously, SaaS was largely untaxed at the state level, although some local parishes pursued taxation through audits and guidance. The new law brings statewide uniformity, requiring all businesses providing SaaS services in Louisiana to collect and remit sales tax. Louisiana’s guidance reflects the growing recognition of SaaS as a taxable commodity in the digital economy. In a previous blog (What To Know About The Taxability Of SaaS In 18 Key States – Multi State Tax Solutions | Miles Consulting Group), we discuss where SaaS is taxable in 20 states (and also certain local jurisdictions).

We can now add Louisiana to that list of taxable states. Let’s unpack that here – this is what we’ll cover:

  • What This Means for Business

Learn how Louisiana’s new SaaS tax impacts businesses, from adjusting billing systems to understanding local tax nuances. Get the key insights on what’s required to stay compliant with this upcoming change.

  • The Bigger Picture

Discover how Louisiana’s move to tax SaaS fits into a growing national trend. Understand why staying proactive in adapting to these evolving tax laws is essential for businesses operating in the digital economy.

Not quite what you need? Let’s talk. Reach out to us at info@miles.roomworksmedia.co.uk.

1. What This Means for Businesses

The inclusion of SaaS in the taxable base creates new compliance challenges, especially in a state like Louisiana, where the tax system involves complex local codes across multiple parishes.

Businesses operating in Louisiana must:

  • Determine if their services qualify as SaaS and are taxable under the new regulations.
  • Adjust billing systems to collect the appropriate sales tax.
  • Stay informed about local sales tax variations

Seeking professional tax advice is highly recommended to navigate these evolving tax laws and ensure compliance.

2. The Bigger Picture

As digital products and services become more integral to the economy, states are increasingly recognizing the revenue potential of taxing these goods. The state’s decision to tax SaaS in Louisiana marks a significant policy shift that mirrors a broader trend across the United States. For businesses, staying proactive about understanding and complying with these new tax obligations is crucial. With the digital economy continuing to evolve, businesses must adapt to changing tax landscapes or risk falling out of compliance.

If your business operates in Louisiana or any state evaluating SaaS taxation, it’s time to act. Miles Consulting Group can help to ensure compliance with the latest regulations. Staying ahead of these changes will protect your business and help you navigate the complex world of sales tax with confidence.

Book a consultation, drop us a line, or send us an email at info@miles.roomworksmedia.co.uk

by Monika Miles

Illinois Sales Tax Changes Effective Jan 2025: What do you need to know and is your Avalara properly updated?

As Illinois implements new changes to their sales tax system, effective January 1, 2025, businesses are struggling with the age-old question, ‘how will this affect me?” At Miles Consulting, we have the answer. We’ll explain below – here’s what we’ll cover:

  1. Destination-Based Tax Collection
    • Summary: Starting January 1, 2025, Illinois will implement destination-based tax collection, requiring sales tax to be calculated based on the delivery location for most transactions.
    • Why It Matters: This change aligns Illinois with other states, impacting both in-state and out-of-state sellers. Online sales will generally follow destination-based rules, but exceptions may apply based on transaction specifics.
  1. Updates Required in Avalara
    • Summary: Retailers using Avalara must update their settings to comply with Illinois' new destination-based tax collection rules. Key changes include adjusting tax settings, activating ST-2 forms, and addressing a Chicago tax issue.
    • Why It Matters: These updates ensure accurate tax calculation and compliance. Businesses affected by the Chicago tax issue should update their nexus settings in Avalara or seek support if needed.
  1. Property Leasing Taxation
    • Summary: Illinois now applies sales tax to property leasing statewide, except within Chicago.
    • Why It Matters: Businesses leasing tangible personal property must adjust their tax practices accordingly, ensuring compliance with this new rule while noting the exception for Chicago.
  1. Vendor Discount Cap
    • Summary: Illinois has implemented a cap on the vendor discount, limiting it to $1,000 per month.
    • Why It Matters: This will likely have an impact on large retailers who benefit from a higher discount.

Not quite what you need? Let’s talk. Reach out to us at info@miles.roomworksmedia.co.uk.

1. Destination-Based Tax Collection

One of the most significant changes happening in 2025 is the transition to destination-based tax collection. Retailers with physical presence in Illinois, as well as out-of-state sellers, shipping products to IL customers, must now collect sales tax based on the delivery location, if the sale is sourced out of state. For Illinois retailers operating businesses within Illinois, origin-based tax collection may apply if the transactions are sourced to Illinois.

Online sales are generally considered to be destination-based tax collection, unless the company has inventory in the or title transfers at your place of business in IL. This means that if a retailer ships an item to a customer in Chicago from a warehouse in another state, they will charge the sale tax rate applicable to Chicago, rather than their own Illinois location. This change will better align sales tax collection processes with most other sales tax states.

*It is important to note that the tax collection rules rely heavily on the transaction specific details. You can find more information from Illinois here. Be sure to talk to your tax advisor if you think these changes are applicable to you. Talk to us.

2. Updates Required in Avalara

To ensure proper sourcing of sales tax, retailers using Avalara must make a few manual updates:

  • Change Settings: Retailers need to adjust their settings from “sales and sellers use” to “sales tax only” within Avalara. This will help streamline the tax calculation process according to the new regulations.
  • Activate ST-2 Forms: It is important for retailers to activate ST-2 forms in Avalara, these forms are necessary for reporting destination-based sales correctly.
  • Avalara Issue from 07/2024 regarding Chicago: Avalara announced an issue with the City of Chicago Personal Property Lease Transaction Tax in July 2024. Avatax has updated nexus so that a toggle must be activated in order for Avatax codes to apply to this return. Businesses with an Avatax account can update their nexus in Avatax using this link for instructions. If they need additional support, they’ll need to open a support ticket.

3. Property Leasing Taxation

Another change that Illinois has enacted is regarding property leasing. While property leasing is now subject to sales tax across Illinois, this change does not apply within Chicago. Businesses involved in leasing tangible personal property should be aware of this distinction as they adjust their tax practices.

4. Vendor Discount Cap

Illinois has also capped the vendor discount that retailers can receive at $1,000 per month. This will likely have an impact on large retailers who benefit from a higher discount.

Overall, Illinois’ changes appear to help taxpayers with consistency between states; however, there are many nuances, so we suggest speaking with your sales tax consultant. Don’t have one? At Miles Consulting, this is what we do - book a consultation, drop us a line, or send us an email at info@miles.roomworksmedia.co.uk.

We can help you navigate these changes.

Stay tuned for further updates from the Illinois Department of Revenue as we navigate these new rules throughout 2025.

by Monika Miles

Minnesota, Iowa and Sales Tax – SaaS, Software & Other

This month, we continue our blog series with a contrast of a couple of central states – Minnesota and Iowa – specifically their treatment of technology items for sales tax purposes.

Here’s an overview:

  1. SaaS Taxation in Minnesota vs. Iowa
  • Minnesota:
    • Cloud Computing Services are not taxable in Minnesota.
    • Sales of prewritten software, regardless of delivery method, are subject to tax.
    • No specific statute or regulation has addressed cloud computing in detail.
    • A 2004 Minnesota Department of Revenue publication clarified that charges for remote database access are not taxable.
  • Iowa:
    • SaaS is taxable unless sold to a commercial enterprise for exclusive use.
    • Sales tax on SaaS was implemented effective Jan. 1, 2019.
  1. Prewritten Software in Minnesota vs. Iowa
  • Minnesota:
    • Prewritten software sold electronically is subject to sales tax.
    • Custom software delivered electronically is not taxable.
  • Iowa:
    • Prewritten software sold electronically is subject to sales tax, with exceptions for commercial use.
    • Custom software delivered electronically is taxable as of Jan. 1, 2019.
  1. Digital Goods in Minnesota vs. Iowa
  • Minnesota:
    • Digital products (e-books, music, etc.) are taxable.
  • Iowa:
    • Digital products are taxable with some exceptions, effective Jan. 1, 2019.
    • Focus on retail sales of digital products to end users.
  1. Sales Tax Holidays
  • Minnesota:
    • No sales tax holidays.
  • Iowa:
    • Iowa offers a sales tax holiday for clothing and footwear under $100 on August 1-2, 2025 (excluding accessories).
  1. Economy Overview
  • Minnesota:
    • Historically agricultural, now includes tech and biomedical industries.
    • Home to major landmarks like the Mall of America and historic flour mills.
    • Largest producer of sugar beets, sweet corn, and green peas.
  • Iowa:
    • Diverse economy with strengths in manufacturing, biotech, finance, and government services.
    • Major food processing hub, home to companies like ConAgra Foods and General Mills.
    • Largest producer of ethanol and corn in the U.S.

Wait! Already know you need help with Minnesota or Iowa issues? Please reach out to us at info@miles.roomworksmedia.co.uk

1. Software as a Service (SaaS) in Minnesota vs. SaaS in Iowa

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country.  Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states differ regarding their treatment of sales tax.

Cloud Computing Services are not taxable in Minnesota.

Minnesota has not addressed cloud computing by statute or regulation. The sale, lease, or license of prewritten computer software is subject to tax, regardless of whether the software is delivered electronically. In a publication dated in 2004, the Minnesota Department of Revenue noted that charges to access data from a database at a remote location are not taxable.

SaaS is taxable with exceptions in Iowa.

Effective Jan. 1, 2019, sales of software as a service is taxable unless sold to a commercial enterprise for use exclusively by that commercial enterprise.

2. Software in Minnesota vs. Software in Iowa

Minnesota does impose sales and use tax on prewritten computer software sold electronically.

Prewritten software delivered to the customer via any electronic medium is subject to sales and use tax.

Prewritten computer software delivered electronically is subject to tax in Iowa.

Prewritten computer software delivered electronically in Iowa is subject to sales and use tax, unless sold to a commercial enterprise for use exclusively by that commercial enterprise.

The sale of custom computer software delivered electronically is not subject to tax in Minnesota.

Custom software delivered to the customer electronically is not subject to sales and use tax.

The sale of custom computer software delivered electronically is subject to tax in Iowa.

Effective Jan. 1, 2019, Iowa imposes sales tax on custom computer software delivered electronically.

3. Digital Goods

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video.  Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In Minnesota, digital products are taxable.

Digital products are generally subject to Minnesota sales and use tax.

In Iowa, digital products are taxable with some exceptions.

Effective Jan. 1, 2019, Iowa taxes the retail sale of specified digital products sold in the state to end users.

4. Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These holidays vary greatly by state. Here’s how Minnesota and Iowa shake out.

Minnesota does not have any sales tax holidays.

In Iowa, on August 1-2, 2025 there is a sales tax holiday on articles of clothing and footwear that are less than $100, which excludes clothing accessories.

For more information on sales tax holidays, click here.

5. Economy

Minnesota’s earliest industries were fur trading and agriculture. The city of Minneapolis grew around the flour mills powered by St. Anthony Falls. Although less than one percent of the population is now employed in the agricultural sector, it remains a major part of the state’s economy. The state is the largest producer of sugar beets, sweet corn, and green peas for processing, and farm-raised turkeys. The state is also a large producer of soybeans.

The manufacturing sector now includes technology and biomedical firms, in addition to the older food processors and heavy industry. The nation’s first indoor shopping mall was Edina’s Southdale Center, and its largest is Bloomington’s Mall of America.

While Iowa is often viewed as a farming state, in reality agriculture is a small portion of a diversified economy, with manufacturing, biotechnology, finance and insurance services, and government services contributing substantially to Iowa’s economy. This economic diversity has helped Iowa weather the late 2000s recession better than most states, with unemployment substantially lower than the rest of the nation.

Food processing is the largest component of manufacturing. Besides processed food, industrial outputs include machinery, electric equipment, chemical products, publishing, and primary metals. Companies with direct or indirect processing facilities in Iowa include ConAgra Foods, Wells Blue Bunny, Barilla, Heinz, Tone’s Spices, General Mills, and Quaker Oats. Meatpacker Tyson Foods has 11 locations, second only to its headquarters state Arkansas.

Agriculture has been a major component of Iowa’s economy. The state’s main agricultural outputs are hogs, corn, soybeans, oats, cattle, eggs and dairy products. Iowa is the nation’s largest producer of ethanol and corn and is one of the largest growers of soybeans.

Fun Facts

Minnesota Fun Facts:

  • Only in the Metrodome has there been a Super Bowl, a World Series and a NCAA Final Four Basketball Championship.
  • The Mall of America in Bloomington is over 9.5 million square feet in size. It is the size of 78 football fields.
  • Northwest Airlines, based out of the Twin Cities, was the first major airline to ban smoking on international flights.
  • Tonka Trucks were developed and are continued to be manufactured in Minnetonka.
  • Candy maker Frank C. Mars of Minnesota introduced the Milky Way candy bar in 1923.

Iowa Fun Facts:

  • The world best-renowned dance and gymnastics school is situated in Iowa.
  • Herbert Hoover, of Iowan descent, was the 31st president of the United States (1929-1933) and the first one born west of the Mississippi River.
  • Iowa is the only state name that begins with two vowels.
  • Iowa is the only state whose east and west borders are formed entirely by rivers.
  • Decorah hosts Nordic Fest, a three-day celebration of Decorah’s Scandinavian Heritage.
  • Iowa has more golf courses per capita, than any other state.

We invite you to further explore Minnesota and Iowa in these earlier blogs we crafted over the years. Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Minnesota, Iowa, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Book a consultation, drop us a line, or send us an email at info@miles.roomworksmedia.co.uk.

Additional Reading

Feel free to take a look at our past blogs with focus on Minnesota and Iowa.

Focus on Minnesota - Multi State Tax Solutions | Miles Consulting Group

Focus on Iowa - Multi State Tax Solutions | Miles Consulting Group

by Monika Miles

Understanding U.S. Sales Tax: What Foreign Sellers Need to Know

Understanding U.S. Sales Tax: A Guide for Foreign Sellers

For foreign businesses entering the U.S. market, the process of navigating sales tax can boggle the mind. Unlike many countries with a single national tax system, the United States operates a decentralized sales tax structure, where each of its 50 states establishes its own tax rules, rates, and exemptions. This means that foreign sellers must adjust to a variety of different requirements depending on where they do business. So here it is – the basics of U.S. sales tax to help foreign sellers adapt, and then a deeper dive into the various exemptions that can bring tax relief.

Here's what you can discover:

  1. The Basics of U.S. Sales Tax
  • U.S. Sales Tax Overview
  1. Common Sales Tax Exemptions
  • Resale Exemption
    • How the Resale Exemption Works
    • The Role of Resale Certificates
  • Non-Profit Organizations
    • Tax Exemptions for Non-Profit Entities
    • Eligibility and Requirements
  • Government Entities
    • Sales Tax Exemption for Government Entities
    • Documentation Requirements
  • Product-Specific Exemptions
    • Exemptions for Food, Clothing, Medical Devices, and More
    • State Variability in Product-Specific Exemptions
  • Manufacturing Exemptions
    • Exemption for Machinery, Raw Materials, and Equipment in Manufacturing
    • State-Specific Rules for Manufacturing Exemptions
  1. Obtaining and Maintaining Exemption Certificates
  • Importance of Exemption Certificates
    • Role of Certificates in Sales Tax Compliance
  • Process for Obtaining Certificates
    • Steps to Secure Exemption Certificates
    • Variations by State
  • Best Practices for Certificate Management
    • Keeping Accurate Records
    • Ensuring Timely Renewals and Proper Documentation
  1. Comparing U.S. Sales Tax to VAT
  • Key Differences Between U.S. Sales Tax and VAT
    • Scope and Application
    • Documentation Requirements
    • State Variations vs. Nationwide VAT Rules

Not quite what you need? Let’s talk. Reach out to us at info@miles.roomworksmedia.co.uk.

1. The Basics of U.S. Sales Tax

As mentioned, sales tax in the United States operates under a decentralized system, where state and local governments administer and collect the tax, unlike the uniform Value-Added Tax (VAT) systems found in many other countries. This means there is no national sales tax; instead, the tax rates, rules, and enforcement mechanisms are determined at the state and local levels.

Key Features of the U.S. Sales Tax System

  1. Jurisdictional Variability:
    Sales tax rates and taxable categories of goods and services can vary widely not only between states but also among local jurisdictions within the same state. Some states, like Oregon and Delaware, impose no sales tax, while others, such as Tennessee and Louisiana, have combined state and local rates that exceed 10%. This patchwork structure demands careful attention to the specific tax rules in each relevant jurisdiction.
  2. Origin-Based vs. Destination-Based Taxation:
    Most states operate under a destination-based sales tax system, where the applicable rate is determined by the location of the buyer. However, a few states use origin-based taxation, taxing goods and services based on the seller’s location. This distinction is critical for determining the correct tax rate and compliance obligations, particularly for remote or online sales.
  3. Taxable Goods and Services:
    Each state defines its own criteria for taxable goods and services. While tangible personal property (e.g., electronics, clothing) is typically subject to sales tax, the taxability of services, digital goods, and software varies significantly. For instance, states like Texas tax data processing services, while others, like Colorado, may exempt them. In fact, to further emphasize the point, we have a lot of clients in the SaaS space.  California does not tax SaaS. Washington, New York and Massachusetts are 3 of about 21 states which DO tax SaaS. Texas, mentioned above, classifies SaaS as taxable data processing services (and gives a 20% reduction in the taxable base), while Colorado doesn’t tax SaaS at the state level, but cities within Colorado, like Boulder and Denver DO tax SaaS. Need a roadmap? Check out this article about SaaS.
  4. Local Government Impact:
    In addition to state sales taxes, many local governments impose additional taxes, which can create layered obligations. Sellers must not only account for the state-level tax but also ensure compliance with local rates, surcharges, and filing requirements.

Considerations for Foreign Sellers

For foreign businesses selling into the U.S., understanding the lack of uniformity in sales tax rules is crucial. Compliance challenges include:

  • Economic Nexus Thresholds: Following the Supreme Court’s 2018 South Dakota v. Wayfair decision, states can require remote sellers to collect sales tax if they exceed certain thresholds for sales volume or transaction count. These thresholds vary by state, adding complexity to compliance.

For more on the Wayfair decision and how it affects your tax liability by state, read this article we wrote.

  • Marketplace Facilitator Laws: Most states now require marketplaces like Amazon or eBay to collect and remit sales tax on behalf of third-party sellers. Foreign sellers must understand their responsibilities under these laws.

For more on what makes you a marketplace facilitator, read this article we wrote.

  • Documentation Requirements: Properly managing exemption and resale certificates, invoices, and tax filings is critical to avoiding penalties or audit risks.

2. Common Sales Tax Exemptions

Exemptions play a crucial role in helping businesses reduce their tax obligations and stay compliant with U.S. sales tax law. While exemptions vary by state, here are some of the most common categories that foreign sellers should be aware of:

Resale Exemption

One of the most important exemptions is the resale exemption, which applies to businesses that buy goods with the intent to resell them. In these cases, the seller does not have to collect sales tax on the transaction. To claim this exemption, the buyer must provide a resale certificate, a document that proves the purchase is for resale rather than for personal use. The process for obtaining and maintaining these certificates varies by state, and failure to comply can result in penalties.

Non-Profit Organizations

Certain non-profit organizations, such as charities and religious institutions, are eligible for sales tax exemptions in most states. These organizations must apply for tax-exempt status with the IRS and, once approved, they can present this status to vendors to avoid paying sales tax on their purchases. Note, however, that the form of the exemption certificate may differ between states as well. While many states do offer an exemption for sales to non-profit entities, some, like our home state of California, do not. Or, they may offer exemptions only to certain kinds of non-profit entities.  And of course, individual states may have additional requirements for proving eligibility.

Government Entities

Sales to government entities—whether federal, state, or local—are often exempt from sales tax. Sales to the US government are always exempt (although it may be tricky to determine exactly who is “the US government,” as certain agencies don’t qualify for a blanket exemption. Sales to other state and local entities are also often exempt, but not always! For foreign sellers, this means that sales made directly to government agencies or through government contracts are often not subject to tax. However, the seller must request and verify proper documentation, such as tax exemption certificates or purchase orders, to ensure compliance.

Product-Specific Exemptions

Many states offer product-specific exemptions, which can vary significantly depending on the state. Common examples include exemptions for food, clothing, medical devices, and certain types of manufacturing equipment. While some states exempt groceries or prescription drugs, others may not, creating a need for businesses to understand the specific rules in each state.

Manufacturing Exemptions

A particularly important area of exemption for foreign businesses engaged in manufacturing is the exemption for machinery, raw materials, and equipment used in production. This exemption allows manufacturers to reduce costs on necessary materials and equipment, but again, the rules vary by state. For example, some states allow exemptions for manufacturing tools and machinery, while others only provide exemptions for the raw materials directly involved in the production process.

3. Obtaining and Maintaining Exemption Certificates

Exemption certificates are crucial documents that foreign sellers must manage carefully to ensure compliance. These certificates serve as proof that a buyer is eligible for a specific exemption, such as resale or non-profit status. Below are some steps foreign businesses should take when dealing with exemption certificates.

Importance of Exemption Certificates

Exemption certificates are the foundation of tax compliance for businesses seeking to take advantage of available exemptions. Without these certificates, businesses may find themselves liable for sales tax, even if the transaction should have been exempt.

Process for Obtaining Certificates

To obtain exemption certificates, businesses must follow a state-specific process, which often includes submitting a completed form to the state tax authority. Different states may have varying renewal requirements, or some states may accept certificates from other jurisdictions, adding another layer of complexity for foreign sellers.

We can help you in the process. Contact Miles Consulting now.

Best Practices for Certificate Management

Proper management of exemption certificates is key to minimizing the risk of audits and ensuring compliance. Businesses should maintain accurate, up-to-date records of all exemption certificates, ensuring that certificates are renewed on time and that proper documentation is collected for every transaction where an exemption is claimed.

4. Comparing U.S. Sales Tax to VAT

For foreign sellers accustomed to VAT systems, understanding the structural and operational differences between VAT and U.S. sales tax is critical for ensuring compliance in the U.S. market. VAT (Value-Added Tax) is a multi-stage consumption tax levied at each point of the supply chain, from production to final sale, based on the value added at each step. In contrast, U.S. sales tax is a single-stage tax applied only to the final retail transaction. This difference significantly influences pricing strategies, compliance workflows, and record-keeping practices.

VAT operates under a nationwide framework with uniform rules, simplifying compliance across countries that use this system. U.S. sales tax, however, is a decentralized system where tax rates, exemptions, and filing requirements vary by state and, in some cases, by local jurisdictions. This fragmented regulatory environment necessitates a more tailored approach for foreign businesses operating in multiple states, requiring precise management of varying tax obligations.

Key Differences Between VAT and U.S. Sales Tax

  • Scope of Taxation:
    • VAT: Imposed at every stage of the supply chain, with businesses reclaiming VAT paid on inputs.
    • U.S. Sales Tax: Collected only at the final point of sale to the end consumer, with no input tax credit mechanism.
  • Documentation Requirements:
    • VAT: Involves detailed invoicing for every transaction within the supply chain to track tax credits and liabilities.
    • U.S. Sales Tax: Focuses on managing exemption certificates, tracking taxable versus non-taxable sales, and adhering to state-specific reporting obligations.
  • Regulatory Uniformity:
    • VAT: Governed by a consistent national framework, reducing administrative complexity.
    • U.S. Sales Tax: Managed at the state and local levels, resulting in diverse tax rates, exemption criteria, and compliance requirements.

Partnering with Experts: Miles Consulting Brings the Human Touch

If you’re suitably nervous now about your tax compliance as a foreign seller, we can help. Yes, navigating U.S. sales tax laws can be challenging, especially for foreign businesses unfamiliar with the complexities of state-specific regulations, but that’s where professional guidance makes all the difference. At Miles Consulting Group, we don’t just provide tax solutions. We collaborate with you to understand your unique needs and tailor strategies that fit your business – even if you’re all the way ‘across the pond.’ Helping foreign companies succeed in the U.S. market is what we do best. Let’s work together to simplify your sales tax processes and ensure compliance, so you can focus on growing your business here in the States. You’ll be in good company! We’ve worked with clients across the globe, including Canada, Mexico, countries in the EU and Asia, and Australia – just to name a few!

Whether you're new to the U.S. market or expanding your operations, our expertise can help you streamline your sales tax processes and avoid costly mistakes. Book a consultation, drop us a line, or send us an email at info@miles.roomworksmedia.co.uk.

by Monika Miles

Illinois Lease Tax Updates 2025

Illinois Lease Tax Updates 2024: What Lessors Need to Know

Starting January 1, 2025, Illinois is implementing a significant change in lease tax responsibilities, shifting how lessors collect and remit taxes on leased property. Let’s take a closer look at the new rule.

Here's what you can discover:

  1. Background of Illinois Tax on Leases and Rentals
  • Traditional Illinois Tax Structure vs. Other States
  • Shift in Tax Collection Practices
  • The Growing Trend of Taxing Lease Payments
  1. Key Changes Effective January 1, 2025
  • Tax Collection on Lease Payments
  • Applicability to New and Renewed Leases
  • Exclusions and Specific Categories Affected by the Change
  1. Implications for Lessors and Businesses
  • Impact on Financial Management and Cash Flow
  • Accounting Efficiency and Tax Liability Recording
  • Compliance Costs and System Requirements
  • Competitive Impact on Leasing and Business Strategy
  1. Next Steps for Lessors
  • Preparing for the Transition to Incremental Tax Collection
  • Reviewing Lease Agreements and Updating Accounting Practices
  • Consulting with Tax Professionals and the Illinois Department of Revenue

Not quite what you need? Let’s talk. Reach out to us at info@miles.roomworksmedia.co.uk.

1. Background of Illinois Tax on Leases and Rentals

Across the United States, states typically tax the lease “stream,” meaning the tax is collected on each periodic lease payment made by the lessee rather than at the initial purchase by the lessor. States like California and Illinois, however, followed a different approach for years. Illinois required lessors to pay tax upfront at the time of property purchase, separating tax responsibility from the lease stream and placing it entirely on the lessor. This unique approach often added complexity for Illinois lessors, who faced significant initial costs detached from the cash flows generated by the lease itself.

With the new update, Illinois aligns with the typical state approach, taxing the lease stream rather than the property’s purchase price. This change reflects a growing trend among states to streamline tax collection, tying it more closely to the revenue generated by leasing activity and allowing for easier compliance.

2. Key Changes Effective January 1, 2025

The latest amendment to the Illinois tax law, effective January 1, 2025, brings fundamental changes to the lease tax system, particularly for those engaged in leasing tangible personal property. Here’s what the new system entails:

  1. Tax Collection on Lease Payments: The revised law under Section 35 ILCS 120/2 states that, starting in 2025, a tax is imposed on persons engaged in the business of leasing tangible personal property, including items like computer software and photographic products. Lessors are now responsible for collecting tax on each lease payment as it is received from the lessee, rather than paying it upfront at the time of purchase. This adjustment aligns Illinois’ leasing tax structure with the practice in most other states and connects tax obligations more directly to lease cash flows.
  2. Applicability to New and Renewed Leases: The updated tax structure applies to leases in effect, entered into, or renewed on or after January 1, 2025. Lessors must remit the tax applicable to the portion of the lease payment received in each tax return period, streamlining the tax calculation with the flow of payments received from lessees.
  3. Specific Exclusions Apply: The amendment includes exemptions for motor vehicles, watercraft, aircraft, and semitrailers, as specified in section 1-187 of the Illinois Vehicle Code. For these categories, the prior system remains in effect: dealers owe retailers’ occupation tax, lessors owe use tax, and lessees remain exempt from retailers' occupation or use tax. This means that lessors of these specific items continue to remit tax at the point of purchase, while other tangible personal property is subject to the new lease payment-based taxation.

This policy update from Illinois’ 103rd General Assembly represents a significant adjustment, aiming to reduce the initial tax burden on lessors while improving tax compliance through incremental payments collected from lessees.

3. Implications for Lessors and Businesses

The shift to collecting tax on lease payments presents both benefits and challenges for Illinois lessors:

  1. Impact on Financial Management: By eliminating the upfront tax payment, lessors can improve cash flow and financial planning, passing the tax burden incrementally to lessees as part of each lease payment. This model aligns tax collection with business revenue, potentially easing financial strain, particularly for lessors with extensive lease portfolios.
  2. Enhanced Accounting Efficiency: Under this new approach, tax liability is recorded gradually, allowing lessors to align tax remittance with the ongoing income from leases. This adjustment may also simplify accounting practices by treating tax as a lease-related liability rather than an upfront expense.
  3. Potential Compliance Costs: Lessors will need to ensure they have robust systems in place to handle the tax calculation and collection process from lessees. This could involve initial setup costs, including software updates and training, as businesses adapt to the incremental collection requirement.
  4. Competitive Impact: The new structure can make leasing options more appealing to lessees, as tax costs are distributed over time rather than embedded in an elevated upfront cost. However, lessors should assess whether the added administrative responsibilities could influence pricing or require operational adjustments.

4. Next Steps for Lessors

With Illinois adopting a more lessee-centered tax approach on lease payments, lessors must stay vigilant about compliance requirements starting in 2025. The shift presents a substantial change, easing the initial tax burden but adding an ongoing responsibility to collect and remit tax on each lease payment. Businesses are encouraged to prepare by reviewing lease agreements, updating accounting practices, and ensuring they have the necessary tools to manage this transition effectively. Better yet, come to Miles Consulting and let us help you.

With these updates, Illinois lessors are poised to benefit from a more gradual tax collection approach—an opportunity to enhance financial planning and achieve smoother lease operations.

Do you want to know more? Book a consultation, drop us a line, or send us an email at info@miles.roomworksmedia.co.uk.

by Monika Miles