According to Section 1354(A)(9) of Title 68 of the Oklahoma Statutes, “Computer hardware, software, coding sheets, cards, magnetic tapes or other media on which prewritten programs have been coded, punched, or otherwise recorded, including the gross receipts from the licensing of software programs” are subject to sales tax. Since prewritten computer software is subject to sales tax in Oklahoma, it is important to understand how the Oklahoma tax code defines this term. Per Section 1352(20) of Title 68 of the Oklahoma Statutes, prewritten computer software means, “‘computer software’, including prewritten upgrades, which is not designed and developed by the author or other creator to the specifications of a specific purchaser.” Prewritten computer software also includes the following:

• The combination of 2 of more prewritten software programs or prewritten portions
• Software designed and developed to the specifications of a specific purchaser by the author or creator, when it is sold to any person other than the specific purchaser
• Prewritten software that is modified or enhanced to any degree, unless there is a separately stated charge for the modifications

Even though prewritten computer software is subject to sales tax in Oklahoma, there are several types of software purchases that qualify for the Oklahoma sales tax exemption for software.

Oklahoma Sales Tax Exemption for Software: Custom Software

The Oklahoma tax code specifically exempts the sales of customized computer software programs from sales taxes. Sales of custom software programs qualify for the Oklahoma sales tax exemption for software because they are considered service transactions instead of sales of tangible personal property. According to Oklahoma Admin. Code 710:65-19-52(g), a software program is considered to be customized when the program is “prepared to the special order of a customer.” Based on this definition and the criteria regarding what is considered prewritten computer software, a software program will be considered customized when it can only be used by the customer for whom the program was developed and is useless to any other user. If a software program is developed for a specific purchaser, but has value for other customers and can be usable for other customers, then it will not meet the limited definition of custom software in Oklahoma and would be considered taxable prewritten computer software.

Oklahoma Sales Tax Exemption: Electronically Delivered Software

The Oklahoma sales tax exemption for software also applies to sales of software that is delivered electronically. Section 1357(32) of Title 68 of the Oklahoma Statutes provides this specific exemption for electronically delivered software. For the purposes of this exemption, the term “delivered electronically” means a method of delivery to the purchaser that does not occur through tangible storage media like a CD-ROM or USB.

Software Maintenance Contracts

The Oklahoma sales tax exemption for software may also apply to software maintenance contracts, depending on whether the contract is mandatory or optional. According to Oklahoma Admin. Code 710:65-19-52(d)(1), the entire sales price of a mandatory maintenance contract sold with prewritten computer software is subject to sales tax. A mandatory computer software maintenance contract is defined in Oklahoma Admin. Code 710:65-19-52(a)(8) as, “a computer software maintenance contract that the customer is obligated by contract to purchase as a condition to the retail sale of computer software.” An optional computer maintenance contract, which is defined in Oklahoma Admin. Code 710:65-19-52(a)(9) as “a computer software maintenance contract that a customer is not obligated to purchase as a condition to the retail sale of computer software” is subject to tax when either of the following two conditions are met:

• The optional contract provides only updates and upgrades which including prewritten computer software delivered in a tangible media format
• The optional contract provides both updates or upgrades and support services, and the fee for support services is not separately stated

In other words, as stated in Oklahoma Admin. Code 710:65-19-52(d)(3), optional software maintenance contracts will qualify for the Oklahoma sales tax exemption for software if they provide only separately stated maintenance agreement support services. If the maintenance contract is sold with custom software or with prewritten computer software delivered electronically, then the contract will be exempt from taxation regardless of whether the contract is mandatory or optional.

How to Claim the Oklahoma Sales Tax Exemption for Software

Since the Oklahoma Tax Commission does not provide a specific exemption certificate for custom software programs or electronically delivered software on their website, any Oklahoma business making a qualifying exempt software purchase can submit a letter to their vendors that includes the following information:

• Name and address of the taxpayer (purchaser)
• Oklahoma sales tax permit number, if any, issued to the taxpayer
• The general character of the personal property sold, distributed, leased, or stored
• Statutory reason that the personal property sold, distributed, leased, or stored is exempt from sales tax
• Signature and Title from an authorized representative of the taxpayer stating that “I certify that I am authorized to sign this Certificate of Exemption and that, to the best of my knowledge and belief, it is true and correct, made in good faith, pursuant to the provisions listed in Title 68 of the Oklahoma Tax Code”

How to Recover Oklahoma Sales Taxes Already Paid

Oklahoma businesses that have already made a purchase of software which meets the exemption criteria listed above are entitled to refunds for purchases that were made within two years from the date the tax was paid by the claimant. There are two options available to Oklahoma purchasers to recover any sales tax overpayments on software. The first is to reach out to the original seller and request that they issue a refund or credit. The seller can accomplish this by amending their Oklahoma sales and use tax return from the period in which the original sale was billed. If the seller declines to issue the purchaser a refund or credit directly by amending their sales and use tax returns, then Oklahoma purchasers can file a claim for refund directly with the Oklahoma Tax Commission by completing and submitting Oklahoma Form 13-9. This 13-9 Application for Credit or Refund of State and Local Sales or Use Tax also allows purchasers to claim a refund with the Oklahoma Tax Commission for any self-assessed taxes that the purchaser realizes were incorrect at the time. The sales tax consultants at Agile Consulting Group have experience in recovering overpaid sales taxes from both sellers and the Oklahoma Tax Commission and can assist any Oklahoma business with this cumbersome process.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability. Additional advice from Agile Consulting Group’s sales tax consulting team can be found on our page summarizing Oklahoma sales and use tax exemptions.

Reach Out to Our Sales Tax Consultants with Questions

If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other sales and use tax issue, please contact a member of Agile Consulting Group’s sales tax consulting team at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.

The post Oklahoma Sales Tax Exemption for Software appeared first on Agile Consulting Group.

Choosing the best sales tax software solution for your business can be an intimidating process. There are many options available in the marketplace. Each software choice seemingly has different features designed to separate it from the competition. How do you determine the best sales tax software solution for your business needs?

Our consultants get asked this question frequently. In fact, it’s one of the most popular queries we receive. And here is the answer…it depends on your business’s needs in relation to sales tax collection and compliance.

What Does Sales Tax Software Do?

If you’re reading this post, odds are that you already have an understanding of its purpose and whether your business needs it. If so, you can skip ahead to the next section. Otherwise, here’s a quick synopsis below regarding the three main purposes of sales tax software.

#1. Automates a Business Sales Tax Calculation and Collection Functions

Sales tax software helps automate a business’s sales tax calculation and collection functions. This is important and essential for several reasons.

First, the appropriate tax rate needs to be charged on all taxable sales in states in which the business has nexus. Knowing what tax rate to charge a customer is complex. States are either origin- or destination-based, meaning that sales tax needs to be collected either based upon the “ship from” or “ship to” address.

In addition, the taxation rates are dynamic and rates can change on the first of each month. Keeping up with these nuances and changes manually is essentially impossible particularly if you’re selling into multiple states or you have a large volume of transactions.

#2. Helps Determine Which Items are Subject to Sales Tax

Second, sales tax software helps a business determine which items are subject to sales tax and which items are not subject to tax. Each state drafts its own sales and use tax laws which means that the taxability of items will vary from state-to-state. Even if your entire product catalog consists of taxable items, consider other charges that may be added to the customers’ invoices such as freight, shipping and handling or fuel surcharges.

#3. Streamlines the Allocation and Reporting of Sales Revenues

Finally, once the sales tax has been collected from customers, it must be remitted to the appropriate states and jurisdictions within those states (except for those few states like Connecticut, Indiana and others which have a fixed state-wide rate). Sales tax software is an excellent tool for simplifying and streamlining the process of allocating and reporting sales revenues to the appropriate jurisdictions. Furthermore, many ecommerce solutions even have automated filing capabilities.

How to Determine Which Sales Tax Software is Right for Your Business

When we advise our consulting clients about choosing the best sales tax software for their needs, we start with an overview of the products they’re selling. Certain software platforms as a service (SaaS) platforms are geared towards companies selling specific products. Simply saying you’re an ecommerce retailer is not enough information for our consultants to provide adequate guidance.

Understand Which Products You Sell

We need to have an in-depth understanding of the products you’re selling so we can assign the appropriate category to each product so that it will result in the correct taxability determination by whichever SaaS is selected. This is quite challenging for someone who is not well versed in sales tax law and is the primary reason many clients reach out to Agile’s sales tax consultants when going through this process.

Consider the Cost

The second consideration is cost. Most current software choices for sales tax collection have a tiered cost plan that is driven off the number of transactions that need to be calculated on a monthly basis. Having said that, there are certainly some solutions that are more budget-friendly than others, but like many things in life you often get what you pay for.

Determine Necessary Service Levels

If you have more complex needs or require assistance with implementation, you will have to pay for that higher level of service. While Agile’s sales tax consultants are absolutely not software programmers, we have helped a number of clients through fairly standard implementations and set ups of these software solutions. Let our prior experience be an asset for you.

Other Points of Consideration

In addition to those three main concerns, there are other ancillary concerns as well to consider when selecting the best compliance software for your business.

Examples of other questions to consider include:

• What ecommerce shopping cart are you using?
• Do you need a system to track and store customers’ exemption certificates?
• Will you need to track nexus status in those states where your business is not yet collecting sales tax?
• Do you want the software you select to assist with automatic filing of the appropriate compliance returns, or will that function be handled internally or by a third party such as a CPA or sales tax consulting firm such as Agile Consulting Group?

Discuss Your Software Options with Agile Consulting

Agile Consulting Group is a partner with both Avalara and TaxJar and we have firsthand experience with the other solutions in the marketplace including the popular choices of Sovos, TaxCloud and Vertex. Our sales tax consultants are happy to consult with you as you embark on this important decision. All these software solutions have their pluses (and minuses) and our sales tax consultants will collaborate with you to find the solution best suited for your business.

If you have questions, comments or would like to discuss your software needs and the options available in the marketplace, please contact Agile Consulting Group’s sales tax consultants at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.

The post Sales Tax Software: An Overview appeared first on Agile Consulting Group.

Michigan provides an extensive sales tax exemption for manufacturers involved in industrial processing. Michigan defines industrial processing as “the activity of converting or conditioning tangible personal property by changing the form, composition, quality, combination or character of property for ultimate sale at retail or for use in the manufacturing of a product to be ultimately sold at retail or affixed to and made a structural part of real estate located in another state. Industrial processing starts when tangible personal property moves from raw materials storage and ends when finished goods first come to rest in inventory storage” [Mich. Comp. Laws Ann.  §205.54t(7)(a)]. This exemption applies to many items used in the manufacturing process and the skilled sales tax consultants at Agile Consulting are ready to assist Michigan manufacturers with the nuance of the tax law.

Sales Tax Exempt Industrial Processing Manufacturing Items

• Industrial machinery and equipment and their repair and maintenance
• Consumables
• Fuel and Energy used in industrial processing
• Material handling equipment used in industrial processing
• Data processing equipment used in industrial processing
• Ingredient or component parts that become part of the finished product sold at retail

Taxable Items

• Real property repair (i.e. HVAC, plumbing, lighting, electrical, etc. systems)
• Office equipment and supplies not used in industrial processing
• Material handling equipment used outside the industrial processing process (i.e. receiving and storage)
• Preservation or maintenance of finished goods already in finished goods inventory storage
• Returnable shipping containers or materials not used in industrial processing
• Tangible personal property used in the production of computer software designed exclusively for the purchaser

How to Claim the Michigan Sales Tax Exemption for Manufacturing

Michigan manufacturers can easily purchase exempt manufacturing items by supplying their vendors with “Michigan Sales and Use Tax Certificate of Exemption – Form 3372”. This form can be found on the Michigan Department of Treasury’s website. The manufacturer will fill out and send in one form for each of their qualifying vendors. On the exemption certificate the manufacturer will check box 7 “Industrial Processing” and use code 4 for “Manufacturing” on section 4 on the exemption certificate. Once the vendor has this certificate on file, the manufacturer can purchase qualifying items tax exempt. Agile Consulting has experienced sales tax consults eager to help Michigan manufacturers take advantage of the Michigan sales tax exemption for manufacturing.

How to Recover Michigan Industrial Processing Sales Tax

Purchasers are entitled to a refund of sales tax dollars erroneously paid on manufacturing items. The state of Michigan allows purchasers to request a refund on items purchased up to 4 years (48 months) from the date of purchase. Due to a recent change in refund procedures (Public Act 168) purchasers may request a sales tax refund directly from the Michigan Department of the Treasury as of January 2019. In order to receive the refund, the manufacturer must fill out sign and send in “Purchaser Refund Request for a Sales or Use Tax Exemption – Form 5633” into the Michigan Department of Treasury. Please note that while the purchaser is now able to request a refund directly from the Treasury, form 5633 has a statement that indicates that the seller paid tax on the original transaction and will not seek a refund. This statement must be signed by the seller. Once the refund request is received by the Treasury it will be assigned to an auditor for review. Once the review is completed and both sides agree, a refund check will be sent to the purchaser. Please consult Agile’s knowledgeable sales tax consultants for help in the refund recovery process.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability.  Additional advice from Agile Consulting Group’s sales tax consultants can be found on our page summarizing Michigan sales and use tax exemptions.

Agile Consulting Group

If you have any questions, comments or would like to discuss the specific circumstances you are encountering regarding this particular issue or any other sales and use tax issue, please contact any of Agile Consulting Group’s sales tax consultants at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.

The post Michigan Sales Tax Exemption for Manufacturing appeared first on Agile Consulting Group.

The Maryland sales tax exemption for software provides a sales & use tax exemption for Maryland-based businesses that purchase and use certain types of software during the course of their operations. The knowledgeable and detail-oriented sales tax consultants at the Agile Consulting Group can provide your organization with the resources and tools to take advantage of this exemption and improve your business’s cash flow.

In general, per MD Code Ann. Tax-Gen. 11-102(a), tangible personal property that is sold at retail is subject to sales and use tax on the gross sales price. Tangible personal property is defined in MD Code Ann. Tax-Gen 11-101(k)(1)(i) as meaning, “corporeal personal property of any nature.” By using the term “corporeal”, Maryland institutes a very literal definition of tangible personal property because corporeal means that the property in question must be a physical object and exist as a physical form. This definition is relevant to any discussion about software purchases because this definition makes an important distinction between the type of software that should be considered as tangible personal property versus intangible personal property.

Prewritten or Canned Software

The Maryland sales tax exemption for software does not apply to any purchases of “prewritten” or “canned” software that are delivered in a “corporeal” manner. MD Code Ann. Tax-Gen 11-103(b) states that, “the person required to pay the sales and use tax has the burden of proving that a sale in the State is not subject to the sales and use tax.” Since the Maryland tax code and administrative regulations do not provide any specific sales tax exemption in the law, “prewritten” and “canned” software programs, which are considered to be software that is not designed, created, or developed for and to the specifications of an original purchaser are presumed to be taxable tangible personal property.

Furthermore, these types of software programs have historically been held by the Maryland Court of Appeals to be considered taxable tangible personal property. In the case MD COMPTROLLER OF THE TREASURY v. EQUITABLE TRUST COMPANY, 296 Md 459 464 A2d 248, 08/11/1983, the taxpayer was contesting the results on an audit that assessed sales taxes on the purchase of canned computer program software licenses. The taxpayer attempted to argue that the assessment was incorrect because the licenses should be considered intangible personal property that merely granted the customer the right to use programs, knowledge, and information, even though they were delivered via a temporary magnetic tape. The Court of Appeals upheld the tax assessment by concluding that, “as a matter of law that the dominant purpose or essence of the transactions was the programs and that computer programs are intangible.” By upholding the Maryland Comptroller’s tax assessment on these software programs, the Court of Appeals affirmed that “canned” software delivered in a tangible medium is taxable tangible personal property under the Maryland Tax Code.

Electronically Delivered Software

While “canned” software purchases that are physically delivered are considered taxable tangible personal property in Maryland, electronically delivered software where the purchaser does not receive any physical medium qualifies for the Maryland sales tax exemption for software. According to the most recent Comptroller of Maryland Publication that discusses tangible personal property and services subject to sales and use tax, page 13 of this publication states that, “Canned computer software accessed electronically through digital download etc.” is not subject to sales and use tax. This exemption will only apply if the purchaser does not receive the right to receive tangible personal property as part of the sale.  

Custom Software

The Maryland sales tax exemption for software also applies to custom computer software programs and services. Per MD Code Ann. Tax-Gen 11-219(b), sales and use tax does not apply to the sale of custom computer software services relating to procedures and programs that meet the following criteria:

• Are to be used by a specific person
• Are created for a specific person
• Contain standard or proprietary routines that incorporate significant creative input to customize the procedures and programs for that specific person
• Do not constitute a program, procedure, or documentation that is mass produced and sold to the general public or persons associated in a trade, profession, or industry

Essentially, this means that any software or related services that are performed for a specific customer and only for that specific customer are not an enumerated service in Maryland and would not be subject to sales and use tax.

How to Claim the Maryland Sales Tax Exemption for Software

Since the Comptroller of Maryland does not provide a specific exemption certificate for custom software programs or electronically delivered software on their website, any Maryland business making a qualifying exempt software purchase can submit a letter to their vendors that includes the following information:

• Name and address of the taxpayer (purchaser)
• Maryland certificate of sales tax registration number, if any, issued to the taxpayer
• The general character of the personal property sold, distributed, leased, or stored, or to be sold
• Statutory reason that the personal property sold, distributed, leased, or stored, or to be sold is exempt from sales tax
• Signature and Title from an authorized representative of the taxpayer stating that “I certify that I am authorized to sign this Certificate of Exemption and that, to the best of my knowledge and belief, it is true and correct, made in good faith, pursuant to the provisions listed in the Annotated Code of Maryland”

How to Recover Maryland Sales Taxes Already Paid

Maryland businesses that have already made a purchase of software which meets the exemption criteria listed above are entitled to refunds for purchases that were made within four years from the date the tax was paid. There are two options available to Maryland purchasers to recover any sales tax overpayments on software. The first is to reach out to the original seller and request that they issue a refund or credit. The seller can accomplish this by amending their Maryland sales & use tax return from the period in which the original sale was billed. If the seller declines to issue the purchaser a refund or credit directly by amending their sales & use tax returns, then Maryland purchasers can file a claim for refund directly with the Comptroller of Maryland by completing and submitting Maryland Form SUT205. This SUT205 Sales and Use Tax Refund Application also allows purchasers to claim a refund with the Comptroller of Maryland for any self-assessed taxes that the purchaser realizes were incorrect at the time. The consultants at Agile Consulting Group have experience in recovering overpaid sales taxes from both sellers and the Comptroller of Maryland and can assist any Maryland business with this cumbersome process.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability. Additional advice from Agile Consulting Group’s sales tax consulting team can be found on our page summarizing Maryland sales and use tax exemptions.

Reach Out to Us with Questions

If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other sales and use tax issue, please contact a member of Agile Consulting Group’s sales tax consulting team at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.

The post Maryland Sales Tax Exemption for Software appeared first on Agile Consulting Group.

Arizona allows manufacturers in the state to purchase machinery and equipment directly used in the manufacturing process “transaction privilege tax” exempt.

Arizona Sales Tax Exemption for Manufacturing

While Arizona does not technically collect sales tax, they do collect transaction privilege tax which is treated in the same manner as most states treat sales tax. Transaction privilege tax is the tax levied by the state of Arizona on a vendor for the privilege of conducting business in the state.

The main difference in transaction privilege tax and traditional sales tax is that the burden lies on the seller versus the purchaser. Because of this many of the transaction privilege tax laws have a corresponding use tax law.

The Arizona transaction privilege tax exemption for manufacturing extends to manufacturing machinery and equipment used directly in processing, fabrication, job printing, refining, metal working, mining, electrical power transmitting, oil and gas extraction, and research and development [Ariz. Rev. Stat. Ann. §42-5061(B)(1)]. Directly used in manufacturing means the item purchased must be involved in the direct production of the product.

Tax Exempt Items (Directly used in Manufacturing):

• Machinery and equipment
• Repair and replacement parts on exempt machinery
• Industrial gases
• Cleanrooms
• Ingredients – COGS items physically incorporated into final product

Taxable Items (Indirectly Used in Manufacturing):

• Expendable materials
• Janitorial equipment
• Hand Tools
• Office Equipment
• Motors and Pumps used in irrigation systems
• Motor vehicles

How to Claim Arizona Transaction Privilege Tax Exemption for Manufacturing

The manufacturer should already be purchasing manufacturing equipment tax exempt from their vendors because the burden of transaction privilege tax lies on the seller and not the purchaser, but this is not always the case. In order to ensure the Arizona transaction privilege tax exemption for manufacturing, manufacturers can supply their vendors with a “Transaction Privilege Tax Exemption Certificate”. “Arizona form 5000 – TPT Exemption Certificate” which can be found at the Arizona Department of Revenue’s website. The manufacturer will fill out, sign and send to their vendor to have their account set up as tax exempt. This will guarantee manufacturing sales will be purchased tax exempt. Please contact the experienced sales tax consultants at Agile Consulting to help you determine if you are being charged tax incorrectly.

How to Recover Arizona Transaction Privilege Tax

The entity that remitted tax to the state is the only entity that can recover refunds from the Arizona Department of Revenue. Due to this, the purchaser must go back to their vendor in order to secure the refund. The purchaser can go back up to 4 years (48 months) to collect taxes paid in error. Once the purchaser requests a transaction privilege tax refund of exempt purchases from their vendor the vendor has one of two options.

Option one is for the vendor to amend their returns and issue a credit or check to their customer. Option two is for the vendor to fill out, sign and send in  “Form SCR (Seller’s Claim for Refund)” along with the  “Refund Request Workbook” into the Arizona Department of Revenue at TPTREfunds@azdor.gov. Once submitted the refund request will be assigned to an Arizona auditor and either accepted or denied. Once auditor has completed review and accepted the refund request, a check will be mailed to the vendor. The vendor will then reimburse their customer of the transaction privilege tax paid in error. Agile’s knowledgeable and skilled tax consultants are ready to assist you with your interaction with Arizona auditors.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability.  Additional advice from Agile Consulting Group’s sales tax consultants can be found on our page summarizing Arizona sales and use tax exemptions.

Agile Consulting Group

If you have questions, comments or would like to discuss the specific circumstances you are encountering regarding this particular issue or any other sales and use tax issue, please contact any of Agile Consulting Group’s sales tax consultants at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.

The post Arizona Transaction Privilege Tax (“Sales Tax”) Exemption for Manufacturing appeared first on Agile Consulting Group.

Sales Tax Consulting Firm Succeeds in Expanding Alabama Medical Sales Tax Exemption for Implants

We originated and pioneered this issue by first fighting for the correct application of Section 40-9-30, Code of Alabama 1975, which includes an Alabama sales and use tax exemption that had been “on the books” since August 1, 2014, but not honored by the Alabama Department of Revenue.  Our sales tax consultants then worked hand-in-hand with the Alabama Department of Revenue and local taxing authorities to find mutually agreeable supporting documentation that would enable hospitals and surgery centers to enjoy the benefits of this Alabama medical sales tax exemption for implants.

Alabama Medical Sales Tax Exemption for Implants: An Overview

In the Regular Session of 2014, House Bill 280 was introduced into the Ways and Means Education Committee by Representative Ron Johnson from District 33. The Bill made its way through both houses and was forwarded to Governor Bentley on April 3, 2014. House Bill 280 was signed into law and became Act 2014-453 taking effect August 1, 2014.  Act 2014-453 added subparagraph (d) to Section 40-9-30.  Subparagraph (d) reads,

In addition to any other exemptions provided in subsection (b) or (c), any items used for the treatment of illness or injury or to replace all or part of a limb or internal body part purchased by or on behalf of an individual pursuant to a valid prescription and covered by and billed to Medicare, Medicaid, or a health benefit plan shall be exempt from state, county, and municipal sales, use and rental and leasing taxes, including, but not limited to, any of the following:

• Durable medical equipment, including repair parts and the disposable or single patient use supplies required for the use of the equipment
• Medical oxygen and related equipment and supplies
• Prosthetic and orthotic devices
• Medical supplies, as defined and covered under the Medicare program, including, but not limited to:
  • Catheters
  • Catheter supplies
  • Ostomy bags and supplies related to ostomy care
  • Specialized wound care products
  • Similar items that are covered by and billed to Medicare, Medicaid, or a health benefit plan.

To paraphrase, this exemption states that any items, including prosthetic devices, used for the treatment of illness, injury or to replace a limb or internal body part that are dispensed per a prescription can be purchased tax exempt if they are covered by and billed to Medicare, Medicaid or any other health insurance provider.

Agile Requests a Sales Tax Ruling from the Alabama Department of Revenue

We first learned of this exemption in early 2018 and according to our discussions with the Alabama Department of Revenue at that time, no Alabama hospital or surgery center had taken advantage of this exemption despite it being available to them for nearly three and a half years. Agile’s sales tax consultants believed that the Alabama medical sales tax exemption for implants was not being used by taxpayers for several reasons. 

First, Alabama hospitals and surgery centers were largely unaware that the law had even changed because there had been no public discussion of the new Alabama medical sales tax exemption. Second, subparagraph (d) was vague as to the meaning of “covered by and billed to Medicare, Medicaid, or a health benefit plan.”

Obviously, standard operating procedure in the healthcare industry dictates that Medicare, Medicaid, or a health benefit plan does not itself directly acquire the implants (or other items) used by patients covered by the health care plan. The hospital or surgery center purchases those items and is then reimbursed by Medicare, Medicaid, or the health benefit plan for the materials used in the hospital or surgery center’s care of the patient in question.

Based on the language in subparagraph (d), it was unclear whether this arrangement would invalidate the exemption. Third, if this standard arrangement between the medical facility and the patient’s insurer was an acceptable interpretation of the exemption language, then there was no clear guidance on the documentation that an Alabama hospital or surgery center would need to provide to entitle them to acquire the implants (or other items) in a tax exempt manner.

With these thoughts in mind, Agile’s sales tax consultants wrote to the Alabama Department of Revenue in early 2018 requesting guidance on the Alabama medical sales tax exemption for implants. We received a Private Letter Ruling addressing these and other specific concerns. This effectively opened a dialogue between our sales tax consultants and the Alabama Department of Revenue through which we learned how to make this exemption an actuality for Alabama hospitals and surgery centers.

Putting it into Practice: Filing Refunds Related to the Alabama Medical Sales Tax Exemption for Implants

With our newly acquired information from the Alabama Department of Revenue, we set about pursuing sales and use tax refunds for one of Agile’s longstanding Alabama hospital clients to prove through our  firsthand experience that we could turn this concept into sales and use tax refunds.  It was an ideal test case because the hospital specialized in orthopedic surgeries, acquired a large volume of implants for these orthopedic surgeries and settled over 99% of its cases through Medicare, Medicaid, or another health benefit plan.

Success! Sales and Use Tax Refunds Issued to Alabama Hospital and Surgery Center

Beginning in early 2019, Agile began securing refunds related to the Alabama medical sales tax exemption for implants for its first Alabama hospital client.  To date, the hospital has received over $1.8M in sales and use tax refunds related to the Alabama medical sales tax exemption for implants.

In our review, we identified over 20 different vendors from whom the hospital was making purchases that qualified for the Alabama medical sales tax exemption for implants including:

• Arthrex
• Globus Medical
• Johnson & Johnson (DePuy Synthes Division)
• Medtronic
• Stryker (Howmedica Osteonics Division)
• LDR Spine (this vendor didn’t charge sales tax, but the hospital accrued use tax on these purchases)
• Zimmer Biomet.

Here are examples of three refund checks received by our client in relation to this issue:

How You Too Can Recover Refunds Related to the Alabama Medical Sales Tax Exemption for Implants

If you are an Alabama hospital or ambulatory surgery center that is acquiring implants for patients and paying sales or use tax on those purchases, Agile Consulting Group can help you recover sales and use taxes paid on such purchases from the prior 36 months.  Not only will you recover refunds for these prior purchases, but going forward we will work with you to update your accounting and tax systems to capture this exemption on future qualifying purchases made.  This will result in an immediate and direct improvement to your facility’s bottom line.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability.  Additional advice from Agile Consulting Group’s sales tax consultants can be found on our page summarizing Alabama sales and use tax exemptions. 

Agile Consulting Group

If you have questions, comments or would like to discuss the specific circumstances you are encountering regarding this particular issue or any other sales and use tax issue, please contact any of Agile Consulting Group’s sales tax consultants at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.

The post Alabama Medical Sales Tax Exemption for Implants appeared first on Agile Consulting Group.

The Louisiana sales tax exemption for manufacturing provides an incentive for manufacturing production in Louisiana by allowing manufacturers to purchase manufacturing machinery and equipment tax exempt [La. Rev. Stat. Ann. §47:301(13)(k)(i)]. Louisiana defines “machinery and equipment” as “tangible personal property or other property that is eligible for depreciation for federal income tax purposes and that is used as an integral part in the manufacturing of tangible personal property for sale.” “Machinery and equipment” shall also mean tangible personal property or other property that is eligible for depreciation for federal income tax purposes and that is used as an integral part of the production, processing, and storing of food and fiber or of timber” [La. Rev. Stat. Ann.  §47:301(3)(i)(ii)(aa)].

The state then reviewed this statue and determined that although manufacturing machinery repair parts are not depreciated, they are still considered exempt under the spirit of the statue [Louisiana Revenue Bulletin No. 15-006, 01/22/2015]. To qualify for the Louisiana sales tax exemption for manufacturing, the manufacturer must have a Louisiana Workforce Commission assigned NAICS code of one of the following: 113310, 2211, 31-33, 3211-3222, 327213, 3361, 423930, or 511110.

The expert tax consultants at Agile Consulting are here to help navigate the nuance of the Louisiana sales tax exemption for manufacturing.

Exempt Machinery and Equipment:

• Computers and software that are an integral part of the machinery and equipment used in the manufacturing process
• Pollution control machinery and equipment
• Testing and measuring machinery and equipment that are a necessary part of the manufacturing process
• Machinery and equipment used to generate electric power for use in the manufacturing process
• Machinery and equipment used for news publication

Taxable Machinery and Equipment:

• Real Property
• HVAC systems
• Material handling equipment used before or after the manufacturing process

Additional Exempt Tangible Personal Property used in Manufacturing Process:

• Machinery and equipment repair parts (fuse, belts, felts, wires, etc.) of qualifying manufacturing machinery and equipment
• Consumables (lubricants, oils, coolant, etc.)
• Production gases
• Cost of Goods Sold – component parts of finished product and packaging materials
• Dyed diesel fuel
• Material handling equipment used within the manufacturing process

Claiming the Louisiana Sales Tax Exemption for Manufacturing

Louisiana separates state and local taxes into two different governing bodies. The Louisiana Department of Revenue handles all state taxes and the local parish handles the local taxes. Each parish handles sales tax and refunds differently so it is important to review your local parish’s rules. In order to purchase manufacturing machinery and equipment tax exempt manufacturers must apply for a manufacturing certification with the Louisiana Department of Revenue. Manufacturers need to fill out, sign and send in Form R-1070 “Application for Certification as a Manufacturer” found at the LA DOR website. Once the state approves the application and issues an exemption certificate, the manufacturer can then purchase manufacturing machinery and equipment tax free.

How to Recover Louisiana Sales Taxes

The statue of limitations on sales tax in Louisiana goes back 3 years (36 months) to when the sales tax was paid. Meaning Louisiana manufacturers can go back 3 years and recover sales taxes erroneously paid under the Louisiana sales tax exemption for manufacturing. The first step for manufacturers to recover sales taxes is to fill out, sign and send in Form R-20127 “Claim for Refund of Overpayment” found at the LA DOR website. Once submitted, a Louisiana auditor will review the refund claim and either approve or deny the refund. If denied the taxpayer can send in additional materials to support their refund claim. Once the taxpayer and the state have agreed on the refund claim, the state will send out a refund check to the taxpayer. Please remember that this refund request is only for state sales tax and to review your local parish’s rules for sales tax refunds. Each parish has their own claim for refund form which is to be sent to the appropriate parish. Agile consulting’s sales tax consultants are eager to assist Louisiana manufacturers with this sales tax refund process.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability.  Additional advice from Agile Consulting Group’s sales tax consultants can be found on our page summarizing Louisiana sales and use tax exemptions. 

Agile Consulting Group

If you have questions, comments or would like to discuss the specific circumstances you are encountering regarding this particular issue or any other sales and use tax issue, please contact any of Agile Consulting Group’s sales tax consultants at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.

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Many of you are familiar with sales tax recovery reviews.  Quite a few of you have enjoyed success in prior sales tax recovery reviews.  We view sales tax recovery reviews as something akin to a doctor’s checkup.  Maybe they don’t need to occur on an annual basis (who are we kidding, we all know we’ve missed one from time-to-time), but every few years it is imperative to go in for that checkup to make sure everything is still functioning properly and to address any concerns we have.  That’s the same opportunity sales tax recovery reviews offer your business as it relates to sales tax.

Policies, processes and procedures are key to any business.  Over time, even the best planned policies, processes and procedures have slippage and need to be revisited.  In sales tax particularly, you must review your company’s policies, processes and procedures on a regular basis.

Why should sales tax recovery reviews occur on a regular basis?

Tax laws change

State Legislatures pass new laws every year, sometimes in multiple sessions.  These changes add new sales tax exemptions, eliminate some and amend others.  Sales tax is a moving target.  Not only do you have to keep an eye on new legislation, but taxpayers are constantly requesting guidance or rulings from the State Revenue Agencies.  Court cases are another source of change.  Sometimes, the underlying law itself doesn’t change, but the interpretation of it may.  These changes in interpretation are more difficult to keep up with because they seldom receive any publicity, and some are even private rulings.  We’ve fought hard to win private rulings from a number of states because of the very fact that they are not public information.

Processes change

Are you making a new product, offering a new service or assisting clients in a new state or industry?  If so, your sales tax processes must reflect those changes.  Maybe the process change isn’t related to a shift in your company’s operations but is due to streamlining or is technology related.  Have you gone from a manual, paper-based purchase order system to a software-based one?  Are we sure that new electronic purchase order has all the right fields and information on it to help with sales tax compliance?  Even if it does, it’s possible that the people using it may not understand all the implications and importance of the information they place on that form. 

People change

People can affect sales tax in a number of ways.  When we work with clients who have multiple locations, there are always some locations that are better at taking advantage of the sales tax exemptions for which they qualify and other locations that are not. Inevitably, that difference comes down to the people making decisions at those different locations.  When people change roles, through no fault of their own, there is always a learning curve.  Staffing and roles are frequently changed and seldom is sales tax part of the new job training.  People are often left to fend for themselves regarding sales tax.  Some never get there with sales tax because they view it as an afterthought.  If your company has experienced new hires or promoted people from within to roles that impact sales taxes, then a sales tax recovery review is an ideal way to understand their strengths and weaknesses in taking advantage of sales tax exemptions.  Our sales tax recovery reviews provide granular detail about which items sales taxes are being overpaid on.  We also provide custom-developed taxability matrices, with citations included, for all major categories of purchases that we find in our reviews.  These are excellent training and reference materials for ongoing sales tax compliance.

Software gets updated

If you’ve experienced a change in your company’s software systems, you know what a process that can be.  Often it takes months and involves cross-departmental teams with members concerned about how the changes will impact their department’s operations.  How much attention does sales tax get?  Even if it is a high priority item and is given much consideration, the real world often presents situations not covered during implementation or testing.  We recommend conducting a sales tax recovery review after the new program, or updated existing software, is up and running.  You’d rather discover a problem in the first 90 days than in a state sales and use tax audit 3-4 years down the road that could result in a large assessment.

Vendors or suppliers go through of these changes above as well

OK, so maybe none of these things have changed at your company.  Are you sure you major vendors or suppliers haven’t made any of these changes?  Something we see frequently is a longtime vendor or supplier of one of our clients begin charging sales tax on an account that has been set up to be non-taxable for years.  Confusing, right?  When we call to re-provide the exemption certificate(s) we learn that a new account rep has been assigned to the account or they have updated the ERP system and all accounts have been defaulted back to taxable status.  It happens more often than one would think.

How often should a sales tax recovery review take place?

We recommend engaging a sales tax consulting firm to review your purchases every 2-3 years.  Statutes of limitations vary from state-to-state, but many states have clustered around the 36-month statute of limitations for sales and use tax recoveries.  We believe that you should never leave any of these periods unreviewed.  Remember, it will take any sales tax consultant you select some time to conduct the analysis and prepare their findings.  We strive to turn around all of our reviews in 60-90 days from the date we begin reviewing the invoices, depending on the size of our clients’ operation and the volume of records to review.

The timing has never been better to conduct a sales tax recovery review.  Overpaid sales taxes are sitting there waiting for you to recover them in the states in which you operate.  If you don’t request a refund of those taxes from your State Revenue Agency within the open statute of limitations, the state gets to keep your tax dollars whether or not they were paid appropriately.  Don’t let the state keep tax dollars that will have a positive effect on your company’s cash flow.

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Do I have to charge sales tax for online sales?

The simple answer is…maybe.  Whether or not you should be collecting eCommerce sales tax on your online sales depends on two factors:

Factor #1: Have I established sales tax nexus within a state?

How to determine whether you have established sales tax nexus within a state:

Between 1992 and 2018, the nationwide standard for whether a business had established sales tax nexus hinged on whether the business had a “physical presence” within a state.  Things were relatively simple then.  On June 21, 2018 in its South Dakota v. Wayfair, Inc. ruling, the U.S. Supreme Court overturned the 1992 Quill case that established that “physical presence” principle.  We’ve written extensively on the Wayfair case (if you’d like to read more click here) because of the seismic shift in caused in the world of sales tax, but to summarize briefly here, the Wayfair case changed the sales tax nexus standard from “physical presence” to “economic presence.”  Now, a business that has either a physical presence or a sufficient economic presence within a state has established sales tax nexus, and all the collection and reporting obligations that go along with that, within that state’s borders.

What amount of eCommerce sales establishes “economic nexus” within a state?

Like everything in sales tax, the answer is “it depends.”  The rules of “economic nexus” vary by state, although most have clustered around the thresholds first established by South Dakota (and essentially OK’ed by the U.S. Supreme Court in its June 2018 decision) of $100,000+ in sales or 200+ separate transactions per year.  Of course, there are outliers.  The way I think about it is that the most populated states, and those with the largest tax revenue bases, have established higher thresholds than their less populated (and more revenue-starved) counterparts.  For example, the “economic nexus” threshold in California is $500,000+; in New York it is $500,000+ and 100+ transactions; and in Texas it is $500,000+.  The complexities are too detailed to summarize neatly within this article, but we provide a table in our sales tax nexus studies for eCommerce retailers that summarizes all of this information by state as well as providing the date each state enacted its economic nexus policy.  If you have concerns, please reach out to us for additional information and a free consultation.

Factor #2: Are the products I’m selling subject to sales tax within a state?

How to determine what products are taxable:

Even in states where you have established nexus, you will find that some products are subject to sales tax while others are not.  You would not need to collect any eCommerce sales tax on the sale of non-taxable items.  The rules of what is and is not taxable varies from state-to-state because each state’s Legislature and Department of Revenue establish the rules about product taxability within their state.  What is subject to sales tax and what isn’t seldom makes sense and often depends on special interests, lobbyists and other non-logical bases.

For example, here are some popular categories of items frequently sold by online retailers and their corresponding taxability in 5 states:

eCommerce Sales Tax Product Taxability Chart

OK, so maybe the last item in this list is not an example of a popular, frequently sold online product, but nonetheless it is a great illustration of the seemingly random taxability decisions made by states.

Recap & Summary of eCommerce sales tax overview:

Compliance with eCommerce sales tax requirements is more complex under the “economic nexus” standard implemented by the U.S. Supreme Court in its 2018 Wayfair decision.  States have implemented different thresholds for what constitutes “economic nexus” and a number of those thresholds have changed, sometimes on multiple occasions, since 2018.  To determine if your online store should be collecting sales tax on its sales, you must first determine if your business has established “economic nexus” within a state.  If so, then you must determine whether the goods and items your online store is selling are subject to eCommerce sales tax in that state.  There are wide variations in the taxability of items from state-to-state, so one cannot assume that a product that is exempt from sales tax in State #1 is also exempt from sales tax in State #2, etc.

Attorneys, or CPA’s may be able to assist you in researching these issues and providing guidance, however, sales tax is often not the main focus of an attorney or CPA’s practice.  Sales tax consulting firms, like Agile Consulting Group, have already answered these questions for other clients and have firsthand experience helping other online retailers become and remain compliant with the frequently changing sales tax laws in this niche subject/area.  Discussing your business’ operations and concerns with a sales tax consultant is a prudent step many online retailers are taking to ensure they do not run afoul of any states’ eCommerce sales tax reporting requirements.

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In general, per Virginia Code Ann. 58.1-603, tangible personal property that is sold at retail or distributed in Virginia is subject to sales tax on the gross sales price. Prewritten computer software, which is defined in Virginia Code Ann. 58.1-602 as, “a computer program that is prepared, held or existing for general or repeated sale or lease, including a computer program developed for in-house use and subsequently sold or leased to unrelated third parties” is considered tangible personal property in Virginia and is subject to sales tax when it is delivered through a physical medium. However, there are several types of software purchases that are not considered tangible personal property and thus, are not subject to sales tax.

Custom Software

Virginia Code Ann. 58.1-609.5(7) provides a specific Virginia sales tax exemption for software purchases that are considered to be “custom programs”. Per Virginia Code Ann. 58.1-602, a custom program is defined as “a computer program that is specifically designed and developed only for one customer.” This definition does not include prewritten programs that are modified to any degree or the combination of two or more prewritten programs. Based on the way Virginia defines “custom programs”, this exemption is somewhat limited because it only applies to software programs that are designed, developed, and intended for use with a specific customer. Even if a software program undergoes substantial modifications or changes to satisfy the specific needs of a customer, the Virginia Department of Revenue has consistently issued rulings determining that those modifications are not sufficient to meet the definition of “custom program” in Virginia Code Ann. 58.1-602. However, separately stated amounts charged for labor or services rendered in connection with the modification of a prewritten software program are exempt from sales tax per Virginia Code Ann. 58.1-609.5(6).

Electronically Delivered Software

The Virginia sales tax exemption for software also applies to sales of software that are delivered electronically to customers, regardless of whether the software program is prewritten or custom. The Virginia Department of Revenue has maintained a long-standing policy, which is referenced in Virginia Public Document Ruling No. 05-44, that sales of software delivered electronically do not constitute the sale of tangible personal property and are not subject to sales tax. This exemption also applies to any software updates that are subsequently provided to the customer, as long as those updates are delivered electronically. If there is any tangible personal property included with the sale of software delivered electronically, like hardware or a backup copy of the software, then the entire transaction is considered to constitute a sale of tangible personal property and is subject to sales tax. Since the inclusion of tangible personal property with software delivered electronically changes the taxability of the transaction, the purchaser must retain clear documentation that establishes the software was delivered electronically and that there was no exchange of tangible personal property connected with the sale.

How to Claim the Virginia Sales Tax Exemption for Software

Since the Virginia Department of Revenue does not provide a specific exemption certificate for custom software programs or electronically delivered software on their website, any Virginia business making a qualifying exempt software purchase can submit a letter to their vendors that include the following information based on the guidelines provided in Virginia Code Ann. 58.1-623:

• Name and address of the taxpayer (purchaser)
• Virginia certificate of sales tax registration number, if any, issued to the taxpayer
• The general character of the personal property sold, distributed, leased, or stored, or to be sold
• Statutory reason that the personal property sold, distributed, leased, or stored, or to be sold is exempt from sales tax
• Signature and Title from an authorized representative of the taxpayer stating that “I certify that I am authorized to sign this Certificate of Exemption and that, to the best of my knowledge and belief, it is true and correct, made in good faith, pursuant to the Virginia Retail Sales and Use Tax Act”

How to Recover Virginia Sales Taxes Already Paid

Any Virginia business that purchased software which meets the exemption criteria listed above are entitled to refunds for purchases that were made within three years from the due date of their vendor’s sales and use tax return. In order to receive a refund for overpaid sales tax on exempt software, Virginia purchasers will have to request a refund directly from the vendor who sold the software because the only entity that can request a refund from the Virginia Department of Revenue is the one who remitted the taxes on their sales and use tax returns. To accomplish this, the vendor will need to amend their Virginia sales and use tax returns and issue the purchaser a refund. The consultants at Agile Consulting Group have experience in recovering overpaid sales taxes directly from vendors and can assist any Virginia business with this cumbersome process.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability. Additional advice from Agile Consulting Group’s sales tax consulting team can be found on our page summarizing Virginia sales and use tax exemptions.

Agile Consulting Group

If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other sales and use tax issue, please contact a member of Agile Consulting Group’s sales tax consulting team at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.

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