Any business can find managing sales tax a tedious task. While you won’t be rewarded for correctly collecting sales tax from customers or filing returns on time, you will surely get hell for doing it wrong and be punished.

Sales tax requirements are not easy. They’re especially difficult in Arizona, California, and Colorado. Alabama and Kansas are also worthy of honorable mention.

Complexities in sales tax collection, returns, and remittance in the states mentioned above create a storm that makes filing sales and use taxes in these jurisdictions difficult. These are some of the contributing factors:

• Home rule
• Non-traditional sales tax
• Sales tax holidays

Home Rule States

Local governments in “home rule” states have the power to set and manage their own sales tax rates and rules. Alabama, Arizona, and Colorado are home rule states. Illinois, Louisiana, Colorado, Illinois, Illinois, Louisiana, and Alaska are also home rule states. Alaska, however, has no sales tax but does allow local sales taxes. Home rule is different in every state, as you might imagine.

Arizona is an example of this. Arizona businesses must report sales according to their business classifications in each county and city. There are roughly 20 business types in Arizona, each with its tax rate. Local deductions and exemptions may also be available in certain jurisdictions.

Colorado has close to 100 home-rule municipalities, 70 of which have their own sales tax. Localities also can tax or exempt nearly 20 different categories of products (e.g. food for home consumption, beetle products). Businesses must deal with each jurisdiction, in addition to the Colorado Department of Revenue.

Louisiana has close to 200 local tax jurisdictions that can exempt, partially, or fully exempt certain sales. Businesses are encouraged to contact local tax authorities in Louisiana to find out their collection obligations, just like in Colorado.

Most of these states, to their credit, are trying to simplify and improve their sales and use taxes systems. Take, for example: 

• Alabama has simplified the seller’s use tax (SSUT). Remote sellers can now apply for a flat 8 percent tax to be collected on all sales made into the state, instead of varying combined rates. Audits of SSUT participants are only possible by the Alabama Department of Revenue and not local tax authorities.

• Arizona has centralized licensing and reporting. Businesses no longer have to report to local tax authorities, in addition to the Arizona Department of Revenue.

However, compliance with sales and use taxes in home rule states is still quite complicated.

Nontraditional Sales Tax

Only a few states allow tax transactions to be made that do not levy the traditional sales tax. Retailers who do business in more than one state may find it difficult to comply with this law.

Arizona has a transaction privilege tax (TPT), which is a tax that the vendor pays in exchange for the privilege to do business in Arizona. The TPT tax rates are dependent on the type and location of business activity, as shown in this TPT rate chart.

Illinois sales tax is made up of two types of taxes: the occupation tax levied on sellers’ receipts and the use tax imposed on buyers when retailers fail to collect tax at the time of sale. These taxes are the retailers’ occupation tax; service occupation tax; service use tax; and use tax. You can also find special taxes like the Chicago Home Rule Municipal Soft Drink Occupation tax.

Sales Tax Holidays

Sales tax holidays or tax-free periods are when states temporarily suspend sales of certain products and allow them to use tax. These holidays can last from one weekend to a full week, and they only apply to certain goods such as clothing, energy-efficient items, or school supplies. See this 2019 sales tax holiday.

Businesses can be faced with headaches when tax-free periods are extended for many reasons.

• Local complexity Qualifying items may be exempted from local sales tax, but not always (e.g. Alabama cities are not required to participate.

• Price restrictions Most states impose price restrictions on qualifying products (e.g. Clothing less than $100 is exempt, but clothing more than $100 will be taxable.

• Uncertainty: Not every item in a particular category is eligible for exemption (e.g. Football pants and jerseys are exempt from Texas’ sales tax holiday.

Additionally, different states have different tax-free periods. For example, in 2019, Alabama’s back-to-school holiday took place in mid-July while Florida’s took place August 2-6. Texas, on the other hand, had an August 9-11 tax-free period for clothes and school supplies.

A state might offer a sales tax exemption one year and not the next. Wisconsin did offer one in 2018, but it decided not to offer one in 2019. States don’t always allow businesses enough time to prepare for sales tax holidays. Take a look at what happened in Massachusetts in 2018.

• August 10, Governor Charlie Baker signs the sales tax holiday bill

• August 11, 2009: Massachusetts Department of Revenue announces tax-free period

• August 11: Starts the sales tax holiday

Alabama, Florida, and Texas are just a few of the 17 states that have at least one sales tax holiday for 2019.

Impact on Remote Sellers

Sellers are now more affected by home rule requirements, sales taxes, holidays, and other complicating factors than ever before.

The states could only tax sales made by businesses that have a physical presence within the state until the Supreme Court of the United States ruled in South Dakota v. Wayfair, Inc. (June 21st, 2018). The Wayfair decision overturned the physical presence rule which allows states to require sellers outside of their state to collect and remit sales taxes.

All 45 states, plus Washington, D.C., that have general sales taxes, have adopted economic Nexus laws based on a remote sales tax collection obligation upon economic activity within the state, rather than physical presence. Only Florida and Missouri, two of the most difficult sales tax states, have not done so.

There’s a good possibility that you will soon have to deal with sales taxes in these difficult sales tax states if you don’t.