October 2021 sales tax changes

The start of a new quarter traditionally brings numerous sales and use tax rate changes. States may also start enforcing new product taxability rules, new sourcing rules, and more. October 1, 2021, stands with this tradition.

New sales tax sourcing rules were to take effect in Texas on October 1, 2021: Orders made through an online shopping platform or shopping application were to be sourced to the location of the Texas consumer (aka, destination sourcing) unless the seller fulfilled the order at a place of business in Texas. However, the Texas Comptroller of Public Accounts won’t implement these changes as planned due to an ongoing lawsuit. We expect further developments after the case goes to trial in June 2022.

On October 1, 2021, sales and use tax rate changes take effect in the following states:

• California (specifically the City of Isleton)
• Kansas
• Michigan (prepaid sales tax rates for fuel)
• Missouri
• North Dakota (tax rate changes and local taxing jurisdiction boundary changes)
• Ohio
• Oklahoma
• Texas
• Washington (lodging tax rate changes)
• Washington, D.C. (tax rate for other tobacco products)

Car sharing in Arizona

Arizona’s transaction privilege tax and other tax rate tables for October 2021 include tax rates for peer-to-peer car sharing as well as recreational (adult use) and medical marijuana restaurants and bars. This is a first.

Catalysts, equipment, and water services in Nebraska

Nebraska has new sales and use tax exemptions for residential water services and certain catalysts, chemicals, and materials used in the process of manufacturing ethyl alcohol. It also has a new definition for agricultural machinery and equipment and new sales tax provisions relating to gross receipts. These changes take effect October 1, 2021.

Plastic bags in Washington

Washington state is banning certain bags and imposing a taxable fee on other bags on and after October 1, 2021. Retailers may not give customers the following:

• Paper carryout bags that aren’t “compliant paper carryout bags”
• Reusable carryout bags made of film plastic that don’t meet recycled content requirements
• Single-use plastic carryout bags

Retailers must also collect an 8-cent-per-bag fee on the provision or sale of:

• Compliant paper carryout bags with a capacity of one-eighth barrel (882 cubic inches) or greater
• Reusable carryout bags made of film plastic

The 8-cent fee will remain in effect from October 1, 2021, through December 31, 2025, then jump to 12 cents per bag starting January 1, 2026. Whether 8 cents or 12, it must be separately stated on invoices and receipts.

Retailers should retain the bag fee and must report it as income under the retailing business and occupation (B&O) tax and retail sales tax classification. They don’t have to pay B&O tax on the fee because they can take a deduction for the compliant carryout bag charge. However, they do have to collect and remit sales tax on the 8-cent bag fee — even if all the goods purchased and put in the bag are exempt. Additional details can be found in this Washington Department of Revenue Special Notice.

The evolving coronavirus pandemic continues to shape state tax policies, especially those affecting remote workers. For example, Pennsylvania terminated its temporary telework tax policy on June 30, 2021, and New Jersey will soon do the same.

Starting October 1, 2021, New Jersey will once again enforce its pre-pandemic corporation business tax nexus standard. Employees working from home in New Jersey will create corporate business tax nexus for an out-of-state employer.

Similarly, employers must source income based on where the service or employment is performed and withhold New Jersey Gross Income Tax from wages accordingly.

Finally, employees working remotely from New Jersey will create sales tax nexus for their remote employer on and after October 1, 2021, as prior to the pandemic. For additional details, see the New Jersey Division of Taxation’s COVID-19 Teleworking Guidance.

Check out the Avalara blog to keep your finger on the pulse of tax changes.