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Autonomous cities and sales tax

Since the Supreme Court decision Wayfair v. In South Dakota in 2018, states gradually established rules to take advantage of new sales tax revenue streams from out-of-state retailers. States and self-governing cities now have the power to impose their own sales tax regulations once certain thresholds are reached (“economic nexus”). These thresholds are generally based on turnover or the number of transactions during a calendar year or a 12-month period.

How Autonomous Cities Affect Sales Tax and Remote Sellers

Autonomous cities or localities have their own sales tax regulations separate from their states. As the name suggests, self-collection house rule jurisdictions go further and independently collect their own sales tax. In addition, these administrations may apply their own economic link rules.

Although only a few states have self-governing cities, it can be difficult for distance sellers to comply with the sales tax rules of hundreds of individual cities and towns, in addition to economic nexus implications in 46 states.

States with self-collected self-governing cities

States with self-collecting localities like Louisiana, Alabama and Arizona attempted to make the process easier for sellers by offering a unified online reporting system and/or a simplified sales tax rate for remote sellers. On the other hand, some states are still looking for adequate solutions to alleviate the burden.

Colorado Autonomous Cities

Colorado is arguably the most complex state when it comes to self-governing cities. Compliance is a challenge due to the number of localities with their own sales tax requirements, the lack of simplified tax rates and, until recently, the lack of a unified online filing platform . However, Colorado has addressed this shortcoming in the past year by introducing a new tax rebate system that allows self-governing cities to collect sales tax from state-connected retailers. This sales and use tax system, called SUTS, is an online portal for businesses to file and remit sales tax on a unified platform. With this new system in place, distance sellers should begin complying in Colorado self-pickup cities if they have a state connection.

Alaska

In Alaska, there is no state sales tax. However, autonomous cities have their own requirements. Similar to Colorado, the state introduced the Alaska Remote Seller Sales Tax Commission (“ARSSTC”) to unify self-governing cities imposing an economic nexus on remote sellers to collect sales tax on a single system. Businesses whose sales in Alaska exceed the economic nexus threshold set by the cities are required to register on the system and begin collecting sales tax for home cities participating in ARSSTC.

Illinois

Illinois is another state with self-governing cities but, unlike Colorado, most cities and towns are state-administered. This means that businesses remit the sales tax collected for all localities directly to the state. However, Chicago’s Personal Property Rental Transaction Tax (“PPLTT”) operates similarly to sales tax and is administered directly by the city. Fortunately, it only applies to specific types of transactions related to the rental of personal property used in Chicago. The city also issued economic tie rules for remote sellers, requiring them to comply with their tax orders, including the PPLTT and amusement tax for digital media (video streaming, audio streaming and online games). ).

Best Practices for Remote Sellers in Autonomous Cities

First, understand your exposure to the link and your obligations. Conduct regular economic nexus analyzes to determine where you need to register and file returns.

State and local sales tax rules are constantly changing and complex. Keeping up with jurisdiction-specific updates, in addition to regular monthly filing requirements, can be difficult. It’s always best to discuss your specific situation with a sales tax advisor for guidance and to create a compliance strategy that meets your business needs.

Teresa R. Cabrera

The author Teresa R. Cabrera