States regularly create sales tax exemptions of various kinds. Exemptions may be intended to encourage specific types of business, making sales of items like aircraft or biotech exempt or exempting purchases of manufacturing equipment. They might be intended to provide humanitarian relief or to address perceived unfairness, as in the case of meals provided to fast food workers during their shifts. Some are mysterious, such as this one from Colorado: “Direct mail advertising materials distributed by persons engaged solely and exclusively in providing cooperative direct mail advertising.” That one has been repealed. Whatever the reason, it can be hard to keep up.

One of the issues is that every time a new tax exemption is created, it leads to a new sales tax. States can’t just forgo the revenue they lose when they exempt biodiesel equipment or lodging for permanent residents, so they have to make it up with a new tax. The immediate result of a new tax is a clamor for exemptions. We saw this recently when the District of Columbia decided to tax services and gyms called it a tax on fitness. Sometimes this process continues for years, exempting so many of the original industries that only a handful of businesses are still covered by the tax. At that point, the remaining non-exempt entities point out that it is unfair to tax only them, the tax is repealed, and a new tax has to be created. This keeps a lot of people employed. It’s also one of the many reasons that sales tax is so complicated.

The complicated nature of sales tax is the reason it is so easy to make errors and so hard to be in full compliance. 90% of clients who try out FileLINK think they are in compliance with sales tax in all jurisdictions but aren’t. We’ll check your data for you, for free, so you can know for sure. Contact us now for a free evaluation.

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