Arizona

The Arizona Court of Appeals clarified the conditions under which manufacturers may claim exemptions for production-related equipment. In this case, the taxpayer’s laundry activity was only a portion of the overall rental business, which included pickup and delivery, another service which is common to a rental operation, and which is not typical of a processing operation. Noting the presumption against exemptions, the Court held in favor of the Department.

• 9W Halo Opco LP Ariz. Dep’t of Revenue, No. 1 CA-TX 23-0003, slip op. (Ariz. Ct. App. Nov. 7, 2024).

California

The California Court of Appeal affirmed the validity of Alameda County’s Measure W, a sales tax measure intended to fund essential services. The court concluded that Measure W was a general tax, not a special tax, and therefore required only a simple majority for approval under Propositions 13 and 218.

• Alameda County Taxpayers’ Ass’n County of Alameda, No. A168775, slip op. (Cal. Ct. App. Jan. 31, 2025).

Colorado

Colorado voters approved a 6.5% excise tax on retail sales of firearms, firearm precursor parts, and ammunition, set to take effect on April 1, 2025. The tax will apply to sales by manufacturers, licensed firearms dealers, and ammunition vendors. Exemptions will be granted for sales to peace officers, law enforcement agencies, and active-duty members of the U.S. armed forces. Tax returns and payments will be due monthly by the 20th, with mandatory electronic filing and payment via electronic funds transfer. This measure, Proposition KK, was passed in the November 5, 2024, general election.

• Proposition KK, November 5, 2024.

ABA Tax Section

State and Local Tax Committee Sales and Use Tax Sub-Committee Report

Illinois

Illinois has provided guidance regarding the taxation of subscription membership fees for cloud-based fitness software applications. Sales tax does not apply to software accessed exclusively through a cloud-based delivery system when customers are unable to download the software onto their devices. However, if a service provider offers an API, applet, desktop agent, or remote access tool to facilitate user access to its network and services, the transaction is classified as the sale of computer software. When a provider charges a subscription fee in a single transaction, the charge is generally subject to tax unless the transaction qualifies as a non-taxable software license. Additionally, Illinois residents who download software for free from an out-of-state retailer’s or service provider’s website or server located outside Illinois do not incur use tax liability

• General Information Letter ST 24-0032-GIL, Illinois Department of Revenue, (October 9, 2024).

Illinois

The Illinois Department of Revenue released Publication PIO-125 to provide comprehensive guidance for out-of-state retailers and marketplace facilitators on their sales and use tax obligations. The document explains economic nexus thresholds, physical presence requirements, and the sourcing rules applicable to remote sales made to Illinois customers. It outlines the tax collection and remittance responsibilities for businesses that meet the state’s economic nexus criteria, details registration and filing procedures, and clarifies exemptions and compliance requirements.

• PIO-125: Sales and Use Tax Guide for Remote Sellers, Illinois Department of Revenue, (January 2025).

Illinois

The Illinois Appellate Court affirmed a ruling that an aircraft owner had substantial nexus in the state due to its physical presence, even though the aircraft was only stored temporarily in Illinois. The decision reinforces Illinois’ approach to nexus determinations under sales and use tax laws.

• TCRG SN4057, LLC Illinois Dep’t of Revenue, 2024 IL App (1st) 231389-U.

ABA Tax Section

State and Local Tax Committee Sales and Use Tax Sub-Committee Report

Indiana

The taxpayer’s sales of monthly online subscriptions, in-game items, and virtual currency were determined to be exempt from Indiana sales tax, as they do not qualify as either tangible personal property or specified digital goods under state tax law. Indiana imposes sales and use tax on electronically transferred products only when they meet the statutory definition of “specific digital products,” which include digital audio works, digital audiovisual works, and digital books. While these specified digital products are subject to taxation, the taxpayer’s offerings did not fall within any of these defined categories.

Because the online subscriptions, in-game items, and virtual currency did not meet the criteria for taxable digital products, they were not subject to Indiana sales tax.

• Revenue Ruling No. 2024-04-RST, Indiana Department of Revenue, (January 7, 2025).

Michigan

The Michigan Department of Treasury’s Revenue Administrative Bulletin 2024-21 clarifies sales tax exemptions for prescription and over-the-counter (OTC) drugs. Prescription drugs are tax-exempt if they are for human use and can only be legally dispensed by prescription, with the exemption applying to all sales, including those to retailers and suppliers. In contrast, OTC drugs qualify for exemption only when sold directly to an individual patient with a prescription. Mich. Dep’t of Treasury, Rev. Admin. Bulletin 2024-21 (Nov. 26, 2024).

• Dep’t of Treasury, Rev. Admin. Bulletin 2024-21 (Nov. 26, 2024).

New York

The New York Tax Appeals Tribunal affirmed that the taxpayer was personally liable for the corporation’s unpaid sales and use tax, rejecting his claim that he had no control over business operations. The tribunal determined that his roles as incorporator, sole shareholder, and designated tax collector on the company’s tax application established his responsibility. It ruled that merely relying on the word of a friend did not absolve him of liability, as he retained the ability to exercise control and failed to sever ties with the corporation. Consequently, the tribunal upheld the administrative law judge’s decision and denied the taxpayer’s petition.

• In re Hersh, DTA 830264 (N.Y. Tax App. Trib. Nov. 27, 2024).

ABA Tax Section

State and Local Tax Committee Sales and Use Tax Sub-Committee Report

South Carolina

The South Carolina Supreme Court agreed to review a case in which Amazon Services LLC challenged tax assessments on third-party seller transactions prior to the enactment of the state’s marketplace facilitator law in 2019. Amazon contends that the pre-2019 law did not impose tax collection obligations on facilitators, rendering the subsequent law change unnecessary if the state’s position were correct.

• Amazon LLC v. S.C. Dep’t of Revenue, No. 2024-000789, slip op. (S.C. Oct. 3, 2024).

Texas

The Texas Comptroller issued a hearing decision determining that a company offering online marketing services to attorneys was providing taxable data processing services under state law. The company’s services included website development, search engine marketing, and maintaining online lawyer directories. The Comptroller ruled that these activities fell within the definition of taxable data processing services because they involved functions such as compiling and manipulating data, storing information, and designing and maintaining websites. The company argued that its services were purely advertising-related and thus not subject to tax. However, the Comptroller rejected this claim, reasoning that the nature of the services rendered—specifically the handling and processing of data—aligned with the statutory definition of taxable data processing services rather than simple advertising. As a result, the Comptroller upheld the taxability of these services.

• Decision, Hearing No. 117,891, Texas Comptroller of Public Accounts, (September 16, 2024).

Texas

The Texas Comptroller issued a private letter ruling addressing the taxability of a taxpayer’s charges for garage rentals in connection with high-performance driver education events.

While the taxpayer’s primary service—educational driving events—is considered a non- taxable amusement service, the Comptroller determined that separate charges for garage rentals are taxable as motor vehicle parking and storage services under Texas law. The ruling clarified that vehicles meeting the Texas Tax Code’s definition of “motor vehicle” are subject to tax, while non-street-legal race cars that do not qualify as motor vehicles are exempt.

• Letter 202410023L, Texas Comptroller of Public Accounts, (October 18, 2024).

ABA Tax Section

State and Local Tax Committee Sales and Use Tax Sub-Committee Report

Virginia

The Virginia Department of Taxation ruled that delivery and installation charges for furniture sales were taxable as part of the total sales price. The taxpayer, a furniture retailer, charged a lump sum fee for these services without collecting sales tax. Upon audit, the department found these charges taxable since they were directly tied to the sale of tangible personal property. The taxpayer argued the fees were for non-taxable services, but the Tax Commissioner clarified that while standalone services are generally exempt, services bundled with the sale of goods are taxable. Since transactions involving both goods and related services are typically taxed on the full amount, the department upheld the assessment, affirming the charges were part of the taxable sales price.

• Ruling of Commissioner, P.D. 24-99, Virginia Department of Taxation, (October 3, 2024).

Washington

The Washington Department of Revenue issued guidance stating that surcharges, including tariffs and other fees passed on to customers, must be included in the taxable selling price of goods. This inclusion ensures that all amounts received by a seller as consideration for sales are subject to sales tax.

• Tax Topics: Surcharges Including Tariffs, Washington Department of Revenue, December 27, 2024.

Wisconsin

Wisconsin’s governor proposed a sales tax exemption for over-the-counter medications as part of broader efforts to reduce consumer costs. If enacted, the exemption would align Wisconsin with other states offering similar tax relief on essential health products.

• Wisconsin Governor’s State of the State Address, January 22,