2023 Legislative Update: More Exemptions, More Fees, One State Tax Cut

Sales & Use Tax

Vertex’s tax research team is always on top of emerging legislative updates. Our experts continually monitor tax policymaking at the state and local levels to remain ahead of indirect tax rules and rate changes. This information seeds our sales tax compliance solutions as well as our biannual tax rates and rules reports.  

Part of this research involves keeping tabs on state legislative sessions and evaluating new proposals, and laws, with indirect tax implications. With the exception of special sessions and states whose legislatures remain in session throughout the year, most states have concluded their work at this point.

Here are some noteworthy 2023 legislative trends and developments of interest to indirect tax groups: 

  • A notable reduction, a lesser reduction and a stab at simplicity: South Dakota was the only state to reduce its statewide sales tax rate. The reduction, from 4.5% to 4.2%, is temporary. The new rate took effect July 1 (as the Mount Rushmore State’s tourist season kicked into gear), and it will expire after June 30, 2027. Compared to that straightforward bit of tax policymaking, several other states enacted much more involved tax rate changes. Alabama reduced its state sales tax rate on food for home consumption from 4% to 3%. This change takes effect on Sept. 1; and, if growth estimates from revenue resources that feed the state’s Education Trust Fund meet certain thresholds, a further reduction of the same tax rate would take effect a year later, on Sept. 1, 2024. Aiming for simplification, California Public Utility Commission put in place a new line-based surcharge mechanism (based on the number of active lines) that will fund the state’s Universal Service Public Purpose Programs. This new “Public Purpose Program Surcharge,” replaces six previous revenue-generating surcharge programs and applies to wired, wireless (prepaid and postpaid), and Voice Over Internet Protocol (VoIP) providers. 
  • More fees: As I recently noted, tax groups have to keep pace with the rapidly expanding implementation of new fees. During their 2023 legislative sessions, Minnesota enacted a new retail delivery fee (one that took effect July 1), and Colorado increased its existing retail delivery fee (from 27 cents to 28 cents – a change that also took effect July 1). On the other hand, the Kansas legislature passed a bill that makes all separately stated delivery charges non-taxable as of July 1. Unfortunately, most states appear more likely to follow in the footsteps of Minnesota and Colorado (including Massachusetts, which is currently considering a new retail delivery fee similar to Minnesota’s rule). 
  • Exemptions proliferate: I’ve also covered states’ growing use of sales tax exemptions. This trend continued during 2023 legislative sessions. Florida permanently exempted certain baby and toddler products; clothes, diapers and incontinence products; and oral hygiene products. Tax professionals should keep in mind that many exemptions are temporary. Tennessee enacted a three-month sales tax exemption on grocery taxes (for food, from Aug. 1 through Oct. 31) while eliminating a previous sales tax exemption for direct mail advertising and magazine and books. 

For an additional look at 2023 legislative trends and related sales tax rates and rules changes, tune in to this Vertex Tax Matters podcast

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

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