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Many event professionals have quickly found themselves holding events that cater to geographically scattered constituents. When it comes to how revenue is taxed, it's no longer as simple as following the laws of the host destination. How should we calculate the sales tax on virtual and hybrid events?
To help navigate the complexities, we spoke with Abby Foutch, digital content manager for event management software company Swoogo, and Brittany Aleman, CPA, senior director at management consultancy Alvarez & Marsal Taxand, who together produced a new guide titled, "US Sales Tax for Virtual, Live and Hybrid Events." The guide provides a state-by-state tax breakdown, tax specifics for different types of events and more. Here, the authors provide a few of the key takeaways that planners will need to keep in mind — and how the rules continue to change.
To start, what the are primary sales-tax considerations for in-person events?
I compare live events to brick-and-mortar stores, in that live events have a physical presence within a state. In other words, once a company has a physical presence within a state, it's that particular state's regular sales-tax laws that apply (regardless of thresholds).
Now, with that being said, services (i.e., events) are generally not taxed. So, there are two main things event planners should be doing for in-person events: First, check with that particular state's laws to determine if they have sales tax and if the event they are running is taxable. Second, they should always itemize the invoice; that way they can charge sales tax for taxable items such as a t-shirt, instead of having to charge sales tax on the entire invoice (assuming the event itself is exempt from sales tax).
If merchandise tends to be taxed while services are not, what does that mean for virtual events?
Generally, tangible personal property (TPP) is anything you can touch, such as books, t-shirts and the like, and generally, TPP is taxed. Event tickets would generally be considered services, and aren't taxed.
However, it isn't always the case that that TPP is taxed and services aren't. You should check with a tax professional; for example, some states don't tax clothing at all and some states consider software to be TPP. You're probably quickly realizing why you need a tax expert in your life.
Virtual events generally aren't going to be taxed unless the state says otherwise.
But is it true that tax rules around virtual events have become more complicated in the past few years? When might a planner need to charge sales tax for a digital event?
The rule had been that if companies didn't have a physical presence within a state, they didn't have to collect and remit sales tax. But in June 2018, the Supreme Court ruling on South Dakota vs. Wayfair changed it so that it's up to each state to decide if they want to collect and remit sales tax from those companies who do not have a physical presence within the state. Most states decided to do so and developed an "economic nexus threshold." That means that states aren't going to charge tax for the single $20 item that was sold online, but they are going to collect and remit sales tax if the company sold more than $100,000 or 200 items — those higher values serving as examples of thresholds. The threshold varies for each state, so it's best to look it up. We broke the economic nexus thresholds down state-by-state in our guide for easy reference. You can download it here.
For virtual events, it means that event professionals will now have to regularly monitor the taxability of their events. They may break the economic nexus thresholds with one large virtual event, or they may break the threshold with 20 small virtual events. Most states require a company to look to its previous 12 months of activity to see if the threshold was met — so activity will need to be regularly monitored. A company will want to be aware of the taxability of its event prior to the event if it's close to exceeding a threshold. Before 2018, none of this applied; so you can see that it's a pretty big change.
Is the virtual event activity that counts toward thresholds simply based on the location of each attendee?
It's not necessarily about the physical location of the attendee but more about their billing or mailing address. So if they are living in Florida for a few months but their permanent address is Iowa, then it would be considered an Iowa resident registering for the event, and this registrant would apply towards the Iowa threshold. That said, as a general rule of thumb, yes, it's the location of the attendee.
Now, it isn't necessarily about the mailing or billing address either. It's dependent on what information the event registration form requires that ties this registrant to a state. In most cases it's going to be the mailing or billing address. The event host has to go on the best information they have to count every registrant's taxable fees toward a particular state's threshold.
How do these tax laws affect hybrid events?
The good news is that hybrid is relatively straightforward, in that it follows the tax laws for in-person and virtual events. The fees for in-person attendees will be taxed according to the tax laws of the location the event is being held, and the fees for virtual attendees will likely be taxed according to the tax laws of the location of the attendees, as outlined above.
What other points should planners keep in mind? What are good resources for those trying to do a deeper dive into sales tax and virtual events?
My number-one recommendation is to consult with a tax professional. As you can see, it gets very confusing with each state having different laws; and then sometimes even counties within states can have different tax laws. If you're in the beginning stages of planning your event and want a very basic overview of how taxes might look, download our state-by-state guide. If you are looking for concrete answers, I would contact a tax professional about your particular situation.
I would also make sure your event software can handle the complexity of your tax requirements. For example, Swoogo can be integrated with Avalara, a tax software platform that helps businesses get tax compliance right. Look for those types of integration capabilities.