Rate changes happen all the time. I have started mentioning them in my news postings, but I can't foresee sending a lot of time on the topic. They change. Mostly they go up because your politicians can't figure out any other way to cover budget gaps, etc. I can think of some ways. You can think of some ways. They can't (scratching head). So rate increases happen.
The problem comes into play when a sale "crosses" the rate increase. It works this way:
April 1 The contract is written and signed (the rate is 6%)
April 5 Politicians pass a rate increase of 2%
April 15 The 2 % rate increase happens
May 20 The delivery is made (the new rate is 8%)
What rate does the sale get taxed at? If everyone is operating under the assumption that the rate is 6%, and then the rate turns out to be 8%, that's a problem.
Budgets get screwed up. Lawaways get confused. Arguments about who gets to pay the extra 2% happen. Purchasing decisions may have been different if the rate were the higher 8%.
This is particularly a problem in situations where the seller consumes materials to fulfill on the sale. They can't pass the rate increase on because they consumed the materials (contractors are a good example). They would have bid the project higher if they had known about the additional rate (and cost). Now they have to eat that 2% and that's not fair.
There is no one answer to this problem. But it's been my experience that every time there is a rate increase, states provide a transition rule of some sort. So the answer is to have a look at your state's laws, bulletins and regulations. Very often the procedure is right in the announcement of the rate increase. So you shouldn't have to look very deeply.
There is very likely to be something that discusses the problem and gives you some loopholes.
And thanks to Pamela for asking the question.
Sales Tax Guy
See disclaimer and research the issues thoroughly before making decisions
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