Department of Revenue outlines new sales‑tax rules for services under SB 5814; six‑month grace period announced

Steve Ewing and Chelsea Brennigan of the Department of Revenue told the Finance Committee that Senate Bill 5814 — effective Oct. 1, 2025 — makes specified services subject to retail sales tax and that the agency has published interim guidance, FAQs and outreach materials to help taxpayers comply.

"We pushed out some notice to about 95,000 taxpayers ahead of the October 1 effective date," Ewing said, describing DOR’s outreach and the creation of a centralized 5814 landing page with interim guidance and signups for notification.

DOR listed the principal service categories made retail sales by SB 5814: live presentations (lectures, seminars, workshops, courses), temporary staffing (with a hospital exception), investigations and security services, certain IT services (training, tech support, network operations), custom website development, advertising services (both pre‑dissemination creative work and disseminated placement), and sales/customization of software. DOR noted existing exclusions and constraints, including telehealth/telemedicine exclusion and that services primarily involving human effort (for example many traditional professional services) generally remain outside the digital automated service definition and therefore typically are not taxable solely because software is used.

DOR explained sourcing and compliance tools. Sales tax must be sourced to where the good or service is received under the standardized five‑tier streamlined sales and use tax hierarchy; reseller permits remain usable for services resold to an end user; the multiple points of use (MPU) exemption converts sales tax to use tax for services used concurrently in and out of state, with a pool‑code fallback when sellers lack granular geographic data. Ewing said DOR will allow a pool code allocation where sellers cannot obtain nine‑digit ZIP‑level data after exercising due diligence.

DOR also announced an implementation accommodation: contracts entered into before Oct. 1, 2025 may qualify for a six‑month grace period (through March 31, 2026) if certain conditions are met (for example, contracts not materially amended after the effective date). Taxpayers must, however, still address tax treatment after the grace period expires. Ewing noted that penalties and interest remain recoverable under statute and that the grace period is an enforcement discretion for contract timing — DOR does not plan a blanket waiver of statutory penalties.

Committee members raised operational and fairness concerns. Representative Orcutt described a taxpayer who remained uncertain on Sept. 30 whether to begin collecting tax the next day; staff said DOR prioritized ruling requests but could not promise rulings would prevent statutory liability for unpaid taxes, and recommended collecting and refunding if necessary because refunds are administratively simpler than later collection. Members asked about the ability of small businesses and nonprofits to implement MPU calculations and pool codes; DOR said it will continue outreach and accept speaking requests and that agency staff are preparing technical clarifications and potential rulemaking after the 2026 legislative session.

DOR walked the committee through example scenarios used in outreach material: a physician paid an honorarium for a live in‑person talk (taxable if payment is admission/fee rather than voluntary donation), a senior center that resells access to a live or virtual lecture (resale shifts tax to the ticket sale and sourcing to attendees’ locations), advertising design versus placement (pre‑dissemination creative services sourced where reviewed; disseminated placement sourced to the audience locations), and search‑engine marketing (SEM) where MPU or pool code mechanics apply when disseminated audiences cross jurisdictions.

Ewing said DOR received a high volume of questions (16 listening sessions and an online inbox) and urged lawmakers to consider technical clarifications in upcoming legislation to reduce taxpayer burdens and clarify enforcement. The department plans further education webinars, prerecorded videos and continued rulings and telephone support for taxpayers working through complex sourcing and allocation questions.

(Proof: DOR presentation, examples and committee Q&A; first related remarks at 00:39:23 and DOR close near 01:46:49.)