Installation Charges

This is one of a series on how to handle items that affect the "basis" of tax.

Installation charges are often included in the basis of the tax calculation...in other words, they're often taxable. Installation charges include pretty much any on-site charges related to setting up a product.

They typically don't include charges that happen at the seller's facility. Those would typically be include in the normal selling price and therefore taxable in all cases. But installation charges might be taxable or might not, depending on the state.

Short and joke-free topic today. I swear I tried. But, I mean, installation charges?

Sales Tax Guy

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Quick Tip: Non-Profits

Hey, just because you're a non-profit doesn't mean you're exempt from sales and use taxes. Yeah, that's right, I mean you. Your purchases might be taxable. And your sales are probably taxable. Read more here.

Sales Tax Guy

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Documentation when you ship out of state

Once upon a time, there was a jeweler who got audited. He was questioned on a whole bunch of sales that he hadn't charged sales tax on. The jeweler claimed that he shipped those items out of state. He pointed out, to the auditor, that the ship-to addresses were in different states, and that he had charged the customer for the shipping charges.

The auditor then asked the jeweler for actual proof that he had shipped the goods, as opposed to the more likely situation where the customer was in the store and arranged to have the items "shipped" with a minor freight charge.

The jeweler came up with the Fed Ex bills of lading.

The auditor then asked to see the actual invoices from Fed Ex, or the tracking reports.

The jeweler couldn't seem to find those records.

The jeweler had to go to bed without his supper.

Remember, the delivery point defines that state that gets to make the rules and gets the taxes. If the delivery is in the store at the counter, then obviously the state where the store is located gets the taxes.

A common scam is for dealers of expensive, but cheap-to-ship consumer goods to "ship" the goods and then just hand them to the customer in order to evade the sales tax. Sharp auditors simply ask for proof that the items actually were shipped. And Fed Ex bills of lading aren't enough. There's no signature, no stamp, no evidence at all on the typical form that the goods have even been touched by Fed Ex. The scam could simply involve preparing the Fed Ex bill of lading, and attaching it to the sales paperwork. And I wouldn't be surprised if that's pretty much what happened in this case. But as we've seen, that's not enough. You need proof.

Whenever you ship taxable goods out of state, the auditor will (hopefully) realize that they don't get to tax that shipment, assuming the seller shipped it out of state. You need to maintain adequate records to prove that:

• Invoices from the freight carrier
• Tracking logs
  
• Signed bills of lading
• Export paperwork

The standard Fed Ex form isn't enough.

A seminar participant once incredulously asked, "you mean I have to attach all that stuff to every invoice in my files?" My answer was that, no she didn't. But she should have an audit trail to be able to get to that paperwork, if the auditor needs to see it.

Remember, the auditor needs proof. Which isn't an unreasonable request considering the amount of potential taxes to be evaded using this scam.

Note, I'm aware of a further evasion that is almost foolproof. I'm not going to mention it here, because it is pretty sneaky and hard for the state to catch. Which is why I'll pass on mentioning it. But the truly nefarious among you have probably already figured it out.

This blog will be silent for the rest of the week. Have a good Thanksgiving.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

Here's information on our upcoming seminars and webinars

Picture note: the picture above is hosted on Flickr. If you'd like to see more, click on the picture.

Sales and Use Tax News

These are gleanings from newsletters, etc. I have not included all of the events, nor have I provided much detail. As usual, the disclaimer applies - check this kind of thing out yourself. I just want to give you a heads-up.

Medical marijuana is taxable in Colorado. It's not sold by prescription, and it doesn't meet the tests for any other exemptions. Attorney General Opinion, 09-06 , 11/16/2009

South Carolina has a gun sales tax holiday coming up this weekend. thetandd.com and South Carolina Department of Revenue, News Release, 11/02/2009. Also, temporary storage of property in the state is exempt from use tax if destined for use solely out of state . South Carolina Revenue Ruling 09-17, 11/19/2009

Check verification services are not considered taxable data processing services in New York. In the Matter of the Petition of TeleCheck Services, Inc., Division of Tax Appeals, ALJ, Dkt. No. 822275, 11/05/2009.

In Vermont, meals sold by schools, as well as the usual housing provided to students are exempt Vermont Technical Bulletin TB-48, 11/02/2009

In Maryland, receipts for sales of tickets from college games are not taxable if the receipts are used exclusively for educational purposes. Maryland Sales Use Tax Bulletin 1-10, 11/17/2009

Rate Increases

Local

New Mexico
Alabama
Illinois
New York
South Dakota

State

District of Columbia

with a rate change recap here.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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Picture note: the picture above is hosted on Flickr. If you'd like to see more, click on the picture.

Admissions

One of the commonly taxed services is admissions. Many states don't tax these, and others do. And the ones that do have a wide variety of approaches:

Admissions to entertainment events as a spectator: movies, concerts, baseball games, culture, music festivals, etc. If you pay money to get in, and it's entertaining (or it's supposed to be entertaining) then it might be taxed.

Admissions to training activities: in other words, events that aren't supposed to be entertaining at all. This type of tax is much rarer. But it's there in a few states.This is why you'll never see TakeChargeSeminars.com doing a seminar in Connecticut. I just don't want to have to collect sales tax on the seminar fees that Connecticut imposes. Sorry CT folks.

Charges for participation: greens fees at the golf course, charges to participate in a marathon, health club fees, etc. These are not quite as commonly taxed as admissions charges for spectators, but they are taxed.

Club memberships: health club memberships, as well as country clubs and golf clubs. These types of organizations may not have fees for individual activities, but the purpose of the membership fee is to buy access and more or less unlimited activity. And country club folks are wealthier, so they're easier targets. ;-)

There are exemptions too.

Amazingly enough, most states that have had a Superbowl, or want to have a Superbowl, will also have an exemption for Superbowl admissions, assuming there was a tax in the first place.

Non-profit organizations are often off the hook for charging tax on their tickets for school plays and concerts, festivals and carnivals, etc.

Ditto for sales of admissions by government agencies, particularly schools and universities, and government owned stadiums.

And there are catches

For example, there was a case, years ago, when a music festival was selling admission tickets which included two beverages. The admission itself wasn't taxable in this particular state because it was being sold by a non-profit organization, but the state argued that the beverages included in the price should have been taxed (even when sold by a non-profit). Since the price of the beverages wasn't separately stated and taxed on the ticket, the state nicked this non-profit music festival for sales tax on the entire admission fee (this is an example of the bundling rule). The assessment was over $100, 000 in taxes, interest and penalties.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

Here's information on our upcoming seminars and webinars And we do coaching!

And please don't forget to visit our advertisers!

Picture note: the picture above is hosted on Flickr. If you'd like to see more, click on the picture.

FREE! Open Forum Tomorrow!

I've been noodling with this idea for a couple of weeks, and thought I'd give it a spin tomorrow. This is really short notice, but it's an experiment and my calendar is clear. So tomorrow, Friday, 11/20, at 11AM Central Time, there will be a FREE open forum webinar! And this one will be different.

First of all, it'll be FREE. Don't count on that in the future. If this is successful, we'll probably charge for it. But as an experiment, what the heck.

Secondly, no "chatting." You'll need to be able to actually talk to ask your questions, so make sure your computer has a microphone, or just call in using your phone.

Thirdly, there is no formal presentation. Just you folks shooting questions, comments, war stories, etc. at me. I'll have my database and books open and ready for action. If I can't answer your question on the spot, we'll finish up via email after the session is over.

And finally, there is a different registration process for this one. If you're interested, just email me at info0801@takechargeseminars.com and I'll send you the login information. The registration service I use charges me for every person who signs up, and since this is going to be free..... Also, there is a 15 person cap on the number of participants in my webinars, so if you're interested, email me right now!

I realize this IS short notice. If you think this would be cool, but you're slammed for tomorrow, fear not. I'll do this again, for free, at least once more in December and give you a little more warning.

Enjoy the rest of your day.

[UPDATE] We'll try again in December and I'll give you a little more warning this time.

Sales Tax Guy

Rate Changes

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

Here's information on our upcoming seminars and webinars And we do coaching!

And please don't forget to visit our advertisers!