Friday, March 28, 2014

Surveys? Freaking Surveys??? (warning - snark attack)

I just saw a  survey sent to state revenue officials regarding sales tax nexus. I've also seen one that involves enforcement of drop-ship rules.  There are others around. 

I'm not going to discuss the survey results - I'll leave that to the publishers.  The point is that, when it comes to some topics, we have to figure out how the state is going to enforce the law based on surveys!  Really?

My admittedly naive philosophy is that the laws should be written in some official place.  They should be in statutes, regulations, bulletins and court cases.  These are things that someone can look up.  They shouldn't have to be compiled by a publisher doing a survey.

I'm not blaming the publishers.  I'm blaming the states for coming up with nutty positions about gray areas based on stupid and complex laws that they created.  The publishers are just trying to provide us with some useful information.  I get that. However, I can see some problems.

Let's say that you take a position, based on the latest survey done by Joe's Sales Tax Consultants and Tattoo Parlor.  The survey measured the amount of time you must have a service person in a state before you have nexus.  It mentions Frank Derp as the source of the information for that state, and says that you would need a repairer in the state 10 days in order to have nexus.  Therefore you've carefully managed your visits to the state so that you're only there 9 days.

When you get audited, the auditor says you have nexus.  "But wait!" you splutter, "we kept it to 9 days and this survey (which you triumphantly slam on the desk) says it's 10 days."

There are at least three unpleasant ways this can go for you: 

1.  The auditor says, "I don't care what some survey says.  I talked with my boss and he said you've got nexus.  So that's it."

2.  The auditor says, "Oh yeah, that answer was given by Frank Derp.  I heard about that.  When the survey came in, they brought it up at the staff meeting.  Nobody wanted to fill it out, so Frank got stuck with it because he was sick that day.  We all laughed when we saw the answers he gave.  He was high on Dayquil."

3.  The auditor says, "Oh yeah, that answer was given by Frank Derp. He was an idiot.  He got fired a month after that survey came out."

This is the problem with surveys.  They're not official.  I agree they're necessary to be able to get some feel for the squishy enforcement positions of the state.  But if it's a gray area that requires a survey because the official laws aren't specific enough, proceed carefully.  Because the only laws that really count are the official ones.  And if it's gray enough to have to do a survey, how can you be sure the auditor will stick to the survey and not use his own, or his supervisor's judgement?

Your option, if the auditor sticks to his guns, is to fight it...which is going to cost you money.  And do you really think, if you wind up fighting this all the way to court, that the judge is going to pay much attention to what Frank Derp said?

The Sales Tax Guy

See the disclaimer on the right.

Don't forget our upcoming seminars and webinars. and there's more sales tax news and links here

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

Wednesday, March 19, 2014

I predict a sales tax holiday in Illinois in 2014

Warning - snark attack coming.  Remember, you were warned....

Tall Feather

I live in Illinois.  Our motto is (or should be) "Three of Our Last Six Governors Have Gone to Jail"

So allow me to be a little cynical about something that I think will happen this year.  Illinois traditionally doesn't have sales tax holidays.  However, we had one (just one) in 2010.  We didn't have one before and we didn't have one after.  But, by a pure, sheer, and amazing coincidence, it was an reelection year for our beloved governor.

So, I'm making a prediction, right now, that we'll have one in 2014 - or at least there will be significant talk of one.  You see, our governor is facing reelection again and it looks like it might be a close race.  A sales tax holiday fits right into his wheelhouse. 

Gee, can I be MORE of a curmudgeon?

The Sales Tax Guy

See the disclaimer on the right.

Don't forget our upcoming seminars and webinars.
and there's more sales tax news and links here

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

Wednesday, January 15, 2014

There's a new Webinar schedule....

The Lego cops make the best of a horrific situation
I know you're really busy right now, what with year-end and everything, but you really should know more about sales and use taxes, right?

We have added April to our webinar schedule.  So please check out our schedule.

The Sales Tax Guy

Wednesday, November 27, 2013

Go ahead and have a nice Thanksgiving...

Please excuse my friend - he develops an attitude at this time of year.

Go ahead, have a nice Thanksgiving...

Wednesday, November 20, 2013

Can I just pass on the tax?

Fallen Leaves

A reader today posed this scenario. 
Mark is the manufacturer and sells to the retailer
Rhonda is the retailer who sells to the customer
Calvin is the customer

Apparently, Mark is charging Rhonda sales tax. 

Rhonda therefore incurs the cost of the sales tax.

Rhonda would like to pass on this cost to her customer, Calvin.

Can she?
There is an obvious question here

Why can't Rhonda buy from Mark for resale? This would seem to be the obvious and legal solution.  Particularly since Rhonda is required to charge Calvin tax if the sale is taxable and she has nexus in the state.

Two exceptions spring to mind
It's possible that this is a drop shipment and Mark has to charge Rhonda tax but Rhonda doesn't have a way to charge Calvin tax since she has no nexus in the delivery state. 

It's also possible that Rhonda is a contractor.  In most states, she pays tax to her vendors for her building materials but doesn't charge tax when she bills Calvin for the job.
These are the obvious and common exceptions - there are more.
Other than the above exceptions, Rhonda should be buying for resale and charging tax, if the sale is taxable.

However, if she is incurring sales tax for some reason (like the two listed above) and she can't pass it on, or is not allowed to pass it on, then it's a cost of doing business, and she has the ability to fold the tax into the price of her goods.  The only obvious restrictions I can see are:
Rhonda doesn't price herself out of the market and
the customer agrees to the price
Note that these are not sales tax law restrictions...this is just business.  Rhonda can set her price at any point she wishes, as long as the customer agrees.


Rhonda generally can't charge Calvin something called "tax" in a state where she isn't registered.  Rhonda might think this is a way to recover the money from the customer without having to negotiate a new price.  Unfortunately the law generally requires that you must be registered in a state before you charge that state's taxes.  In addition, if she were to be audited, the state would ask her why she has not remitted that "tax" money to the state.  If Rhonda needs to show a charge on the invoice, call it a "we're going to hold you upside down and shake money out of your pockets" surcharge.  But don't put the word "tax" on Rhonda's invoice to Calvin.

And if Rhonda is making a taxable sale to Calvin, then she is required to charge Calvin tax, if she has nexus in the state.  And she should obviously be buying for resale.

Bottom line

If Rhonda is making a sale to Calvin that is taxable and she has nexus in the state, she should be charging Calvin tax.

If the vendor is charging her tax, she should figure out why she can't buy it for resale.

If it's some other situation where she's incurring tax as a cost, she can't pass it on as "tax."  But she can fold that cost, like any other cost, into her price. 

Geez, this stuff is complicated!  If you're reading this and desperately waving your hand because Jim missed something, I know.  But the more holes I fill in, the less understandable this is.  Suffice to say, it's messy.

And don't even get me started on absorption

The Sales Tax Guy
See the disclaimer on the right.
Don't forget our upcoming seminars and webinars. and there's more sales tax news and links here

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

Tuesday, November 12, 2013

Lots of Traveling (in which I brag a little)

Gate C37 at DFW

A Twitter inquiry over last weekend intrigued me and made me go back through my seminar records.  I sure am glad I kept a spreadsheet!  Please indulge me while I brag:

1.  Since I've started doing seminars on the road in 2000, I've worked in every state...yes all 50.  And I've done over 800 seminars in those states.  By the way, I don't have a burning desire to go back to Anchorage in the winter.  And you might think Hawaii would be neat, but it's nowhere near as much fun when you have to work.  I'm waiting for the call to do a sales tax seminar in Rome, but I'm not holding my breath.

2.  I've done over 500 in-person classes in 40 different states on sales and use taxes.  And that doesn't count the webinars

3.  I've also done other seminars besides sales and use tax, but not for the last few years.  They were mostly payroll law, AP, and some accounting-for-non-accountants presentations. It's tough to make that last topic fun, by the way.  I even did some search engine optimization sessions in the really early days - before all the spammers took over.  But now, my heart belongs to sales and use taxes.

What's my favorite hotel?  To sleep in, Marriott.  But not to actually do a seminar in, ironically.  For the actual seminars, frankly I prefer Holiday Inn Expresses, Hampton Inn's and Courtyards.

And if you're a revenuer for South Dakota or Connecticut (or any other state where training is taxable) and think that I have nexus in your lovely states, I'm sorry to disappoint.  All of my appearances in those states were as a contractor of a seminar company.  I wasn't even allowed to give out my blog or website address. 

So, that's where a lot of my pictures come from - the last 14 years of travel. And I have pictures from all 50 states!

A big thanks to Sylvia Dion for the query. You'll find her on twitter at @SylviaDionCPA 

The Sales Tax Guy
See the disclaimer on the right.
Don't forget our upcoming seminars and webinars. and there's more sales tax news and links here

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

Friday, November 08, 2013

Do I have to get exemption certificates in states where I don't have nexus?

Drawbridges and Chicago from 18th Street
I get this question every once in a while - so hey, it's a blog entry!

The situation is that you're selling something taxable to a customer in state A.  You're in state H.  Do you have to get an exemption certificate from them when you don't have nexus? 

It depends.

1.  How sure are you that you don't have nexus?  Nexus situations can change.  You may have decided in 2010 that you don't have nexus in state A, but in the meantime, those jerks in sales have made a couple of big sales there, sent in a crew of installers, made arrangements with a repair firm to provide service, and the VP of sales has been visiting every couple of months.

If you haven't figured it out, you now have nexus in state A.  But if you're basing your assumption on the decision you made in 2010, you're gonna be in trouble.

It would sure be nice to have that exemption certificate.

2.  How much of a hassle is it to get the certificates?  If your customer in state A is practically begging you to take his certificate, then, oh, what the hell, take it.

On the other hand, if your customer is one of those pain-in-the-butt mega-retailers who refuse to cough up the resale certificate, then, maybe you want to take the chance.

So the two factors to consider are your confidence level in whether or not you have nexus balanced against the hassles of getting certificates. 

Another thing to consider is that Congress may eventually pass something that looks like the Marketplace Fairness Act.  That means that if you're a larger company*, you'll eventually be required to collect taxes in all states, regardless of whether or not you have nexus.  So you'll need to be getting certificates from all the states anyway.  But this is probably a couple of years off (I hope).

Frankly, putting on my strict, no-risk controller's hat, I'd establish a policy that we get exemption certificates from everyone.  That way if that dang sales guy goes behind my back to state M, I'm covered. 

*part of the argument is what "large" means

The Sales Tax Guy

See the disclaimer on the right.

Don't forget our upcoming seminars and webinars.
and there's more sales tax news and links here