Sentenced to Seven Years in Jail!

But the sentenced was suspended. What a gyp! Here's the article.

And in this case, a restaurant owner was indicted for allegedly not paying over $100,000 in taxes collected. What's interesting is that one of his staff now owns the business - she knew what was going on and waited until he got in over his head, then managed to snag the business from him. Sneaky. Here's the article.

We're a Non-Profit!

Big deal! So what?

I’m being rude and crude to point out that just because the IRS says you’re a non-profit organization (or not-for-profit, if you'd prefer) may mean absolutely nothing for sales tax and/or use tax purposes.

I’d estimate that close to one third of the states do not provide a broad exemption from sales and use tax for purchases made by non-profit organizations. And even if you are exempt in your state, that exemption means nothing in other states, where you might be doing a trade show, providing services, have an office, etc.

For example, let's say you're a non-profit organization in Nashville and you're registered with the state of Tennessee and have your number, certificate, etc. If you happen to be in Huntsville for a meeting and need a replacement laptop, the Huntsville OfficeMax is going to laugh at you when you try to use your Tennessee exemption in Alabama. OK, they may not laugh at you, but if they're paying attention, they're going to push the form back at you and apologize. Because that Tennessee exemption doesn't work in Alabama.

States that do provide a broad exemption often have their own criteria and don’t just default to the IRS rules. So you might be a 501(c)(3) located in Illinois, for example, but still not qualify to be exempt from SUT in Illinois.

Some states are very specific about who is exempt on their purchases. For example, Louisiana has few exemptions. But if you operate a free hospital, you can buy tax-free. However, it has to be a free hospital. If you're the average hospital in Louisiana, even a non-profit, you have to pay sales tax and/or use tax on your purchases.

Even if your purchases are exempt, states generally require non-profits to collect tax on their sales, just like regular businesses. There are exceptions for fund-raising events (often under occasional sales rules) and some admissions charges, but they vary dramatically from state to state. So if your organization sells stuff, particularly on a regular basis, you should assume you have to collect tax.

And you also have to worry about the nexus you may have in other states, just like regular businesses.

In other words, this entire topic of sales and use taxes may apply to you! Your purchases might be exempt, but your sales are likely to be taxable. It all depends on what states you operate in, and how and what you sell.

Oh, and vendors. If you sell to non-profits and have been assuming they're exempt all this time, you may be in for a rude shock when you get audited.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

Here's information on our upcoming seminars and webinars.

Where can I find information on Sales and Use Tax

The information just isn’t out there on the Internet in an easy-to-find way. Every state has a web site which provides some information, but many are abysmal and others are fantastic. And you have to wade through each state’s page – none of them are organized in the same way.

In order of priority and value, here are your best resources for getting answers:

1. A lawyer, professional or consultant who specializes in SUT. This resource is also, without question, the most expensive.

2. An online subscription service from RIA or CCH (this is what the pros use). Which one you use is probably a function of what service your company already subscribes to for income taxes, etc. I'll bet you a nickle that your company does NOT subscribe to the sales tax portion, so you want to get that fixed.

3. Sales and Use Tax books (I like the ones from RIA and the ABA – these are also what the pros use)

4. State industry associations may be able to help, particularly if they are well funded and are in tricky industries, like manufacturing or construction. Give yours a call and see if they can help you.

5. State sales tax sites

One other thing to keep in mind. As you peruse the Internet, you will find reference sources. Folks, if it’s FREE, then it probably isn’t complete. This is a topic that requires a LOT of effort to keep up to date. So take information you find in a FREE resource with a big grain of salt, like this blog. ;-)

Another source of information to be wary of is information summarized and presented in table form or list form. Again, the information on this topic is complicated. Rarely does a table or list do justice to the material – it’s usually just too much to summarize like that.

In summary, the good information on this topic is going to cost you money. Other than state Web pages, there really isn’t any FREE, comprehensive, up-to-date and good resource available on the Web.

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The Sales Tax Guy
http://salestaxguy.blogspot.com

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

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

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Searching Google for Sales Tax Bad Guys

As I've mentioned in my seminars, it's fun to occasionally to a Google search on "sales tax" felony to see who's getting in serious trouble for sales tax violations.

Here's a video store owner who allegedly "misapplied" his sales tax collections.

Here's one about a guy who allegedly reported a boat purchase (and paid taxes when he registered it) with a value of $4000 vs. the real price of $40,000. And there is other stuff going on here that makes this a real soap opera. The taxes are just the beginning.

A restaurant in Michigan REALLY got in trouble for allegedly hiring illegal workers, and not remitting sales tax and employment taxes.

I'll be reporting on some of the more interesting cases every week or so from now on.

Sales Tax Guy

The Worst Source of Information

When I rank information sources in my seminar, this one is the lowest on the list...

"We've always done it this way."

Or variation number 1:

"They told me to do it this way."

Or variation number 2:

"My predecessor told me to do it this way."

The most amazing example of this came up this week when a woman in the seminar told me their method for determining the taxability of their purchases (they've always done it this way):

If the vendor charges freight, the purchase is taxable. If the vendor didn't charge freight, then the purchase isn't taxable.

Sigh.

Sales Tax Guy

How far can we go back for a refund?

Another question...two in one day! How exciting!: How far can we go back? We've been overpaying a vendor for many years. Is it reasonable to expect a refund for several years of overpaid taxes?

Generally, you can only go back 3 or 4 years, depending on your state's statute of limitations. And yes, almost every state expects you to get the refund from the vendor. And the vendor has to give you a refund. Expect resistance, however. Unless it's something obvious, like a resale issue, they may not understand the law and fight it.

In addition, if the amount is substantial, they may have to file for a refund with the state after giving you a refund...which means a cash flow problem. And finally, asking for a refund (or credit) will probably trigger an audit, which they don't want.

Good luck. And check with your CPA.

Sales Tax Guy
see the disclaimer

Do I have to charge tax if I've already paid tax?

Here's the question:

I have a question for the sales tax guy! I have not yet been able to find the answer. My business is registered as a self proprietership. I make jewelry. I buy my supplies from various locations, some of which charge me tax. If I pay tax on the supplies, do I still have to charge sales tax to my customer? What if I make a piece of jewelry where some I paid sales tax on some supplies, but not others?

Here's the answer:

I refer to this as the "Second Golden Rule of Sales and Use Tax."

ANYTIME there is a retail sale, tax must be charged (except for many, many exceptions). By selling your jewelry, you are making a retail sale and should be charging tax to your customers.

What you should do is buy your ingredients, the stuff that goes into your product, for RESALE. Then you don't pay tax on your purchases. You only charge tax to your customers (and remit to the state, of course).

The fact that you already paid tax doesn't get you off the hook. The object is to tax what YOU sell to the final consumer. The tax will be higher because it has your profit in it. Which is what the state wants.

So register with the state, get your resale number, use it to buy your ingredients for resale and charge your customers tax.

By the way, the other stuff you buy that doesn't go into your product, IS taxable. In that case, YOU'RE the end user. However, there might be manufacturing exceptions here, depending on the state your're in.

Thanks for the excellent question. I'd strongly suggest you talk to your CPA about this as well.

Sales Tax Guy
See disclaimer

Are Pumpkins Food?

I was getting ready to do a seminar series in Illinois and noticed this clarification issued last year by the IDOR. In Illinois, food for human consumption is taxable at a lower rate (1% state tax but some local jurisdictions can add to that). The question evidently came up as to the taxability of pumpkins.

Ready?

If it's sold whole and in edible condition, it's food. But if it's carved out, it's not food and therefore taxable at the full rate just like TPP.

Hope that clears everything up. And beware, this rule might be transferable to other states too.

This post really was just an excuse to use a picture of a pumpkin (that is clearly not used as food, but was BOUGHT as food. Therefore, we only paid the lower rate. Take THAT, IDOR!)

Sales Tax Guy