Wednesday, November 14, 2007

Are you making taxable sales without knowing it?

Many businesses make sales that are taxable, and they don't realize it. I herewith start a new series (actually it's a continuation of a couple of other posts, but now I'm making it official) of situations where an organization should have been taxing their sales and didn't. I'll list a few examples here, along with some categories, but there will be many more in the future.

Sale of services in your state that are taxable, and you didn't even realize it. For example, this story about a recruiting firm in Pennsylvania who didn't realize that their services were taxable. Another one, which I was reminded of in a seminar the other day, was a bank that had acquired a convention facility and didn't realize that meeting room rental was taxable in their state.

Exempt organizations who think they're off the hook on the sales tax on their sales. A city in Texas who put a parking garage and didn't charge tax on their parking fees got stung on this one. They thought that, because they were the city, they didn't have to worry about that stuff.

Services vendors who don't realize that their services performed in another state, are taxable. Typically repair companies, contractors and professionals will get stung by this one. They don't even think about taxing services that are non-taxable in their home state. It never even enters their minds.

Non-core sales. Many companies are making sales that are taxable, but because the sales are a small part of their total operations, they don't think about the sales tax. I had a guy in the seminar who worked for a manufacturing operation that ran a cafeteria for their employees. Their sales of food were taxable sales, but the company didn't even think about those sales and got stung for over $100,000 in taxes. Other types of sales in this category include the company store and vending machine sales.

Occasional sales that aren't occasional sales Depending on the state, if you make enough sales of a particular type of product, you're no longer making occasional sales. You've become a retailer. For example, a business that has monthly surplus sales of office equipment and computers to their employees has probably become a retailer and should be charging sales tax. Another example would be intercompany sales between subsidiary corporations. If done often enough, they may become taxable sales, depending on the states rules regarding occasional sales.

And, of course, the big one, nexus. Beware of making sales to a state where you have the hint of a breath of the possibility of a potential physical presence. You may need to be collecting that state's tax.

Stay tuned for more stories.

Sales Tax Guy

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