Thursday, August 14, 2008
Golden Rule: Taxable Sales
A taxable sale, one that triggers either sales tax or use tax, occurs when all of the following events happen:
1. There is a sale
A transaction has occurred where one party bought something in exchange for something else (usually money, but not necessarily - a swap would also be a sale). A gift is not a transaction. So, with the typical exception of registerable items, like automobiles, there is usually no use tax imposed on someone who received something as a gift.
2. Of tangible personal property (TPP) or taxable services
TPP is tangible, which means it's perceptible to the human senses. And it's personal property. In most states, personal property is defined by what it's not. If it isn't real property, then it's personal property. And real property is generally defined as land and anything that is permanently affixed to land (or other real property) and integrated into the use or value of that real property.
So it's TPP if it is not permanently affixed and integrated into real property. The ship above is TPP. It's really, really big, but it's not permanently affixed to land. And because I took a picture of it*, then it was obviously tangible.
Finally, every state does tax some services. Some states tax many services, other states tax very few.
3. By a retailer
Generally, the sale must be made by someone who is in the business of selling the product or service. If they're not in the business, then they're making an occasional sale. That ship, if sold by a shipping company, who is in the business of using ships - not selling them, wouldn't be taxable because it was sold in an occasional sale. Except that it may be registerable. If so, then like automobiles, the buyer will owe use tax. The state will get those big purchases whenever they can.
4. To the final consumer.
If the sale was to a dealer or wholesaler, then it was for resale. It wasn't sold to the final consumer. The final consumer is generally going to be the person who bought for some other reason to resell, or they are simply the final buyer. Either way, identifying the final consumer usually isn't that hard.
So, to recap, anytime there is a sale of TPP (or taxable services) by a retailer to the final consumer, then you have a taxable sale and either sales taxes or use taxes are due.
Sales Tax Guy
* I took this picture from the center of the Golden Gate Bridge in San Francisco in 2004. I highly recommend that walk. It's beautiful and exhilarating.