Watch what you report

This is part of an occasional series illustrating the ways that the states manage to find out about you not paying your taxes. Not that you would do anything like that.

The first method we'll talk about is by comparing numbers. This article caught my eye because it describes how a convenience store got busted for collecting sales taxes on tobacco and liquor, but not bothering to pay that money to the state. The amount of the taxes, depending on how you read the article, was probably over $300,000. Seems like this guy might be getting fitted for the orange jumpsuit. I mean, they mention "felony" several times in the article. Here's the press release if the above link doesn't work. And there's a picture!

The state figured it out because Texas now requires alcohol and liquor distributors to report their sales to individual stores to the state. By comparing what the distributors said they sold, to what the retailer reported as taxable sales, they can start focusing their auditors on the real problems.

You actually don't hear that much about this kind of comparison and data mining. It seems like comparing state income tax and/or franchise tax returns would also be on the agenda as well. But hey, it's just me. Still, it's nice to see Texas is thinkin'

So watch out. If your numbers don't jibe with the numbers someone else is reporting, it could be orange casual wear for you too.

No posting tomorrow on 12/31/09. See you on Monday. Happy New Year.



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

See disclaimer and research the issues thoroughly before making decisions

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Sales Tax / 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.

In New York, maple syrup candy, fudge and halva (whatever that is) are taxable, even if sold out of a bakery. Sushi can be either taxable or non-taxable depending on the way it's sold. And fruit baskets are not taxable. New York Advisory Opinion TSB-A-09(54)S, 10/09/2009

Even though a child care service operates, for all intents and purposes, a private playground, their fees are still not taxable as admissions. They operate a child care service. New York Advisory Opinion TSB-A-09(53)S, 12/03/2009

New York has published a new guide for exempt organizations. New York Department of Taxation & Finance Publication 843, 12/01/2009

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In Minnesota, credits received by the seller from the manufacturer are not considered part of the sales price and gross receipts. Northern X-Ray Co. v. Commissioner of Revenue, Minn. Tax Ct., Dkt. No. 7945 R, 12/08/2009

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In Missouri, yoga sessions are taxable. So relax. Missouri Private Letter Ruling LR 5955, 11/06/2009

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The Pittsburgh, Pennsylvania parking tax is 37.5% (gasp). Remind me not to park my car there. 2010 Pittsburgh Parking Tax Bulletin, 12/15/2009

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Rhode Island updated their food and beverage regulations SU 09-59, R.I. Division of Taxation, effective 01/01/2010; rentals and leases SU 09-62, R.I. Division of Taxation, effective 01/01/2010; and electronic funds transfers EFT 09-01, RI Division of Taxation, effective 01/01/2010.

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Blasting in a quarry is considered part of the manufacturing process therefore explosives, detonators, etc. are considered exempt as manufacturing equipment. Illinois Dept. of Rev. General Information Letter ST 09-0149-GIL, 11/09/2009

Freight charges in Illinois were taxable because they were not agreed to separately. Another in a series of confusing positions. Illinois Dept. of Rev. General Information Letter ST 09-0150-GIL, 11/13/2009

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Ohio has released the situs rules for 2010. Basically, if it's an intrastate shipment of TPP, the sale is sourced to the location where the order is received. If the order is shipped from outside of Ohio, it's sourced to the destination. For services, it's simply where the customer receives the service. And consumers won't have to worry about additional use tax for their location if different from the seller's location. Ohio Tax Information Release ST 2009-03, 12/01/2009

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Colorado is allowing online filing for sellers with only one location Colorado Department of Revenue InfoEmail, 12/18/2009

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Layaway payments not subject to sales tax in Indiana. Indiana Information Bulletin ST78, 12/01/2009

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A seller doesn't have nexus in New Mexico, even though they briefly store their inventory in the state prior to delivering it to the customer. New Mexico Taxation and Revenue Dept. Ruling 401-09-5, 12/03/2009

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Campground have to charge sales tax on rentals if there is a structure involved, but if they're simply renting a plot of land on which camper will pitch a tent or park an RV, there is no sales tax. Vermont Technical Bulletin TB-50, 12/14/2009

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Local rate changes

Alabama
Missouri
Ohio
Texas

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State rate changes
Connecticut (rate didn't decrease)

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The Tax Foundation has published a review of significant state tax changes in 2009, It's mostly about rate changes and other very high level stuff, but there is a summary section near the bottom that is good reading.

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SpeedTax has a short article on the effort by California to enforce use tax reporting.

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The Sales Tax Guy
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Illustrations and Parables: The Generator

I was doing a seminar in Mobile, Alabama when I picked this one up.

Background

Mobile, if you don't regularly watch the Weather Channel, probably gets more than their share of hurricanes. This particular company had a plant in the area. They were far enough back from the beach to not have a problem with water or storm surges, but they were still subject to wind damage. And the biggest problem was power outages that apparently could last for more than a week. So they bought a big, honkin' generator to provide backup power.

However, they didn't keep the generator at the plant. It was an outside generator and they didn't want to worry about wind damage. They stored it in Houston, Texas at the facility of the dealer who sold them the generator. You see, the hurricane that would tear up Mobile, is not going to be the hurricane that goes through Houston. This is the ultimate in "off site" backup.

The Plan

After the storm passes through, they'll call up the dealer and tell him to deliver the generator. That would probably take a day or so. In the meantime, they'll clean up the site and do any other preparatory work necessary.

The generator arrives, they set it up, and voilà, power! They can start making stuff, shipping to their customers, and providing employees with a much needed paycheck.

The Problem

The state of Texas audited the dealership and noticed the generator (probably more than one - storing these things is probably a nice little side business for them). After finding out who owned it, Texas went after the company in Alabama asserting that they had nexus in Texas. After all, they did have a pretty big and expensive piece of equipment sitting in Texas. Which means they have a physical presence in Texas. Right?

The company believed the auditor and paid their back taxes, penalties and interest and registered in Texas.

Duh?

I asked the guy who was telling me this story, "And you believed the auditor?"

"Well, yeah. He's the auditor, he knows what he's talking about."

"Do you have any other physical presence in the state? And I reeled off the various factors."

"No. Just the generator," he said, starting to feel nervous.

I said, "You really need to get yourself a lawyer who knows their way around Texas nexus issues. I can't believe that generator gives you nexus in Texas. It's just one piece of equipment that has nothing to do with exploiting the Texas marketplace. It's merely being stored in Texas because that's where the dealer happens to be. I'll bet a lawyer would be able to beat this easily"

"But the auditor said..." I think I ruined his day.

Folks, please remember that the auditor is likely to be telling you stuff she learned about in a meeting back at the office. She's not a lawyer, and she has not reviewed the court cases herself. She's just trying to pry some tax revenue out of you. Never take the auditor's word for it. Get yourself a lawyer or CPA who is an expert at sales and use taxes. They'll be expensive, but they'll know a whole lot more than that sales tax auditor. And they'll be on your side.

This company threw money away in the direction of Texas because they didn't understand the way nexus worked, and they believed the auditor. Don't do it!

The Sales Tax Guy
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Check the Cash

In this whole series, I discuss the problem of mistakenly not charging taxes on your sales. I will continue to show you situations where the business got hammered for the sales tax when they didn't even know they were making taxable sales.

But the question that I just don't get often enough is, "How can we make sure we've addressed every sale we should be taxing?" Really, I don't get that question enough. So, even though you're not asking it, I'll give you a suggestion.

You should, annually, quarterly, monthly or on whatever cycle you feel is appropriate, analyze where your cash is coming from. Your accounting people already do this in a macro kind of way through the "cash flow" statement. But I'm talking about analyzing it from a very different, and more detailed perspective. It's not foolproof, but if you do this and can show the auditor you do this, it certainly will show you're making the effort. Which is nice.

Look at every deposit of cash to your bank account, and review the transactions that generated that cash. You need to know if it's a sale, and if it should be taxed.

This would include your normal day-to-day sales, which you should be doing anyway. Right? But it would also include any service sales, equipment transfers, non-line-of-business transactions, like the company cafeteria or occasional sales, and maybe even intercompany transactions. Anything that generated money.

The starting point is the cash that's coming into your company and where it is coming from. The odds are pretty high that any taxable sales you make will appear, at some point, as a cash receipt.

Is this a lot of work? Heck, yeah. Maybe that's why nobody asks about this. But I can see this being the perfect summer intern project. Or something for the newbie.

The Sales Tax Guy

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Quick Tip: Nexus and AP

Here's a fun way for AP to make trouble for sales and marketing people.

The Sales Tax Guy

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Quick Tip: When do you obey sales and use tax laws?

Here's an article I wrote a while back about making the decision about obeying the sales and use tax laws.

The Sales Tax Guy

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Flag Exemptions

In the category of nutty sales and use tax exemptions, these states impose no tax the sale of flags. In all cases there is no sales tax on the US flag. And most exempt theirs as well.

Connecticut - US and CT
Florida - US and FL
Maryland - US and MD
Massachusetts - US only
New Jersey - US and NJ
New York - US and NY
Pennsylvania - US and PA
Rhode Island - US and RI
Vermont - US flag only, and only for sales to or by nonprofit veterans organizations
Virginia - US , VA and local flags if sold by government agency
West Virginia - US and WV - regulation size only
Wisconsin - US and WI

This is an article I've been meaning to right for a while; frankly, ever since I came across this exemption for the first time. I'm guessing that the US exemptions were enacted in some fit of patriotic fervor on the part of the politicians. But the state flags? And nobody is going to vote against the law, or argue to repeal it because they would be toasted in the campaign commercials.

Imagine the youtube video, "Joe Blow, your representative, actually voted to repeal the sales tax exemption for the US Flag. What kind of American is he?? Vote for Tom Jones and he'll reinstate the exemption as soon as he takes office!"

And why give the exemption anyway? Are people buying more flags in those states because of the exemptions? If you drive through the residential areas of Milwaukee, will you see a lot of Wisconsin state flags flying proudly below all of the US flags?

Heck, I'll bet that most retailers in those states charge sales tax anyway because the sales tax software company didn't program this one - they didn't even know about it! Who would have thought?

Now, of course, they will. Because I just know they all read this blog. Sure. And Santa's coming in a few days too.

Have a nice weekend, folks.

Sales Tax Guy

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

Sales Tax / 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.

The District of Columbia clarified rules regarding the residential utilities exemption. Dist. of Columbia Revenue Notice 2009-11, 12/09/2009

Information was published in Florida's estimated tax program. Florida Tax Information Publication 09(A)01-07, 10/07/2009

New Jersey clarified the rules for magazines and newspapers. N.J.A.C. 18:24-1.2, effective 12/07/2009

In New York, a taxpayer was able to get a refund of hotel taxes paid, even though they had no receipts, by showing that they're contract with the vendor included the taxes. The ruling acknowledged that they had not kept adequate records. In the Matter of the Petition of Trans States Airlines, Inc., NYS Division of Tax Appeals, ALJ, Dkt. Nos. 822272; 822273, 12/03/2009

Satellite TV broadcasters in Washington have to pay use tax on the equipment provided to customers for free. The satellite fees can't be taxed under Federal law, but the equipment that is given away can be taxed. Washington Dept. of Rev., Appeals Division, Dkt. No. 08–0122R, 04/21/2009 , 28 WTD 115 (2009)

Electronic filing mandatory now in Wisconsin. Wisconsin Dept. of Rev. Sales and Use Tax Report 5-09, 12/01/2009


Amnesty Programs
Pennsylvania
New York
Massachusetts

Local rated changes
Alabama
Colorado
Florida
South Carolina
Texas
Washington

Sales Tax Guy

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Some Sales Tax Links for You

Rate Calculator
from Speedtax, and you'll need to register.

Do reverse audits
This short article talks about the need to audit yourself to make sure you're taking advantage of every exemption availble to you. From cbiz.com And here's another article from Avalara - Part 1 and Part 2. I particularly like the point about doing a reverse audit right after the state has audited you.

Sales and Use Tax Collection and the SSUTA
Personally, I'm not sure it's ever going to happen. But it's a worthwhile article discussing the issue.

2009 Quirky sales tax laws
A listing about some unusual recent laws...with a plug for sales tax software, of course. From Sabrix.

Sales tax in Hawaii
They have a different kind of tax and don't have the complete resale exemption the rest of the country has. And, as the article shows, it's tricky and hides the real effect from the consumer. From Yahoo and AP

The Sales Tax Buzz Top 10 Sales & Use Tax Legislative Developments of 2009
Not sure I agree with some of the commentary, but this is a good look back at 2009.

Going Green to Save Some Green
If you're looking for some exemptions that are also environmentally responsible, this is a nice summary. Most of the states have least one of these opportunities for tax savings. From Sabrix

Sales Tax Guy

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Are Your Vendors Stealing Sales Taxes?

This article from kirotv.com is long on fluff, but has a good core point to make. Are your vendors, who you're paying sales tax and/or use tax, actually remitting that money to the state?

Remember, if they're not paying over those taxes, they're ripping you off, as well as the state. You may be off the hook for the taxes (maybe not, it depends on the state*), but why should you pay that extra 8 percent or so just to line the vendor's pocket. It would be nice if that money actually went to the state, where it kinda sorta actually benefits you.

So what can you do?

The article notes that if the seller doesn't ring up the sale or give you a receipt, it's a red flag that they're not reporting the sale, or the tax. If you want to make someone miserable, and you're assertive, raise the issue right there and ask for a receipt. This would require them to ring it up, and the tax will probably get reported. Unless of course, their "cash register doesn't work right now." This really won't solve the problem unless everybody does it...which they won't. What to do? The state relies on tips from consumers - if you catch my drift.

And as I've recommended in my seminars for a long time, it's not a bad idea to ask the vendor for a copy of the permit or license they received from the state when they registered to collect sales and use taxes. It's not a guarantee they're report the income, but at least you know they're on the state's list. This is particularly important for vendors from outside the state that are charging you tax on shipments into your state. And you might want to make sure you do it for in-state vendors who you use a lot, and are kind of small or new operations.

In some states, the vendor is actually required to post their permit by the cash register. Next time you shop, try freaking out the poor clerk by actually carefully inspecting it.

But the best course, and the one your state would probably prefer, in the spirit of the season, is to tell the sheriff 'bout those law-breakin' varmints.

Sales Tax Guy

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*In some states, the buyer's liability for paying either sales tax or use tax isn't extinguished until the seller actually pays the tax to the state. Didn't know that did ya? In other states, the buyer only needs a receipt showing tax to be off the hook. But you need to check.

Second Amendment Sales Tax Holidays

I thought of this story after writing yesterday's post.

When I first read about Second Amendment sales tax holidays, it was South Carolina's. I happened to be doing a series of seminars in Tennessee that week and mentioned it in my class in Chattanooga.

(For those of you who don't know your Bill of Rights, Second Amendment sales tax holidays allow the purchase of firearms without sales tax). Read on to see why I think they exist.

South Carolina (and Louisiana) both have, in the past, scheduled them for the weekend after Thanksgiving.

Tony was in the class in Tennessee and when I mentioned the holiday, his eyes got really wide and he started squirming around in his seat.

I said, "Tony, you're thinking about taking a little road trip to South Carolina to buy yourself some guns, aren't you?"

"Heck yeah! I can save myself a ton of sales tax!"

"Now Tony, you do realize that, while you can buy those guns without tax in South Carolina, when you bring them back here to Tennessee, you're going to have to pay 9% use tax, right?" It was a sales tax seminar, so I made this a teaching experience for Tony.

His response, "Yeah. Right."

So much for even making them feel guilty!

OK, why do states have a Second Amendment sales tax holiday?

I have a couple of theories (and they are just theories):

1. As with any other sales tax holiday, it's an opportunity for South Carolina to suck business into the state for their retailers. The politicians know that the customers won't pay use tax when they return home to their own state - and they don't care.

2. It's a Second Amendment holiday, and it gives the politicians a chance to curry favor with the real men in their districts. Just kidding, if you were about to take offense.

3. These are held on the weekend after Thanksgiving. Which is often the opening of deer hunting season.

4. It's the weekend after Thanksgiving. Tony's family wants to go shopping. He might be able to justify this road trip to South Carolina by suggesting it be a shopping trip for Mom and Sis and Junior too. So, while he and Junior are shopping for guns, Mom and Sis are spending money, and paying lots of South Carolina sales tax on their purchases at the malls. Maybe South Carolina figures that they'll lose some sales tax on the gun sales, but they'll make it up on all of the other shopping that will be brought into the state that weekend. Nah, I can't believe politicians would be that devious.

As I finish this up, it occurs to me that this would be an ideal post for just before Thanksgiving. And here I am, two weeks late. But, I can see an "oldie, but goodie" post in my future for next November.

I hope you all had a good Thanksgiving and I wish you a Merry Christmas.

See you next week.

Sales Tax Guy

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Sales Tax Holidays

Sales tax holidays are events, usually over a weekend, but sometimes longer, when some items are exempt from tax. They are usually in August (back-to-school time) and include most clothing. These August holidays often include back-to-school supplies and computers too.

There are also holidays for guns in a couple of states (SC and LA last I looked) - they're called "Second Amendment" holidays.

And there are Energy Star holidays when you can buy energy-saving appliances tax free, and hurricane sales tax holidays. One state has a sales tax holiday on just about everything!

Sales tax holidays seem to be a regional kind of thing. They're mostly in the east and southeast with only one that I can think of in the midwest, and a couple in the west.

States are getting nervous about them. Sales tax holidays are a major crunch on state budgets. And, in these times of falling sales tax revenues, they are not looked upon too kindly by your friendly elected representatives. They like to brag about the holidays, but they hate to give up the money.

And I personally wonder if they work? They're often lauded as increasing sales, but are sales increased over the entire season, or does the holiday just force more sales into a few days, forcing retailers to stock up, pay overtime, reprogram their systems, etc?

Sometimes they snag business from other states, with shoppers coming from neighboring jurisdictions for the deals. But since those shoppers have to pay use tax* when they return home, what's the point? Oh, yeah (finger snaps). The politicians who complain about out of state vendors not charging tax on shipments into their state are perfectly happy to more-or-less do the same thing to the other states. Either that, or your legislators just don't know about use tax issues (which is more likely).

You can't miss sales tax holidays. If you live in a state with a sales tax holiday and you watch the news at all, you'll know when they come up. These are just the kinds of things that reporters will cover. And they can understand it. Sort of.

*yeah, right

Sales Tax Guy

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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.

In Florida, indoor plant maintenance services and warranties are taxable. Florida Tax Information Publication 09(A)-053, 10/21/2009

Tour bus receipts are taxable, even if there is some shuttling going on. But walking tours that are strictly on public property are not taxable since people can tag along for free, and there is no access to restricted areas. Florida Tax Information Publication 09(A)-054, 10/29/2009

With regard to admissions, local or state surcharges and fees, if separately stated, aren't taxable. Florida Tax Information Publication 09(A)-056, 11/05/2009

And a restaurant was still required to remit collected sales taxes, even though the employees stole the tax collections. 30-A Restaurant Group, Inc. v. Florida Dept. of Rev., FL Div. Admin. Hearings, Dkt. No. DOR 09-3-FOF, 11/20/2009

Man, those guys in Tallahassee are tough.

Wisconsin now requires that, if you buy stuff to give away with a sale, you must pay use tax on it. Wisconsin News for Tax Practitioners 12/04/2009(Items Given Away for Free - Change in Wisconsin Sales and Use Tax Treatment Effective October 1, 2009), 12/04/2009

And they have adopted the rule that says that leasing equipment with an operator who does more than set up and/or service the equipment and is necessary for equipment to perform correctly becomes a service and is no longer a rental.

Many states and news outlets are now reminding you, when you order stuff online, to pay your use taxes. Like any of my readers would forget.

Texas now provides a rate lookup tool on their web site at http://ecpa.cpa.state.tx.u/atj/addresslookup.jsp


Local rate increases

Alabama
South Dakota
Texas

Sales Tax Guy

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You're missing some tax breaks

I was chatting with a woman who bragged about finding a really big sales and use tax break for the company she worked for. What stunned her was that it was just a matter of reading the rules for her industry...the exemption was clear. She had to do a little digging - but it was right there! And her company had been handing over money for years without realizing that they didn't have to.

Not only that, but other folks in the same industry didn't know about the exemption either.

The fact that no one was using the exemption made her nervous. She contacted a sales and use tax lawyer who basically said, "Yeah, it's right there. So what's the problem?"

The moral is that you should very carefully comb the sales tax and/or use tax laws and exemptions in your states. Look for rules that could apply to you. They may be relevant to your industry. Or they might just be something that only tangentially is relevant. And they might be a little hard to tease out. But if there is a law that you can use to save money, why aren't you?

Remember, the auditor will be carefully checking that you've paid all your taxes. But she won't be telling you about the exemptions that will save you taxes. You have to do that yourself. Go crack the books and do some research.

Look! Research! Use it!

Sales Tax Guy

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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.

Illinois court rules freight charges were taxable. Illinois has a pretty confusing rule regarding the taxability of freight charges. The law says the shipping charge must be "separately contracted." But I've read different and conflicting illustrations.

A test that the court applied is whether or not the customer bought the item and the shipping charge in one transaction. If they did, the shipping is taxable.

Another is whether they can avoid the shipping charge in some way, either by picking it up at the store or buying it online and then separately contracting for shipping. If they can, it's an indication that the freight isn't taxable.

For example, when you buy from your average dot com, do you have any option to avoid shipping? If you don't, then, in Illinois, the shipping is taxable.

Kean v. Wal-Mart Stores, Ill. S. Ct., Dkt. No. 107771, 11/19/2009

And in Chicago, the continuing sales tax saga - the rate goes down by half a point. Suntimes.com and others

There are lots of articles floating around focusing on the loss of taxes to the states from people buying online and not paying their sales tax and/or use tax. LOTS. Here's just one of them And about 1400 more.

College privilege tax in Pittsburgh? salestaxbuzz.com

Local rate changes

Utah
Washington

Sales Tax Guy

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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

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obg

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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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

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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!

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.

In New York, The sales and use tax exemption for tangible personal property purchased to maintain, service, and repair an aircraft has been extended indefinitely.
New York Technical Service Bureau Memorandum TSB-M-09(18)S, 11/05/2009

Louisiana issued rules regarding the phase in of the exclusion of manufacturing consumables from taxes over the next couple of years.
Louisiana Revenue Information Bulletin 09-050, 11/09/2009

They've also provided additional information on the provisions of the Cajun Dome excemption.
Louisiana Revenue Information Bulletin 09-051, 11/09/2009

In North Carolina, tire recappers get some exemptions
17 NCAC § 7B.1905, effective 10/01/2009

State rate changes in North Carolina related to fuels other than electricity, prefabricated buildings, commercial printers and publishers,

And broadcasting equipment, movie production equipment and mill machinery to contractors and subcontractors now exempt in North Carolina

In Texas, Full-time federal employees of the Texas National Guard traveling on official business may claim exemption from state and local hotel occupancy tax
Texas Policy Letter Ruling 200911472L, 11/06/2009

Local rate changes

Alabama
Georgia
Mississippi
Washington

Sales Tax Guy

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Illustrations and Parables: The Mystery of the Missing Texas Taxes

I was doing only my second seminar EVER on sales and use taxes. It was Manhattan and this woman comes up to me at the first break. I had talked about personal liability of officers in the previous section and she looked worried.

"Hi, I just started as the CFO for a company here in New York, and I found out that we've been selling a lot of stuff to a company in Texas for years, and charging them sales tax. But we haven't been filing Texas sales tax returns."

"Well, that's not the end of the world," I said. "Mistakes happen. I assume you have been remitting that money to the state of New York?" That's typically the way it works. Many people make the error of charging tax for deliveries in a remote state, but report those sales on their local return. Nobody's going to jail for that. Penalties and back taxes, yes. Striped pajamas? No.

"Well, actually, we haven't paid the taxes to anyone," she said. "That's how I found the problem. I was going through the general ledger and came across this account for Texas Sales Taxes Due."

"How much is in there?"

"One hundred and fifty-three thousand dollars."

My wife tells me I don't hide my emotions well. I must not have in this situation because she asked me, "Is this bad?"

"OK, let me make sure I understand this. Your employer has been shipping stuff to a company in Texas for a long time?"

"Yes, about eleven years."

"And they have been charging Texas taxes. And showing this on the invoices?

She nodded, "Yes, I looked at some of the recent invoices and they show 'sales tax' right on the invoice. It looks like the Texas rate too."

"Are they still doing this? Making sales to Texas, charging tax and letting it sit in that liability account?"

"Yes."

"Just out of curiosity, is this a small, entrepreneurial company where the owners have put pretty much everything into the business?"

"Yes."

"Hundred and fifty thousand?"

"Yep."

"And you haven't paid this money to Texas, or even New York, right?"

"Right." I really do remember this conversation like it was yesterday. It's firmly planted in my brain.

"OK. Final question. Are you really the CFO or is that just the title they gave you?" This happens, folks. They might have given her the CFO title, but not actually make her an officer of the company. I once was a "sort-of" CFO.

"Yes, in fact we just took care of the paperwork last week."

I took a deep breath. "Mary," her name was Mary, did I mention that? "You should probably leave the seminar now. You've learned enough for the day. I'd strongly recommend that you get this resolved, and you should talk to your own attorney. You're an officer of the company. Even though you weren't around when all of this happened, the longer you're on board, knowing what's still going on, the more likely you're going to be in deep trouble. You may wind up holding the bag."

The problems are:

1. The customer gets audited by Texas who discovers that they've paid all this tax to a company who wasn't registered in Texas. Texas makes the customer pay the money all over again, plus interest and taxes. The customer probably has a good case for fraud against Mary's company. They charged them tax and didn't remit it to any state. For eleven years!

2. Texas may decide to go after Mary's company, particularly if they had nexus in Texas. I didn't ask Mary about Nexus.

I've read more than a couple of stories where, in a start-up situation, the owners put their life-savings into the business, and then some. When the business fails, they've got nothing to make good on debts - like a sales tax liability in Texas.

But the CFO probably doesn't have any skin in the game. And Mary has some money. She's got a house, car, maybe a vacation home, and a 401k that carried over from another company. And she's an officer of the company. She really might be the only one left with any money when the dust settles after this company goes out of business. There have been cases...

As she left, I was really hoping she'd talk to a lawyer.

She emailed me a few days later.

Hi, Jim,

I quit the job. I went in to my boss' office the next day and said, "we really need to talk about this Texas tax liability." He said, "Mary, it would be a really good idea if you never brought this up again. Ever." I realized that I didn't want to work there anymore. I figured if he had a problem with just one thing like that, what else was lurking? And as the CFO, I didn't want to be associated with that kind of business.

Thanks, Mary

The moral of the story? There are two.

First of all, sales tax seminars can be more interesting than you'd think.

Secondly, if you're an officer of the company, you have some serious liability for your company's "mistakes," whether it's sales tax, payroll taxes or some other problem. Beware.

By the way, a couple of years later, I was chatting with an executive with the audit division at the Texas revenue department. I told him the story. After shaking his head, he asked hopefully, "You don't happen to know the name of either of those companies, do you?"

"Nope," I smiled. "My seminars are kind of like confession. What's said in the seminar, stays in the seminar."

And if you're wondering, the dialogue and facts are as true as I can remember. But the states, cities and Mary's name were all changed to protect the extremely guilty.


Sales Tax Guy

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

Personal Liability

You are in such trouble! This is going to be a relatively short article. But one that's very important. Based on what the rules are in most states, you need to worry about personal liability. What does that mean? It means you could lose your savings, your vacation house, etc. All because your company really screwed up the sales tax. So read on.

Officers of the corporation
You're liable. Period. Maybe you'll dodge a bullet if you're not involved in the management of the company. Maybe.

Spouses in sole proprietorships or partnerships
You're liable. Particularly if you filed your income taxes jointly. You signed the return. Which means you officially knew what was going on.

You're the controller
If you're an officer, see above. If you're not, but you're intentionally failing to pay the appropriate taxes, and you have authority, you might feel some pain too.

Staff accountants and other employees who complete and sign the return
First of all, don't sign the return. The officer who does have the personal liability should be signing that return. Make sure the auditor knows that you're signing the return because the big dog told you to. The auditor will then go after the big dog.

Here's an illustration of the problem.

See, short one. But very important to your future vacation plans.

Sales Tax Guy

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

Michigan

They've explained the rules for food.
Michigan Revenue Administrative Bulletin 2009-8, 10/21/2009 , replacing Michigan Revenue Administrative Bulletin 2002-20, 12/10/2002

Connecticut

The rate reduction previously announced may not happen depending on the state's deficit this year.

Missouri

No use tax for free flu shots.
Missouri Private Letter Ruling LR 5900, 09/29/2009

And Missouri opened up a can of chakras by saying that sales tax applies to participation fees in yoga classes. Some are saying it's a tax on religion. I have only one question. When I go to church, I don't pay a required fee to attend. But if I go to a yoga class, I do pay a fee. That's the difference. And no, I won't be going to any yoga classes anytime soon. My chakras are just fine, thank you. Sabrix, Google/AP and more

North Carolina

New rules for state government purchases. Most purchases exempt now.
17 NCAC § 7B.1701, effective 10/01/2009

Local rate increases

Arizona
Georgia
Missouri
Ohio
Utah
Washington

Sales Tax Guy

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Quick Tip: Buying Sales Tax Software

Years ago, in another life, I sold software and computer systems...mostly accounting related. In this article, I give you a few tricks for making this investment:

• Don't assume the sales rep is looking out for you or has your best interest in mind
• Take control of the process
• Get references and VISIT them (this is probably the most important piece of advice)

Here's the last paragraph...

Remember, it's not the cost of the software you have to worry about. It's the costs associated with the conversion, installation and training that are big and painful. By making the right software choice initially, you'll minimize your pain, get the most out of your investment, and make only ONE investment.

Sales Tax Guy

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About Seminars

I had this email today and I thought you would all gain from the answer.

I would be interested in a seminar in the --- area. Do you currently have anything in the works?

I am looking for credible sales and use tax training. I feel like this is a huge trap for our company. I am looking at the --- coming in Jan of 2010 but saw some reviews that indicated it was going to be a huge sales presentation of their for-purchase materials. I am looking for TRAINING!!

1. Most of the general public seminar companies sell stuff at their events. However, the companies that are more focused on legal and tax seminars (like us) don't, but their prices are usually at least 50% higher.

2. When working for general public seminar companies, the leaders make a significant part of their earnings from commissions on what they sell. This means that there will be some sort of presentation about products at these seminars, and it will usually take some time.


Note - in webinars and seminars from TakeChargeSeminars.com we don't sell stuff. Period.

3. Sales tax seminars from the general public seminar companies will cover sales and use taxes from two perspectives.They'll talk about what most states do (what I call the Golden Rules). And they'll talk in depth about what is done in the state where the seminar is being held.

If you're on the fence about going to a seminar, contact the seminar company, and ask if you can communicate directly with the speaker. Or see if you can, at least, send him or her an email. Then ask about any specific topics you're hoping to see covered. This will give you more comfort that you're going to have a useful seminar experience.

Sales and use taxes are a trap for any company, as you said. But even if you're going to get "sold" at the seminar, that shouldn't prevent you from going and picking up as much as you can. GO!

If you learn anything that'll get you out of a potential hole, it's worth it.

4. Now it's time to talk about us! In my webinars and seminars (from Take Charge Seminars), we don't sell any products. We actually do talk about tools you may find helpful, but we don't take orders or quote prices. No selling. So fear no sales pitches in a seminar offered by Take Charge Seminars.

Sales Tax Guy

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Picture note: Yes, that's me in the picture doing a seminar in Arlington, Virgina.

* These are the companies you get fliers from constantly on a wide variety of topics, from "sales and use tax" to "how to be a better manager."

Illustrations and Parables - The Story of the Fizzy Turkey

A guy in the class worked for a poultry processor. The auditor busted them on the carbon dioxide gas that they injected into the meat. The company had always assumed that this gas was exempt from sales tax because it was an ingredient. Ingredients are almost always exempt.

"Sounds good to me," I said. "But why do you inject carbon dioxide into the meat?" All I could think of was fizzy turkey.

The guy said, "I don't know, I work in accounts payable." I kid you not. Absolutely true.

This is one of my favorite stories, frankly because the AP piece is the funny part. When I told it in a different seminar, another poultry processor told me that the CO2 is a preservative. And, since it's the stuff that gives your Coke the bubbles, it's gotta be safe.

Anyway, the auditor said it didn't qualify for the exemption, and they were nicked for the sales tax. The amount was BIG - the assessment hurt. Now, the carbon dioxide IS an ingredient in the meat. They inject it into the chicken. So why was it taxable?

The auditor said that, in order for the CO2 to be considered an ingredient, it must be present in the final product when opened by the final consumer. And by the time you take your chicken home from the store, and open up the package, the carbon dioxide is gone. So, according to the auditor, it's not an ingredient - it's taxable.

But is the auditor right? I looked at the statute and the regulations after the seminar. There is no restriction, in that particular state's laws, saying the the ingredient must be present in the final product when opened by the consumer.

Some states do require that the ingredient be in the product sold at retail. To me, this means the CO2 must be there when the customer picks up the package from the cooler. And other states merely say that the ingredient must be in the final product, not specifying the point in time. Which could mean when the product is packaged and moved to the shipping department. But I've seen no state that specifies that the ingredient must be there when the customer opens the package.

Since the law, in this state, didn't even specify that the ingredient must be present when sold at retail, the taxpayer could have fought it. The assessment was big enough to make it worthwhile to hire some expensive professionals to appeal. But the taxpayer made the big mistake: he assumed the auditor was correct. He didn't even ask to see the law. He just wrote the check to the state.

So the morals of this particular parable are:

1. Know the rules for what qualifies as an ingredient in your state and adjust your procedures accordingly,
2. Have a better understanding of your processes, even if you work in accounts payable,
and most importantly,
3. Never assume that the auditor is right. Make them prove it!

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 and is pretty funny. 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.

Illinois has clarified rules regarding soft drinks.
Illinois Dept. of Rev. General Information Letter ST 09-0116-GIL, 09/02/2009

Florida has change several regulations regarding food, water softening services, and their forms .
Fla. Admin. Code § 12A-1.0115; 12A-1.071; 12A-1.0115; 12A-1.011; 12A-1.097

Utah has made some changes to their return reporting schedules.

Wisconsin has made a change in the rate used for calculating use tax on demo vehicles. And they have clarified the new digital products rules.
Wisconsin Dept. Rev. Tax Bulletin 164, 10/01/2009
Digital Goods Frequently Asked Questions, Wisconsin Department of Revenue, 10/20/2009

Georgia published a bulletin on how to apply for a refund on manufacturing equipment.
Informational Bulletin SUT 2009-10-28, 10/28/2009

Louisiana has issued a release regarding the exclusion for anthropogenic carbon dioxide.\
Louisiana Revenue Information Bulletin 09-049, 10/21/2009

Nah, I don't know either. But if you DO know, then you probably should be very careful about this.

In New York collagen implants for truly medical purposes are taxable. This kind of thing is taxable when sold for providing medical services for money.
New York Advisory Opinion TSB-A-09(48)S, 10/14/2009

North Carolina has an EDI program for returns.
Notice, NC Dept. of Revenue, 10/01/2009

Local rate changes in South Dakota and Wisconsin

Sales Tax Guy

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Sales and Use Tax News Links

The big sales tax news in Chicago is that the sales tax hike might get rolled back. For the rest of you, who cares? But what's interesting is the politics behind it. DailyHerald.com and others

A North Carolina spends $250,000 in fees to fight (and win) an assessment of $600,000. If you're in the graphic design business, you may want to look at this. And, if this is true, shame on the NC tax department. Bizjournals.com

Boeing gets a tax break in South Carolina. This is an example of states writing laws that don't mention a particular business by name, but write the rules in such a way that only one possible company could be involved. AP and others

Flu shots get taxed in Illinois Sabrix

Interesting way for an electric car manufacturer to avoid $320 million in sales taxes sfgate

Sales Tax Guy

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Is food really exempt?

I've seen this now a few times. So I thought it would be worthwhile whispering in your ears.

Grocery store food is exempt from tax in many states, and taxed at a lower rate in even more. The official wording is usually something like "food sold for off-premises consumption." But you and I know that basically means the kind of food you buy off the shelves at the Safeway.

I've now seen a couple of states that restrict the food exemption to individuals or for home consumption. In other words, if a business buys food, say for a company picnic or for the company lunchroom, the food was NOT exempt.

Obviously the grocery store isn't going to differentiate. Food's exempt as far as they're concerned. But your business may get nicked for use taxes on that food. So, if you're in a state that exempts food to some extent, make certain that there isn't an extra sentence that excludes businesses from the benefit of the exemption.

Otherwise, you'll get a surprise during the audit.

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.

Are You a Manufacturer?

In most states, if you take something that has one form and name, and turn it into something with another form and name, you're a manufacturer. For example, there was a court case where a quarry was able to qualify as a manufacturer, at least as far as their rock crusher was concerned. That machine took boulders and turned them into gravel. Different forms and different names. Viola! They're a manufacturer. Which is a good thing.

If you qualify as a manufacturer, then congratulations! There are all kinds of wonderful and delightful exemptions that you can enjoy.

But if you're not...well, sorry. If you read the rest of this article, don't blame me if you get ticked off. Because you're not a manufacturer.

What I want to cover for you are the laws that make life grand for manufacturers, at least as far as sales and use taxes are concerned. You need to check these opportunities for your state, and see which ones apply. Because there's a chance you're giving the state money they don't deserve.

1. Machinery. In most states, manufacturing machinery is either exempt from tax or taxed at a lower rate. There are restrictions, but this is a pretty common and money-saving exemption. Common restrictions (which vary enormously) include:

• The machine must be used to directly change the product from one form to the other
• The machine must be used predominantly in the manufacturing process
• The manufacturing process usually doesn't include the finished goods or raw materials inventory. It typically begins at the first machine and ends at the last machine on the line.
  
• The machine often must be depreciable or have a minimum purchase price.
• A few states require that the machinery expand production
  

For example, lift trucks are usually exempt if they are used in the manufacturing process to move WIP (work in process) from one machine to another. But if that truck is usually found in the warehouse moving raw materials, then it wouldn't be predominantly used in the manufacturing process. And therefore the lift truck would be taxable.

2. Repairs. In most states, repair labor and parts for exempt machinery aren't taxable.

3. Tools. In some states, smaller equipment, like hand tools, safety equipment, etc. are exempt.

4. Consumables. Generally, the ingredients that become part of the product are exempt. This really is just the resale exemption. But some states also grant an exemption for consumables (eg. like lubricants, drill bits, sand paper, catalysts, etc.) that are used during the process, but don't become an ingredient of the product.

5. Utilities. In some states, electricity, natural gas, propane, and other energy sources are exempt or taxed at a lower rate.

These are the big categories. And there are lots of complications and exceptions with each state being completely different. And these exemptions only apply to manufacturers. But if you are one, you owe it to yourself to get very familiar with the exemptions in your state so that you save every last dollar.

Sales Tax Guy

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