Got any questions?

My bad. I'm starting to get more questions via email. Which is OK. Feel free to do that. But I wanted to give you a more convenient place to post something, whether it's a question or comment. Maybe other people will have an answer that's better than mine. I've got a link to this post in the left column, so you can always find it. And please note the disclaimer as well.

One request though. Please don't look at this as "Jim's Law Look-up Service." If a question gets posted along the lines of, "Is freight taxable in Georgia?" then my response will be, "Did you check Georgia's web site?"

And it doesn't have to be that good of a question.

Sales Tax Guy

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Picture note: This was shot at Cantigny, a garden and military museum in the western suburbs of Chicago. I spend a lot of time volunteering there. And improving my people skills.

Carpet Dealers

Carpet dealers, as well as other flooring and tile sellers and cabinet installers, are often considered construction contractors and treated that way. Under this method, they pay tax on their purchases of carpeting, tile, wood, etc. and make no taxable sales to their customers, just as other contractors.

However, you will see variations. I think the reason is the nature of the transaction. Flooring and cabinets are often bought in a retail setting or out of sample books. The customer really thinks of themselves as buying the actual product, and the services of the installer are incidental.

However, in the standard construction contractor situation, the customer doesn't care too much about the building materials. They are primarily concerned with, and think of themselves as really buying, the finished product.

That's my story, anyway.

For whatever reason though, some states do treat the sale of flooring and cabinetry as the sale of installed tangible personal property. The sale of the product would be taxable to the customer just like any other sale of TPP and possibly even the installation charges.

So there are two main variations (with lots of complications):

1. The seller pays tax on the product when he buys it and doesn't charge his customer any tax at all.

2. The seller buys his product for resale, and then charges his customer tax, just like a normal sale of TPP.

Your cheapest source of information on this will be the state web sites. In my experience, most of them have a publication dealing with this situation because it's the kind of thing that citizens (voters) will ask about. If there isn't anything obvious, look for contractor information, or start digging around in the statutes and regulations.

If you're the buyer, don't assume the seller is doing it right. I've met too many of them that didn't have a clue and were doing it the wrong way.

And guys, if you're looking for a way out, just tell her that the sales tax issues are just way too complicated. You had better put off that purchase until you can figure it out.

Sales Tax Guy

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Picture note: You'll understand the last paragraph if you have a look at the photo.

Get those certificates

I had a woman in my class once who told me about her experiences in getting resale certificates. She didn't bother.

She worked for a toy manufacturer. And she worked for the distribution division. She sold only to resellers and distributors. There was a sister company who did sell to the end user through their web page and catalogs. But it was a separate company, separate corporation, separate facility, separate everything except products sold and the parent company.

Her company got audited by, we'll say*, Illinois. During the audit, the auditor asked about resale certificates for all of her sales into Illinois. She said, "We don't get them. Our business model is only to sell to retail stores and distributors. None of our customers buy for end use. Talk to our sister company about that. We don't need resale certificates." The auditor said that she did and pointed out the law. But he was nice enough to give her 60 days to get them (not all states are required to provide this grace period).

So she began to work on getting those certificates. And 60 days later, she still owed Illinois $50,000 for the sellers' use taxes she had failed to charge her Illinois customers. Not because her customers refused to provide the certificates. Her company was big enough to demand and get those certificates. She owed money because some of those customers had evaporated. You see, the retail toy business is pretty volatile. Retailers come and go. She owed taxes on the ones that had "gone." If they're gone, she's not going to be able to get a resale certificate.

But if she had simply done what she was supposed to do, she would have owed nothing.

The moral of the story is very simple: get the resale certificate. Get it before you even ship the goods, because that is when you've got leverage over the customer. Don't wait until later or assume the sales rep will get it. You get it now. Here's a procedure you may want to use.

Then you won't have to argue with your customers or run the risk of them going out of business on you.

PS...before you go all notes on some of your customers, you should read these articles about drop ships. And here is much more information on all forms of exemption certificates.

Sales Tax Guy

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*When I use "we'll say", that means I making it up.

Picture note: The toys shown don't represent the company I'm talking about. It's just a picture of toys. You can see it bigger here.

Sneaky Information Services Gambit

Here's a sneaky auditor trick that I've recently heard about. It's probably not legal; it certainly doesn't make any sense to me. So at least be suspicious of the auditor who pulls this one out of their hat.

In most states, information services aren't taxable. Information services are essentially the sale of third party information. In the olden days, these were delivered in hard copy. Which means tangible personal property.

But these days, the information is usually delivered by electronic means, usually by downloading. These include things like tax databases, stock photography, wire services, credit reports, mailing lists, etc. It's not so much an information service as the sale of intangible property. Note sales of intangible information aren't generally taxable.

However, all bets are off if we're talking about the actual delivery of tangible personal property. A convenient example would be a mailing list sent to you that has already been printed on self-adhesive labels. You are buying tangible personal property. It's not intangible. It's probably going to be taxable.

If you had merely downloaded the list though, in most states it's not taxable. It's not tangible. The sale is gonna be considered the sale of an information service.

In the last year, I've heard reports of sneaky auditors who will argue that, "Yeah, when you bought the information, it wasn't taxable. But then you printed the labels, and that made the information tangible and therefore you owe me use tax."

Which, to me, makes no sense. I can see their point. They'd like to get the tax that you've neatly dodged by downloading it as opposed to ordering it printed. But since the transaction was non-taxable, I don't see how they can make it taxable by a later event like this. You've essentially changed its form on your own. And you probably did pay tax on the CD, labels or paper you used. Using this logic, taking any information you've downloaded, and didn't have to pay tax on, would become taxable merely by printing out a backup copy.

So if you're downloading information and then printing it later, whether it be photographs, mailing lists, credit reports, music you burn onto a CD, , etc., be prepared for this gambit by the auditor. I'm fairly sure they're bluffing, but be prepared to call that sales and use tax expert I keep talking about.


Sales Tax Guy
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