Monday, July 20, 2009

Making sales you didn't know were taxable

Part of a continuing series

I had a guy in my seminar in state "A". He was an equipment rental company. He had stores in both state A and also the next-door state "B".

The tax rate in state A is about 9%. The tax rate in state B is about 6%. If you're renting a very expensive piece of equipment, you just might be thinking you'll rent it in state B, bring it back to state A and save yourself 3% sales tax on the rental.

Unfortunately, for the guy in my class, he didn't realize that the vast majority of the states require that you charge the sales tax on rental of tangible personal property (TPP) based on where it's used, not simply the location it is rented from.

So, this guy got audited by state A. And they nailed him. If I remember, the assessment was in the neighborhood of $500,000. That's half a million dollars, folks. For a really bad mistake.

Frankly, I'm surprised that someone in that business hadn't known about this rule. Could it possibly be because his CPA and lawyer didn't know what they didn't know and gave him bad advice? Or no advice at all? Nah.

So if you're in the rental business folks, watch where your equipment is being used.

By the way, you're probably asking how the rental company could have known where the equipment was being used. How could they have known to charge the tax for state A as opposed to the rate in state B where the store is? Because most of the time, the rental company delivered the equipment to the job site. Ahem.

Sales Tax Guy

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