As I've talked about in this golden rule, "generally [in order to be a taxable sale], 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." Occasional sales will sometimes be called casual sales - same thing.
So if Joe sells this piano out of his living room to Marlene, Joe doesn't have to charge Marlene sales tax. Joe is not in the business of selling pianos, and therefore the state doesn't require him to collect sales tax.
However, what about Marlene? You might think that this loophole would be the state's justification for going after Marlene for the use tax, since the Joe was not required to collect the sales tax. But remember this golden rule - in order for there to be any tax, the item must have been purchased in a retail transaction. This piano wasn't, because it wasn't sold by a retailer. Therefore, Marlene doesn't have to pay the use tax to the state
So, even if the piano is a $5,000,000 antique that Mozart owned, as long as it's sold in an occasional sale, the seller doesn't have to charge sales tax and the buyer doesn't have to pay use tax.
There are some wrinkles though.
1. Remember that it's only an occasional sale if the seller isn't normally in the business of selling the item (in this case, a piano). But the states' rules are usually pretty broad in defining what is "in the business." So if you sold a couple of pianos in the same year, and the state was missing out on a LOT of sales tax revenue, the auditor could get pretty aggressive about whether you're "in the business" or not. Soft, mushy rules make for interesting audits. I'll cover this more in a future article.
2. In a some states, the effect of the laws is that a business can't ever make an occasional sale. Therefore, if that piano was sold by a sludge manufacturer who simply had it in their lunch room for the employees' entertainment, they would still have to charge sales tax.
3. There are a couple of states where, in an occasional sale, if the buyer is a business, then the business would have to pay use taxes, even though Marlene (not a business) would not have to pay the use taxes. Yes, businesses aren't treated the same as individuals. What do you expect? Businesses don't vote so they're fair game for the politicians who really only care about votes. Oops, I put on my editorial hat for a second.
4. Finally motor vehicles and other purchases that are required to be registered are handled differently (this will be the topic of a future article).
As usual, you need to check the rules in the delivery state.
The moral: if all the conditions are met and the t's are crossed and the i's are dotted, an occasional sale causes zero tax liability - no sales tax and no use tax. Remember this when you hit the garage sales this weekend. You don't have to worry about paying use tax on your purchases. Because I'm sure you were.
Sales Tax Guy
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. If you'd like to see more, click on the picture.