The Sales Tax Guy: 2010

Tuesday, December 28, 2010

Sales Tax on Big Chickens?

You're on vacation and you stop in at an interesting looking art gallery. A giant chicken catches your eye and you buy it for $10,000,000. You're a collector of over-sized fowl and this one will be the crowning glory of your private art gallery. It's a good thing you've got that really high limit on your MasterCard.

The dealer prepares the invoice.

Chicken.............$10,000,000
Sales tax (8%)..........800,000
Total...............$10,800,000

Oh, come on! Whoever heard of paying $800,000 in sales tax? This can't be taxable!

Actually, it is. And you've just made the revenue department in this state very happy.

Let's use the golden rule of taxable sales:

1. There's a sale
2. It's tangible personal property. It's obviously tangible. You saw it and you sat on it. And it wasn't permanently affixed to the floor. So it's tangible personal property.
3. The sale was made by an art gallery - someone in the business of selling art - a retailer.
4. You're buying this for your home or office, not to resell, so you're the end user.

Congratulations, you owe sales tax.

Now, you didn't get rich by just throwing around $800,000 here and $800,000 there. There's got to be a way out, right?

Hmmm. Not really. There are some common evasions, but no real and legal way out.

1. You can ask the gallery to ship it out of state to your home in Gotham City, where all the best Big Chicken collectors hang out. There's no sales tax when you ship out of the state, right? The dealer, who just got audited last month, points out that he can't do that. Since you're in the store, and effectively have control of the Big Chicken as soon as the sale is signed, you have taken delivery in the store. That means that the state you're in has jurisdiction and will impose tax. If the seller doesn't do this properly, he'll get nailed by the auditor (again) when she comes back in six months.

2. Even if you convince the dealer (maybe he's new and hasn't been audited yet) to not charge tax and to ship it to your home in Gotham City, you will now owe use tax on that objet d′art in the great state of Gotham. And since you're so stinkin' rich, you know they're going to audit you one of these days. Actually, unfortunately this doesn't happen all that often. You do owe the use tax. Whether you pay it or not is more of a reflection of your character. Bruce Wayne would pay the use tax. Just sayin'.

A different scenario

Let's say you're driving down a dirt road while on vacation, and see a yard sale with that chicken standing there in all of its glory. In a cloud of dust you slam on the brakes and kind of casually ask the rube what he wants for that "old chicken."

"Ah'll take $10,000,000 please. Ah inherited that from mah Daddy and he durn told me whut it were worth."

Dang. You write him a check since he can't take a credit card, and have him arrange for shipment to Gotham City.

Now, there's been a change in the situation. It's no longer a sale by a retailer, it's an occasional sale. Since the farmer isn't a retailer (he was having his annual yard sale) he doesn't collect sales tax. And since you purchased the item in an occasional sale, you owe no use tax, either in the state where you bought it, or in Gotham. Remember, the sale wasn't by a retailer, therefore it wasn't a taxable retail sale.

So in this scenario, you've saved the $800,000 in sales and use taxes. Legally! But only because you bought it in an occasional sale. Buy it from a dealer, and you owe the tax.

As is usually the case, not every state does it in the ways I've described. There are variations in several states on the way they handle in-store purchases that are shipped out of state, as well as use tax on occasional sales. Do your research!

Which leaves us with the moral of this story:

If you're going to buy big chickens, stick to the dirt roads.

Yep, I know. Sometimes these articles just write themselves.

This is our last article for 2010. It has been a good year for us and I hope it has been for you as well. We currently have January and February on our webinar schedule and will be adding March, hopefully by the first of next week. Happy New Year!

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/
Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

Thursday, December 23, 2010

Peas on Earth

I realize that I'm getting this out kind of late, but we all get Christmas cards late, don't we? Anyway, I'd like to wish all of you a Merry Christmas. And if that's not your holiday, then I simply hope you enjoy the blessings of this season. Thank you for your support.

Jim Frazier
The Sales Tax Guy

FOB

Ever Reward - (Panama) and Charleston Harbor

When I started writing this, I thought I'd give you a link that would explain what FOB meant. I was surprised that there are several different meanings for FOB, other than the one I was going for. This Wikipedia article should be sufficient to help you understand this term as I plan to use it.

To oversimplify, FOB means where the legal title to the shipment transfers to the buyer. If the terms are FOB Origin (or shipping point), then the legal ownership of the goods transfers when the seller ships them. If the terms are FOB Destination, then the seller hasn't transferred the ownership to the buyer until they arrive at her receiving dock.

Legal ownership determines who is responsible for the freight, and who suffers the economic loss when the shipment is lost in transit. If you're the seller, you want to transfer ownership immediately, which means you're going to want the terms to be FOB Origin. If the item is lost, it's the buyer's problem.

On the other hand, if you're the buyer, you would prefer to have the terms be FOB Destination, which means that the seller still is responsible for the shipment, until it arrives at your dock. Purchasing agents usually negotiate terms as FOB destination just for that reason, particularly on more expensive items.

The question of the effect of FOB comes up frequently in sales and use tax conversations because people think that the FOB point determines the state that has jurisdiction over the transaction. It doesn't.

The state that has jurisdiction is, very simply, almost always the state where the physical delivery occurs, or where the buyer takes control over the goods - which is pretty much the same thing. This is because the tax that is imposed, when we're talking about an interstate sale, is use tax. And use tax is generally imposed when the buyer uses (or controls) the goods. No matter what the terms are, the buyer doesn't control the goods until they arrive at her dock (if shipped by common carrier).

Conversely, if the buyer (or her agent) picks up the goods herself (not using a common carrier), then the physical delivery occurs at the shipper's dock. This is so, even if the original terms of the sale were FOB Destination and the buyer changed her mind at the last minute. What counts is where the physical transfer of control took place, not where the contract terms state the ownership transfer occurs.

Think about it. If it was that easy to manipulate the state that had jurisdiction, then all Amazon.com would have to do is put their warehouse in Oregon (no sales tax in Oregon), and then ship everything FOB Origin. Then there would simply be no tax at all. But that's NOT how it works. What determines the state with jurisdiction is where the physical, real transfer of possession or control takes place. That's an event that can't be manipulated by contract language. And so that's the event that really counts.

When FOB does matter

Having said all of that, there are two states that specifically say that the FOB point determines which state has jurisdiction - Tennessee and New Mexico.

Tennessee* isn't really a problem because they have a big loophole. As long as the seller arranges for the shipment of the goods, and the buyer doesn't pick them up, or arrange for the pickup, Tennessee doesn't claim jurisdiction. But if the buyer picks up the phone and calls the common carrier and arranges for them to pick up the goods at the dock in Tennessee, then Tennessee does claim that they have jurisdiction. The easiest way to solve this problem, other than letting the vendor arrange shipment, is to make sure the terms are FOB Destination. Then the loophole is moot.

New Mexico is different. They have no loophole. If you order something FOB Origin from Albuquerque, New Mexico says that the tax belongs to them. Period. This goes in the face of all of the things we talk about regarding interstate commerce. But the reason NM can get away with it is because they don't really have a sales tax. They have a gross receipts tax that is solely imposed on the seller. Since the transaction itself isn't being taxed, New Mexico can simply say that they get all of the taxes on anything that is sold in New Mexico, even if it's shipped out of the state. However, they are fair. If the terms are FOB Destination, they don't claim jurisdiction. So, as with Tennessee, the best solution when you're buying from NM is to make sure the terms are FOB Destination.

Please remember that there are some complications if you decide to make all of your purchases FOB Destination.

1. The vendor may not be interested in doing this. This is often an easy negotiating point, but sometimes the vendor stands firm. And you have to bring it up if you want the change. All sales contracts, if they're written by the seller, will state the terms as FOB Origin. That makes sense, since those terms are best for the vendor.

2. You may wind up paying the freight if the terms are FOB Origin. That could be a significant amount of money - even more than the sales tax. So watch this one.

3. In some states, the freight may be taxable if the sale is FOB Origin.

Summary

FOB points don't count in determining the state that has jurisdiction. What matters is where the goods are physically delivered. Well, that's except for two states: Tennessee and New Mexico. In those two states, the FOB point should be Destination to make sure the tax is for the delivery state. And since purchasing usually works to set this up anyway, it may not be a big problem.

*Tennessee Important Notice No. 10/01/2001, 10/01/2001

Tuesday, December 14, 2010

Gotta watch those widget sales

I had a question from a class participant a few days ago, and it was such a good question, I thought I'd use it here. But I promised her I'd sanitize the heck out of it. So think of this as a question "inspired" by the real question.

"My company is an HVAC contractor [in most states, contractor sales aren't taxable - they pay tax on the building materials they use]. We prepare widgets in our shop that will be attached to the HVAC equipment. Since it's part of the construction job, we just cost the materials used for the widgets to the job and pay sales tax on the few hunks of steel that we use.

However, we have a lot of customers who buy the widgets without our doing any actual HVAC work (our widgets are very popular and user installable). When this happens, we just send the widget to the customer, and bill them. We don't charge sales tax. Should we?"

You should be charging tax on the widgets that you sell at retail to your customers. If the widgets become part of the building where you're doing the HVAC work, then you would pay tax on the widget components when purchased.

But when you sell the widgets outside of a construction contract, you are making retail sales of tangible personal property, and those are taxable sales. You should be charging tax.

The problem is that, if you've already paid tax on the components of the widget when you bought them, and then you collect tax on your retail sales of them, then the state is getting too much money. In most states, there are two solutions (and you need to check your state rules to make sure of your options):

Purchases resold - Many states make provision for purchases you make that were taxed, and are subsequently sold at retail where tax is collected. The states usually let you deduct your "purchases resold" from your use tax liability.

Buy for resale - If your retail sales of widgets are substantial, consider giving your vendor a resale certificate for all of the widget components and pay no tax on any of those purchases. Then collect tax on your retail sales and accrue use tax on the materials that become part of your construction contracts.

Either way, there is extra bookkeeping involved. But if the retail sales of the widgets are substantial, you should come up with a solution before the next auditor finds it.

This is another example of a situation where a business was making taxable retail sales without even realizing it. Does anyone else have this problem? You betcha!

And finally, if you are actually manufacturing the widget, you should look into whether or not there are any manufacturing exemptions available to you.

Tuesday, November 02, 2010

A quick note to state tax departments

Here's a small suggestion to you folks at the revenue department. Every time I read about some business charging their customers tax and not remitting it to the state, it's almost always one of the following businesses:

Used car dealers
Mechanics
Restaurants
Convenience stores

And they're always independently owned. Seems like doing nothing but auditing these guys would clear out your deficits like that (snapping my fingers).

Just a thought.

By the way, if you're one of the aforementioned businesses, and you're feeling all offended now, here's the problem. While I'm miffed about your not paying the taxes the law requires, what really fries my shorts is that you are collecting the taxes from your customers, but not bothering to pay the taxes to the state. You're defrauding not only the state, but your innocent customers. That stinks.

Wednesday, October 27, 2010

Paperwork. There's no excuse.

As I've been perusing the news, one particular problem, which is eminently solvable, keeps coming up. So let me just say now: make sure you know what the paperwork requirements are, that you fill out the proper forms, and that you do things ON TIME!

Three examples:

Numerous sales and use tax appeals are lost because the businesses who suffered the assessments didn't file the necessary notices on time. Come on! And don't rely on the auditor to tell you what your deadlines are. I've seen at least one situation where the auditor gave incorrect information about the appeals process. When the taxpayer used that as an excuse, the courts basically said, "tough." Independently verify what you need to file and when you need to file it.

Enterprise zones, opportunity zones, etc. give nice sales and use tax exemptions, usually for businesses located in economically distressed areas. But there's paperwork and approvals that you must fill out and file.

And the classic example of paperwork that most of you are failing to get - exemption certificates. Get them. Remember that some states don't have to give you any time to get them when the auditor shows up. And you won't be able to get them from some of your customers when you ask. So get them now!

Wednesday, October 20, 2010

FAQ: Why do I have to pay sales tax when I buy a used car?

This question came up on Twitter a couple of days ago. It's a frequent query, so I thought I'd respond to it here:

I'm not a "taxes are evil" guy. That said, charging sales tax on a used car seems weird. Hasn't it been sold already?"

The thing to remember is that sales tax is not a one-off tax. Most people think it is, but it's really not. Think about the name of the tax. It's called a "sales" tax. That means that every time it's sold, sales tax applies. So when the car is sold new, there's sales tax. When the dealer sells it used a few years later, there's sales tax. And when it's sold a few years after that, there's sales tax.

Obviously, the amount of the tax will go down every time the car is sold, but it's still subject to sales tax every time it's sold.

It's the same way with other stuff. Say you buy a painting at a art dealer. She'll charge you sales tax. A few years later, you discover it's incredibly valuable and you have an auction house sell it for a million dollars. They'll have to charge sales tax to whoever buys it. Even though you already paid sales tax on it.

Because every time there's a sale, there's sales tax.

There's one exception, and that's occasional sales. But let's keep it simple for now.

Monday, October 18, 2010

Notice a change?

I decided I needed to get the design of this blog into the 21st century, so I took advantage of some new templates provided by Blogger (Google). As a practical matter, I think it's a little more readable, which is the most important thing. Please feel free to comment on the change. Thanks for your indulgence.

The Sales Tax Guy

Newspapers

Newspapers are treated a little like magazines in many states. If they're sold by subscription, they may be exempt. However, they're not always taxed in the same way.

In fact, in most states, newspapers are simply exempt from sales and use tax. Whether sold over the counter, from a newsstand, or by subscription, they're usually exempt. The reason that I've heard most often for this state of affairs is that imposing sales tax on newspapers would somehow interfere with freedom of the press.

My own opinion is that, if you're the hapless politician who decides that imposing a sales tax on newspapers is a good idea, you should probably not count on getting any more endorsements or favorable coverage from your local print media. If you know what I mean.

But there are complications. There are states where newspapers are taxable. And there are some significant questions that don't come up when you're talking about magazines. While magazines AND newspapers are sold from stores and newsstands, what about the sales made from folks just standing on the street hawking papers; or sales from vending machines? And do they tax the sales of newspapers by carriers ... you know, the paper boy? These are all situations that are up for grabs in states where sales tax is imposed on newspapers.

You, the consumer, will rarely even notice that there's a tax on newspapers. This will be one situation where the tax will usually be absorbed, even if illegally. Which is probably why the publishers would really be upset if it came up as a way of balancing the state's budget.

But then, who reads newspapers anymore? (I kid).

Friday, October 08, 2010

Manufacturing Exemption: The "Use It Here" Rule

Here’s a sneaky situation involving the manufacturing exemption.

There are quite a few states who require that, in order for the exemption to work, the use of the exempt items must be within the state. This makes logical sense, given the purpose for the exemption. But there are a couple of situations (that I can think of) where a problem would occur:

Situation 1

The reason I even thought about this rule was because of a guy in the class who ran a truck routinely from his plant in state B to pick up manufacturing equipment at a dealer in state A. He had asked an unrelated question, and I started thinking about it and realized that there was a problem.

Let’s say you’re the seller in state A. Your customer, from state B, comes in and picks up manufacturing equipment. You try to charge him state A’s sales tax, but he waves around his exemption certificate from state B, maintaining that he’s going to be using this equipment in manufacturing. But in YOUR state, the manufacturing exemption only applies to manufacturing equipment that will be used in state A. The "use-it-here" rule. Since the purchase will not be used in state A, the customer’s state B manufacturing exemption is worthless.

Even if the buyer fills out state A's manufacturing exemption form instead, it won't be valid because he's not "using it here." And you will owe state A the sales tax you should have charged your customer.

The solution is easy - simply ship the equipment to the customer in state B. Then, since it’s a shipment out of the state, state A has no jurisdiction, and the delivery is in state B. Everybody happy.

A similar problem exists if state A didn’t have any manufacturing exemption at all. In that case as well, the buyer’s state B certificate is irrelevant. Same solution.

Situation 2

You purchase equipment and have it shipped to your location in state B. There’s a manufacturing exemption in state B, so no sales or use tax. But you then reship the machine to state C. Since you never used, or intended to use, the purchase in your plant in state B, and state B has a “use it here” restriction, you will owe use tax on that machine to state B.

Note that state C has a manufacturing exemption, but state B doesn’t care. And since you stored (used) the equipment in state B, they get to nick you for the use tax.

Remember, not every state has this "use it here" rule, so check it out first.

And if you can think of any more situations where this "use it here" rule would be a problem, please let me know.

Wednesday, October 06, 2010

FAQ: The out of state vendor hasn’t charged me sales and use tax, but they should have. How do I make them?

This is a simple question, but it’s surprising how often I get asked.

There are two likely reasons for the out of state vendor not charging you use tax:

1. They don’t know anything about what’s taxable in your state. All they know is that, if that if they’ve shipped it out of their state, they don’t have to worry about it.

2. They don’t collect taxes in your state because they’re not registered. You may think they should be, since you constantly see their sales rep in your office, but you’re not going to win that argument (unless you’re Walmart). And frankly, it’s not really a problem. You just accrue the use taxes and have a nice day. You’re always going to have to accrue some use taxes, so just systematize the process and you’ll be fine.

By the way, if you have “demanded” that the vendor start charging tax, how do you know they’re charging the correct state tax? They may be charging the tax for their state (which is generally wrong). Or they might “say” they’re charging your state’s tax, just to keep you happy. They might just be pocketing the extra billings.

Hey, it happens. If you’re going to demand that the vendor charge tax, and they do, make them give a copy of their permit for your state to make sure they really are doing it right.

Saturday, October 02, 2010

Sales and Use Tax News

Here are a few items I’ve picked up from RIA’s State & Local Taxes Weekly Newsletter. You should subscribe too. And please keep in mind I’ve REALLY summarized these items, so check out the details before taking action or making a commitment.

Alabama

There are lots of stories about the state winning because the taxpayer didn’t cross the i’s and dot the t’s. But they lost in this case because the state apparently didn’t fill out the assessment paperwork correctly. So it makes sense to be sure the paperwork they give you is correct. Taurus Investment Group, LLC v. Ala. Dept. of Rev., Admin. L. Div., Dkt. No. S. 10-339, 07/06/2010

California

For taxpayers affected by the San Bruno explosion and fire, they can get an extension on their taxes. Of course, there are forms to fill out. California SBE News Release 98-10-Y, 09/10/2010 ; Employment Development News Release #105, 09/10/2010

Florida
The cap on sales and use tax for a boat is $18,000 for purchases or use after 7/1/10. Florida Tax Information Publication 10(A)01-07, 06/22/2010

A tennis instructor pays the city a fee to be able to offer lessons on the city-owned courts. That’s a license to use real estate. It’s taxable in Florida. The city should have charged sales tax on the fee. Florida Technical Assistance Advisement 10A-033, 07/02/2010

As of 1/2/11, government agencies (except Fed) will be issuing Certificates of Entitlement to contractors to allow them to buy materials for public works projects tax free. Florida Tax Information Publication 10(A)01-18, 08/16/2010

Illinois

You’ll be able to pay your use taxes on your personal income tax return, and there’s a use tax amnesty program in effect after 12/31/10. 35 ILCS 5/502.1

Indiana

Water heater rentals are taxable. AWHR America's Water Heater Rentals, LLC v. Indiana Department of State Revenue, Ind. Tax Court, Cause No. 49T10-0710-TA-50, 07/15/2010

Kansas

Point of purchase rebates for energy efficient appliances do not reduce the tax base. Kansas Private Letter Ruling P-2010-006, 09/09/2010

Labor to install fencing in new feedlots is not taxable. Labor to install fencing on new rangeland is taxable. Kansas Private Letter Ruling P-2010-007, 09/13/2010

Kentucky

Small cities and counties can get a rebate on the taxes collected on admissions to government facilities. Sales tax rebate on sales at a governmental facility, 07/16/2010

Massachusetts

If a customer’s check is NSF, and you haven’t filed the return for the month that the sale was recorded, you can deduct that sale on line two of your return. Otherwise, you have to treat it as a bad debt. Massachusetts DOR Directive 10-3, 07/07/2010

Wind turbines and towers used to generate electricity for consumers are exempt. Massachusetts Letter Ruling 10-3, 07/07/2010

Michigan

If you add a piece of equipment to a truck that is exempt under interstate commerce, it’s taxable, unless it replaces a component when it was sold. Michigan Internal Policy Directive 2010-1, 06/28/2010

New Jersey

Cable companies are being reminded that the equipment provided to customers is taxable. Notice to Cable Television Service Providers—Customer Premises Equipment, New Jersey Division of Taxation, 09/03/2010

Missouri

Canned software delivered as “load and leave” was ruled to be not taxable. Filenet Corp. v. Director of Revenue, Mo. Admin. Hearing Commn., Dkt. No. 07-0146 RS, 08/20/2010

New Mexico

A couple operating a babysitting service got busted for not filing gross receipts tax returns. In the Matter of the Protest of Flores, New Mexico Taxation and Revenue Department Decision and Order No. 10–05, 03/24/2010

New York

All Empire Zone exemptions expired on June 30, 2010 New York Technical Service Bureau Memorandum TSB-M-10(6)S, 06/30/2010

Movies delivered via satellite to theatres are not taxable since they aren’t TPP. But movies delivered on a hard drive ARE taxable. New York Advisory Opinion TSB-A-10(27)S, 06/29/2010

Roller coasters qualify as capital improvements. In the Matter of the Petition of Amusements of WNY, Inc., NYS Division of Tax Appeals, ALJ, Dkt. No. 822534, 08/04/2010

Auditor audits nightclub - can’t get records, even though he has the contact information for the previous owner. Auditor assesses the previous owner based on estimates. Auditor loses. The court said “deliberate chose the course of least resistance.” In the Matter of the Petition of John Smythe, NYS Division of Tax Appeals, ALJ, DTA No. 822160, 08/26/2010

Just a reminder - the clothing exemption is temporarily being suspended. New York Technical Service Bureau Memorandum TSB-M-10(16)S, 09/07/2010

If the dealer includes free oil changes for life in the price of a car, and clearly says so, then his purchases of oil are for resale. New York Advisory Opinion TSB-A-10(39)S, 09/14/201

South Carolina

SC has a pretty broad interpretation of taxable communications services. If the online service facilitates communications, or provides information, it’s a taxable communications service. S.C. Code Ann. § 12-36-60, S.C. Code Regs. § 117.329.4, South Carolina Private Letter Ruling 10-2, 07/29/2010

Texas

Own a server that’s kept in Texas? Or any TPP, for that matter. They say you’ve got nexus in Texus. 34 Tex. Admin. Code § 3.286, effective 07/11/2010

There’s going to be an Energy Star holiday in May 2011. 34 Tex. Admin. Code 3.369, effective 09/09/2010

Utah

Out of state residents can purchase off-road vehicles tax free. Utah Informational Publication 5, 06/01/2010

Virginia

They have a new data center exemption. It’s only for equipment and TPP for the data center, not general improvements to the building. Virginia Public Document Ruling 10-121, 06/29/2010

Energy star holiday 10/8 to 10/11 Virginia Public Document Ruling 10-222, 09/23/2010

West Virginia

Energy Star sales tax holiday through 11/30. West Virginia's Energy Star Sales Tax Holiday Begins, Governor's Press Release, 09/01/2010

The services of an IRS Enrolled Agent aren’t taxable as professional services - as long as they’re acting as one. West Virginia Administrative Notice 2010-25, 09/09/2010

Tuesday, September 28, 2010

Illustrations and Parables: Intercorporate Transactions

Businesses and organizations form corporations for a variety of reasons. The picture below shows a corporate shell around a variety of business activities.

There are excellent reasons for forming corporations:

1. There are obviously tax benefits.

2. Forming a corporation unifies and consolidates your business activities into one unit. That unit can then act as one, be sued, sue, purchase insurance as a unit, etc.

3. Corporations also limit the potential liability of the owners and facilitate easy changes in ownership (buying and selling stock,offering stock options, etc.).

When there is a transfer of tangible personal property (and certain taxable services) within that corporation (see picture below), there is no sales and use tax impact. Merely transferring such things within your company creates no taxable event. The might be some additional use tax owed if you move something from a low tax jurisdiction to a higher one, but that’s about it.

The problem occurs when you have subsidiary corporations within a larger corporation (see picture below). Those are all corporations that are owned, either partially or fully, by the parent. Now, when there is a transfer from one division to another, most states will consider that a sale. I repeat: a sale! That means that the transfer that you thought was just a journal entry on the books may become a taxable sale that you weren’t even aware of.

Companies form these subsidiary corporations for all of the same reasons that regular corporations are formed. And there’s one more reason – acquisitions.

Here’s the horror story:

Several years ago, a guy in, we’ll say, California invented a new machine. It was extremely expensive and it was new technology, so he was having trouble selling it. He finally got some venture capital together, and he started buying up small businesses all over the state and forcing the acquired companies to buy and use the machine. Since he wasn’t buying these businesses to be a tycoon, he left the previous owners in place as general managers, kept the local company names, and left the acquired corporations alone. All he was really trying to do was get his machine used.

He was successful. The machine worked wonderfully, did what it was supposed to do, and made the local businesses, as well as the corporate parent, a great pile of money. Yay!

The local divisions started moving the machines around. Sometimes a local office wouldn’t need one for six months, but the guy in the next county needed four of them for a year. So the machines got transferred from one division to another.

Then the revenuers came and all was lost:

1. When the inventor sold the machines to the local businesses, who, if you’ll remember, were separate corporations, he never charged sales tax. He, and his tax people, assumed that since they were all part of the larger parent corporation, sales tax wouldn’t be a problem.

2. When they transferred the machines from one subsidiary corporation to another, the state ruled that those transfers looked like sales. Which, obviously, nobody had thought of.

The assessment was for about $10,000,000.

I’ll just wait here for a second while you let that number sink in.

Yes, THAT bad.

When the company and their legal representation sat down with the state to talk, the state lawyers were confused. They didn’t know the lawyer across the table. Usually, at these conferences, it’s a sales tax lawyer and everyone pretty much knows everyone else. Who was this guy?

It turns out the owner had brought his bankruptcy attorney. They bluntly told the state that if they went through with the assessment, the company would have to go out of business.

The variations that you'll see among the states, and that might help if you're in a similar situation include:

1. Services between closely held companies may not be taxable in states where those services usually are taxable - leasing for example. In the above situation, if they had structured those transfers as leases, there may not have been any liability at all. And if the state didn't grant the leasing exemption, the tax liability would have at least been much less since it would only have been on the rental, not the cost of the machine every time it was moved.

2. States will frequently leave loopholes if the transaction between the two corporations doesn’t “look” like a traditional transaction – no exchange of consideration, the transaction recorded by a journal entry, etc. This probably would not have worked in this horror story since the owner had done nothing to integrate the accounting of the local corporations into the larger parent. Remember, he left the locals alone. All they had to do was buy and use his machines.

3. If the transaction meets the test of an occasional sale, the transaction may be exempt. That’s assuming you’re in a state where businesses actually can engage in occasional sales. In this situation, we're obviously not talking about occasional sales.

So the question is, are YOU making sales to your divisions? Are you transferring goods and taxable services from one unit of your corporate family to another part? If so, consider this as a warning…you better figure out what you’re doing. Look at your inter-company billing. Look at those transfer accounts. Talk to a good, local sales tax professional.

Some of the biggest assessments I've ever seen have been in this area. You've been warned.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/
Picture note: the images above are hosted on Flickr. If you'd like to see more, click on the photo.

Thursday, September 23, 2010

Whenever the conversation goes this way, I cringe

Frequently, someone will say to me, either in a seminar or in a comment or email “we’re a manufacturer so we’re exempt from sales and use taxes".

If I’m feeling frisky, I’ll usually interrupt them and say, "No you’re not."

They’ll be nonplussed and say, "Oh yes, we’re a manufacturer. We make doo dads."

"No, you’re not exempt because you’re a manufacturer. You’re exempt on some of your purchases because you use them in manufacturing. All of your purchases aren't exempt. And your sales aren’t exempt."

"Well, yeah, OK. If we buy a copier for the office, it's taxable. But everything in the plant is exempt. And we don't have to charge tax on what we sell."

"I'm guessing you're not charging tax on what you sell because you're selling it to others who are buying it for resale. It's got nothing to do with the fact that you're a manufacturer. Hopefully your'e getting resale certificates. And that bit about 'everything in the plant is exempt' is wrong."

Arrrrgggghhhhh! And then I cringe.

Not understanding these exemptions is a dangerous trap to fall into. Manufacturers, in many states, can buy materials and equipment tax free if the purchase will be directly used in the manufacturing process. The rules vary enormously by state, from California who gives virtually no exemptions, to Pennsylvania who is pretty generous. But there aren't any states that just say, "You're a manufacturer so you're exempt."

The only types of organizations that can even begin to make a claim that they're "exempt" are non-profits and government agencies. But even in those situations, the exemption is not total. There are usually restrictions on how they use their purchases and what they can sell tax free. And some states don't even have the exemptions.

Frankly, the only organization that can truly make the claim that they're exempt is the federal government.

So please remember that it's your specific types of sales, purchases, and use that are exempt. The rules are restrictive and they vary from state to state. So don't go around saying you're exempt. You're not.

Monday, September 20, 2010

Illustrations and Parables: Bulk Sales

I was chatting with an old friend, and he was telling me a sales tax horror story that deserves repeating here. It involves bulk sales (ie. the sale of a business as a whole - lock, stock and barrel, as it were).

Don (not his real name) wanted to expand his computer business. He was based in Illinois, and heard about Arnie, who was in New York. Arnie said he wanted to retire and cash out. Don and Arnie both got their attorneys involved, and Don had his CPA thoroughly review Arnie's books. Don thought he had been very careful. And, because Don was buying the entire business including the inventory, fixtures, equipment, customer list and even keeping the employees on, it was a bulk sale. After the sale was closed, Arnie retired to his new boat in the south Pacific.

A short time after the sale, the New York Department of Taxation and Finance showed up to do a sales tax audit. And they assessed Don, the new owner, for $1,550,000 in sales taxes, almost all of which applied to sales that happened long before he had even heard of Arnie.

You see, Arnie had not been collecting tax on his sales of computer services. Hardware? Yeah, he was collecting on that. But not on the repair labor, which is taxable in New York. And Don, who was from Illinois where those services aren't taxable, didn't even think of this when he took over the business. He continued to make the same mistakes that Arnie had made.

Because Don had bought Arnie's business as a bulk sale, he bought everything from Arnie including any sales tax liability that Arnie had acquired. Don had to write a check to the state of New York that was more than half of the check that he had written to Arnie.

When you buy a business, and it looks like a bulk sale, the state will generally hold the new owner responsible for any sales and use tax debt from the previous owner. Even if the previous owner didn't know about it.

The way to avoid this problem varies from state to state. But it usually involves notifying the state revenuers that the business is about to be sold. The state then has a limited amount of time to either notify the parties that there is an outstanding liability, do an audit, or give the buyer a waiver. Remember, the process varies enormously, but that's the outline.

---

How many ways did this get fouled up?

1. I don't know a lot about business sales, but there's usually not a complete cash out. The new owner holds some of the money back just for this kind of contingency. Don didn't do that.

2. Don and the attorneys and CPA's didn't know about the bulk sale rule. Now they do.

3. Don and the attorneys and CPA's didn't know that repair services are taxable in New York. Now they do.

4. And of course, Don didn't call his old friend Jim. But it never occurred to him because...

5. ...Don didn't know what he didn't know.

---

The obvious question is did Don try to sue Arnie? Yep. But the former owner was in the south Pacific on a boat and not terribly accessible to the courts of New York.

So Don was, how to say this? Screwed. The business closed about six months later. With that gigantic audit assessment, Don didn't have enough cash flow to keep it going.

Truly a horror story.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

Other relevant key words: mergers and acquisitions

Thursday, September 16, 2010

Illustrations and Parables: The Steel Mill

I’ve told this story for years in my seminars, so if you’ve heard this one, I'm sorry. Just move along, nothing to see here.

A guy in the seminar was the controller for a steel mill – a BIG steel mill. They take raw iron ore and turn it into steel ingots. Since there’s not a big consumer demand for big chunks of steel, everything they sell is to other processors – for resale.

“We get resale certificates from all of our customers so we’re good there. Every month, we report something like $50,000,000 in sales on our return [it’s a BIG steel mill] and then, on the next line, $50,000,000 in exempt sales."

“We still send the state a fair amount of money every month, but it’s use tax on our purchases.”

One day, the sales tax auditor showed up. After an initial meeting where the controller and auditor seemed to hit it off, he showed the auditor to the usual conference room, gave him some starting audit fodder, and then left him to it.

After lunch, the auditor stopped by the controller’s office. “I think I gotcha,” were his opening words.

“What? You haven’t been here long enough to have ‘gotten us;’ you’ve only been at it for an hour or so.”

“Ah, but I had lunch in your cafeteria. Nice one and the food's good - cheap too.”

“Well, we’re out here in the sticks, so we’ve got to provide all those guys with some decent food. But what do you mean?”

The auditor inhaled, “They charged me $5.00 for the lunch. I also chatted with the manager there, and he said they’re all employees of the mill…you haven’t hired a management company to run the cafeteria.”

“Yeah…” the controller responded suspiciously.

“You are operating a restaurant. You’re making retail sales to your employees, albeit at a pretty reasonable amount. Now I just looked at your returns for the last few years, and you have NEVER reported a taxable sale. Not one dollar. Which makes sense given your business model. But you HAVE been making retail sales – out of that restaurant you’ve got downstairs. Where are you reporting those sales?”

"Uh..."

The final assessment was in the neighborhood of $200,000.

This amount wasn't catastrophic for a big company. But it certainly was embarrassing for that controller and not a particularly career-enhancing situation. You need to look at EVERY class of transaction and determine if it’s taxable or not taxable. This company didn’t even THINK of the cafeteria – they’re a steel mill! But over time, those $5.00 meals for three shifts add up.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

Monday, September 13, 2010

Sales and Use Tax Links

Business as usual for politicians.
Colorado veterinarians get bit by obscure sales tax, Fido takes the hit. Avalara

Etsy supports sales tax now
If you sell arts or crafts through Etsy (and who doesn't?), you can now collect sales tax. Etsy

Data center rules in Virginia
They've clarified the new exemption - it's not as good as you think. Vertex

10 Surprising Ways Your State May Tax You Next
Actually, this slide show doesn't really talk about any service that isn't already taxed someplace, but it's nice to see the general media talking about this. Kiplinger There's also an article on how things are getting worse for the states. Kiplinger

Department of Talmudic Inquiry: Define 'Candy'
There's a new plan to make the flour-in-candy food rule even more complicated. Argh! Actually, what am I saying? It'll only make it funnier when I talk about it! The Atlantic

In Virginia...energy-efficient products get a sales tax holiday timesdispatch.com

"Bulk Sale" - Notification Requirements and Exemptions
Technical story but don't miss the bottom line - if you purchase a business, make sure you know what the "bulk sale" rules are in the state. You could inherit the sales tax problems the seller had. accountingweb.com

Wacky Sales Tax Rules Cover More Than New York Bagels
More on the complicated rules regarding food taxability. forbes.com

Thursday, September 09, 2010

FAQ: Nexus and Independent Contractors

I was asked this question yesterday, and I realized that it was one of them there frequently asked questions.

"In one example [in a webinars] you discussed how having an employee (even transient) within a state could cause nexus. Does the same apply to independent contractors? We have some sales representatives that are not employees, but who do call on and sell to our customers. Does this vary state to state?"

Yes, the same rule applies to contractors (non-employees). I've not seen any rulings that differentiated between employees and contractors. The real question is what the person is doing for you. If they are representing you and helping you get or close business in the state, that's enough. And no, it does not seem to vary from state to state. As I said, every state seems to treat contractors the same as employees.

One of the reasons for this, I think, is that many employers probably misclassify their contractors anyway. I used to teach a course on this and the rules are a lot stricter than you think. Most of the people that you consider contractors would probably be reclassified as employees if the right people audited you. Thankfully, the sales tax auditor doesn't care about this one. They treat contractors and employees the same when it comes to nexus.

By the way, the contractor doesn't even have to be an individual. If you've got manufacturers rep firms representing you, that can create the same problem.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

Tuesday, September 07, 2010

Tips and Gratuities

"Would you like coffee with your hot glazed Krispy Kreme?"

The taxability of tips and gratuities is relatively simple.

If the tip is given voluntarily, then it's almost universally not taxable. So if you leave the money on the table, or if you add it to your credit card, there should be no tax on the tip.

However, it gets a little more complicated if it's a mandatory gratuity. What is a mandatory gratuity, you ask? You know those signs that say, "A charge of 17% will be added to the bill for parties of 6 or more." That's a mandatory gratuity. You also see these kinds of fees on bills for banquets and conferences.

The rules for mandatory gratuities obviously vary from state to state. But mandatory gratuities are usually not included in the taxable amount if they are separately stated and all of the money is paid to the employees.

This can present problems for the restaurant, though. They may not want the patrons to know that the employee isn't getting everything. I had a seminar participant who was the accountant for a country club. They charged the members a 25% "service fee" on every food and liquor bill. The members were asking why they had to pay tax since this was supposed to be the gratuity. It turns out that it wasn't all going to the employees. Here the members thought they were being big spenders and that the wait staff was getting all of that money. But in reality, the servers were getting 17% and the rest was going to the club. And the club didn't want the members to know. But because the tax had to be collected on the "service fee" the cat kind of got out of the bag.

In some states, there is an additional restriction even if the employee is getting all of the money. If that gratuity is being used against the tip credit for minimum wage purposes, it's still taxable. And, of course, there are some hardball states that just say, if it's a mandatory gratuity, it's taxable. Period.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

Picture note: the image above is hosted on Flickr. If you'd like to see more (and I can't imagine why), click on the photo.

Monday, August 30, 2010

Sales and Use Tax on Utilities

We usually think of electricity, natural gas, steam, telephone, water and sewer as utilities. Steam? Yep. In some larger cities, there are many facilities that still operate off of steam provided by a central plant and distributed via underground pipes. You hear about one of the steam pipes exploding every once in a while, in New York for example. And I think there was a particularly nasty scene in a book and movie called The Bone Collector, but we won't go there.

Anyway, utilities are usually taxable either because the state has simply said that they're taxable, or the state has defined utilities as being tangible personal property. Notably, water and sewer are usually not taxable. But electricity and natural gas are pretty much universally taxable, though sometimes at a lower rate. And telephone service is usually taxable, but is also covered by a whole 'nuther batch of telecommunications tax laws.

There are two major exemptions related to electricity and natural gas:

1. Manufacturing - Many states that have decent manufacturing exemptions will include these in the category of exempt consumables, depending on the way the utilities are used.

2. Residential - Many states make utilities exempt when purchased for residential consumption. Sometimes, it's seasonal. The residential utilities exemption in Wisconsin, for example, only applies from November to April.

And both of the above exemptions also frequently apply to other "fuels" used in the same way, such as propane, fuel oil, etc.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

Thursday, August 26, 2010

Sales and Use Tax Links

Orange Jumpsuit Time! Dozens of IL gas station owners accused of sales tax fraud WGN TV. Or maybe those owners will have to dress like the guy in the picture.

Memphis sales tax 13th highest, Tennessee No. 1 bizjournals.com
The Tax Foundation did a study. Tennessee has the highest sales tax burden too. Maybe it has something to do with that really high tax rate.

Bagels With a Slice of Tax nbcnewyork.com
The confusing food laws...turns out that bagel places really should be taxing the bagels when they slice them or if they're served for on-premises consumption. The rules for bakeries DO get a little confusing. And, of course, the customers are now complaining.

Tulsa Sues State Over Sales Tax Collections fox23.com
Apparently, the city thinks OK does a bad job at collecting sales tax and they want to do it themselves. They think they can do it better. Will we soon be adding OK to the list that includes AZ, CO, LA and AL?

South Carolina Spending Millions To Collect Unpaid Taxes blog.sabrix.com
Look out folks in SC. They spent money last year to hire auditors and it paid off. This year they're going to do it again.

Amazon.com & You: Internet Sales and the Long Arm of the Tax Man speedtax.com
Good recap of the current state of the Amazon laws, but also about how the states are getting super-aggressive in other ways to determine that your company has nexus in the state. It's worth reading if you do business in multiple states. Which is most of you.

Tuesday, August 24, 2010

Mistaken Manufacturer

I exchanged a couple of emails with a past participant yesterday. She'd been stung during a sales tax audit because one of her vendors hadn't charged her sales tax. So she wound up having to pay the use tax, plus interest and penalties. Standard stuff, of course.

What was interesting is that, after the audit, she called the vendor and asked why they didn't charge her tax. Their response was that they didn't have to, they were a manufacturer and therefore exempt.

What?

Now, to be fair, the product was odd enough that I can see there being some really arcane exemption lurking in the statutes. So I suggested she check on that. But it amazed me (I should learn to never be amazed) that a company would think that the manufacturing exemption would apply to what they sell.

Just to make sure, for some of you who may be reading this, when we're talking about the manufacturing exemption, it's for the purchases of the manufacturer who uses them in manufacturing. Every state has different rules of course, but that's the big concept. It doesn't grant an exemption to what the company sells! Sheesh.

Now, I'm sending a link to this article to (we'll call her "Jane") who gave me the idea for this article (thanks and a gold star to you!). But I'm going to have to chide her a little. I talk about the fact that, when an in-state vendor fails to charge you tax on something you think is taxable, you should call them and find out why. If she had made that phone call back when these purchases were made, she might not have convinced the vendor. But she would have known to accrue the tax, and thereby avoid the interest and penalties that she paid as a result of the audit.

And, as a consolation prize, I did tell her that the vendor was probably going to get audited. Let's face it. When an auditor comes across a few invoices from an in-state vendor where they didn't charge sales tax for any apparent reason, they're audit-bait.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo. And the subject of the picture has nothing to do with this story!

Friday, August 20, 2010

Associations as a Research Resource

"...Give me your tired, your poor, your huddled masses yearning to breathe free..

An information source that I frequently suggest is your industry association. You're already paying dues to them. You should check to see if they can help you.

Most importantly, there may be an sales and use tax exemption for your industry that they lobbied for and won. States don't hand out exemptions because they're feeling generous. They pass the laws because enough suits took them out for lunch and jawboned them to death. And the people paying for the lunches and the jawboning are the various industry associations.

Want to know more about the manufacturing exemption? It's not a bad idea to contact your state's manufacturers' association. Want to know more about any exemptions for photographers? Well, maybe not.

Some associations are better at this than others. It's a function of the amount of dues that members pay, the existence of any dedicated full-time staff, and the leadership of the organization. And whether the industry is taxed or regulated enough to make it worthwhile to do some research or hire lobbyists.

I used to belong to an state association, and while, looking back on it, there were some sales tax issues that the industry faced, the organization was more about networking, having meetings and conferences, putting out a nifty newsletter, and producing publications on how to build business. Even if they did something about sales and use taxes, the members were so intent on growing their businesses (mostly entrepreneurs) that they would not have paid attention. There was at least one publication about income taxes, but there's always a publication about income taxes.

So don't have high expectations, but check with them anyway. See just what you get for all those dues you pay. Here are some ways they might be able to help:

1. They may have published a book or pamphlet about how sales and use taxes relate to your industry.
2. They may have an SUT attorney or CPA that they can refer who has a lot of experience in the industry.
3. They may have put together a link list on their web site to sales and use tax resources
4. They may even offer seminars on sales and use taxes with a focus on your industry. If they're not, they might be open to doing something like that. Ahem.
5. You might be able to network with other folks through meetings and online forums to discuss any sales tax questions.

There's another benefit. If you're in accounting (and most of you are), you probably haven't had much interaction with your association. Usually it's the operations. executives, and marketing people who go to the meetings, read the newsletters, etc. You'll receive new-found respect in your organization if you start asking about how the association can help. OK, I'm lying in that last sentence. No new-found respect for you....sorry. But you still might find it rewarding to see what your industry association has to offer.

Finally, chambers of commerce probably won't be much help. They're not industry specific, which is what you want. And most of them are more interested in networking and boosterism rather than something as crushingly boring as sales and use taxes. Although you never know. They just might be willing to sponsor a sales and use tax seminar for their membership. Again, ahem.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo. It's actually got nothing to do with associations, but it's got a relatively funny caption.

Wednesday, August 18, 2010

Sales and Use Tax Links

More on the "Amazon Tax" and having nexus just because a seller has affiliates in the state:
Tax Code Already Includes Click-Through Nexus, 14 States Say BNA
and commentary along with another post on action by the Multistate Tax Commission from State and Local Tax 360˚

Not getting enough tweets? These states are doing it. BNA

Texas sales tax holiday this weekend brenhambanner.com caller.com

Pa. hopes to shame taxpayers into paying up BusinessWeek yorkdispatch.com

Monday, August 16, 2010

Casinos

This article comes from a question that was asked a few weeks ago involving casinos. This happens to be one of the topics that I don't know much about because I never research it before doing a class. I never get any questions about casinos. There aren't that many states that even have casinos; and people that work for a casino never ask. Like utility companies, heavily regulated businesses like casinos already know how they're taxed.

As I was preparing this, I realized I needed to write another article first, on First Americans, since that's an important part of this topic. So the original question generated two articles and an excuse to take a picture (see above). Kudos to the person who asked!

So I did the research and figured it out. I searched my trusty RIA database for "casino" and found quite a few hits. Unfortunately for casino operators, not many of those hits are good things for their tax planning. In fact, most of the "hits" were rules to make sure that, when casinos give away complimentary rooms and gifts, the use tax is paid.

If you think about it, the reason states even allow legalized gambling is for the tax revenue. So why would they give any tax exemptions? There are even a couple of places where casinos in enterprise zones don't get the exemption that every other business gets. "Yeah, that manufactuer gets this exemption but you're a casino? I don't think so."

I did find two states (IN and MS) that have some exemptions for construction costs related to riverboat type casinos.

And then, of course, there are casinos on reservations. This is the biggest potential exemption for casinos. Since they're owned by First American tribal organizations, their purchases would apparently be exempt. But some states do work out arrangements for taxes anyway. And the casino sales? Since most of the customers are not First Americans, sales taxes are still imposed on the restaurant, gift shop, hotel and admission charges.

Gee, now that I've been talking about this, there are a couple of riverboats near my house. And I'm feeling lucky. See ya later.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

Articles You Need to Read!

Welcome to the Sales Tax Guy, a production of salestax-usetax.com.

If you're new here, you may wish to start your exploration with our article on Sales Tax in a Nutshell and our subject index.

We've also written master articles on sales and use taxes:

a Guide to The Sales Tax Guy

the various Taxing Policies,

Things that will get you in the worst trouble,

the Golden Rules of Sales and Use Taxes, and

the Essential Actions you need to take.

And here are the best resources for finding answers to your questions as well as our seminars!

Disclaimer

Please keep in mind that our purpose is to provide general information to familiarize you with certain issues. The information we provide may not apply to your particular situation or to the applicable state, may oversimplify an issue, or may omit a point that is relevant to you. In addition, exceptions, unwritten rules, and different interpretations abound. And every state (and sometimes local jurisdictions) will do it differently. Therefore you should not rely on the information provided for your specific needs.

After reading any of our material or participating in training or coaching, you should always consult with an attorney, CPA or tax adviser who is a local expert in sales and use taxes for the applicable state, and/or do your own research in authoritative publications before applying the principles or suggestions mentioned.

See our suggestions about the best resources for finding information.