Monday, January 18, 2010

Where did the sale occur? (Part 2)

This is part of a mini-course on the two major types of sales (intrastate and interstate) and their impact on sales tax and use tax.

This is part 2. Here is part 1. Please start this series there.

Remember, from part 1, that Jennifer doesn't have to charge sales tax, for any state, on her interstate sale to Brad. The Constitution says so. The states can't tax interstate sales.

jennifer to brad - no angelina

In this situation, the responsibility therefore falls to Brad to pay use tax to Texas. Texas is the state where Brad took control of the motor for the first time - where he used the motor for the first time. Therefore, Texas gets to impose use tax on his use of the motor.

But Texas also knows that Brad is unlikely to pay this use tax. If Brad is an individual, it'll never happen. But in this situation, Brad is a business.

The problem is that if Brad is a small entrepreneurial operation, he doesn't even know he's supposed to pay something called use tax. His accountant (if he has one) probably doesn't know. If Brad hired a bookkeeper or AP specialist to help him, they would probably know about the need to accrue use tax because they did it at their previous job. But Brad hasn't gotten to the point of hiring any experienced office staff yet, other than his sister-in-law. He's in start-up mode, and he's just trying to survive.

Many small businesses are just not going to pay their use tax.

Texas knows this. And they also know they can't make Jennifer collect sales tax from Brad, because of that durned Constitution (see above).

But maybe they can get Jennifer to collect the use tax from Brad. Use tax is not a sales tax. It's not a tax on the transaction, so the Constitution doesn't get in the way. And it is the tax that Brad owes, since there was no sales tax imposed. So why not make Jennifer collect use tax from Brad instead of the sales tax?

You would be right! They can make Jennifer collect the use tax from Brad.

Or can they?

See part 3

The Sales Tax Guy

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions.

Here's information on our upcoming seminars and webinars.

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