Monday, January 11, 2010

Where do sales tax and use tax laws come from?

So, where do all of these sales and use tax laws come from?

1. The US Constitution

Our founding fathers did a good job. But the Constitution does present some limitations on what the states can do. The document restricts the states' ability to tax interstate commerce, First Americans, the US government and it also imposes rules regarding due process and equal protection.

The problem is that, because it is so general, the meaning of the Constitution is really found in the court cases (see item 7).

2. US Statutes

These are laws passed by Congress. There aren't many related to sales and use tax and the ones that exist are related to specific issues, such as credit unions and telecommunications. But the biggest federal law is the one that hasn't been passed. Congress could allow states to tax interstate commerce. But they have not. If they did, then Amazon. com would have to charge you tax on your book purchases, saving you the trouble of voluntarily reporting that tax to the state. You are reporting the tax, right?

3. State Constitutions

I normally don't see many references to this one in my SUT research. But these laws provide the foundations and parameters for the rest of the state rules.

4. State Statutes

This is the true basis for most of our sales and use tax laws. The state legislature passes these laws and the guv signs them. Unfortunately, politicians write these laws.

5. State Regulations

When the politicians pass the laws, there are always holes that need to be filled in. The legislature usually leaves the nuts and bolts to the state tax department who take care of the details. The regulations (the name varies from state to state) are where the rubber truly does meet the road. When I do my research, the first source that I look at is usually the regulations.

6. Bulletins

The laws and regulations don't cover everything. Sometimes a situation comes up that needs to be addressed. And regulations take too long to change. So the state will issue a bulletin (this name varies from state to state).

The problem is that these are often hard to find. Most states seem to either omit them from their web site, or list them by number with no explanations. It makes it hard to browse looking for something that will help you. And, well, have you tried the search box on the state web site? I thought so.

7. Courts

The judges look at vague or conflicting constitutions, statutes, regulations and bulletins and decide how they apply or if they apply.

However, court cases are often not easily available. There are a LOT of them, they're hard to read, and only the most important are freely available on the web. Lawyers get paid a lot of money for searching court cases.

Items 1 through 5 are usually pretty easy to find on the web. Numbers 6 and 7 are harder. If the law is in the auditor's favor, they'll the relevant bulletin or court case. But if they don't like the court case, or the bulletin gives you a break, you won't hear about them.

So you need help, because the bulletins and court cases have really important information. And they're the toughest to find. Your best resources are going to be either a good sales and use tax professional, or a subscription to an online database. Both are expensive. But both can get you to information that you might not be able to otherwise find.

The Sales Tax Guy

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

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