Wednesday, March 31, 2010

Illustrations and Parables: Garbage Cans

e080405c-raw010-01copy_01Sorry I haven't posted in a while. I was on the road last week and the week before was preparing for the road trip. And this week is, well, I'm just exhausted. But I wanted to let you know I was still alive.

Anyway, the road trip was productive, I picked up a couple of good stories for you.

One of the women in my class owned a garbage-hauling business. Now that's not a taxable service in this particular state, so don't get excited. But she did get audited, and was busted for not charging tax on the rental of her dumpsters. Apparently no one told her that rental of tangible personal property is taxable, which definitely includes those dumpsters.

By the way, the name on the dumpster pictured above was not the name of her company. It's just the only dumpster picture I had. And I always knew having a picture of a dumpster would eventually come in handy.

So the auditor assessed her $30,000 for the sales tax on the rent. Hers was a small company with only about 35 employees. So this was a pretty significant financial penalty

To add insult to injury, the auditor didn't mention to her that, since she was a lessor renting the dumpsters, she would be able to buy them tax free - for resale. Dang auditors.

What can we learn here?

1. She didn't check to see whether or not all of her sales were taxable. You need to carefully review all of your sources of cash, and see what the law says about them in the state where the service is performed, or the delivery occurs. Since the garbage hauling service wasn't taxable, she didn't even consider the fact that an ancillary service just might be taxable.

2. If you find out something is taxable, explore for other opportunities that the situation uncovers. Like being able to buy stuff for resale if you have to charge tax when you rent it to people.

The Sales Tax Guy

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

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

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