Lots of Weirdness in Arkansas

I'm going to have to start making fun of entire states in this series of Nutty Rules.

Rarely do I see such a patchwork of laws, nesting exceptions, and missing or downright conflicting rules. For example, installation services are shown as being not taxable. But there is this thing called "initial installation." It's taxable. Would someone please explain to me how often someone has a "second installation?"

And their manufacturing equipment rules are head-scratchers. There's an exception for equipment for new facilities and expanded capacity. And there's an exception for substantial replacement of machinery. What's left? It seems like the politicians really don't know what they're trying to accomplish. They also call things manufacturing, like drying agricultural products, that don't really seem like manufacturing. Maybe it's just me.

Let's talk containers. According to the regulations, only manufacturers, processors and restaurants can take advantage of this exemption. I can't believe that the corporate home of Wal-Mart wouldn't let retailers skate on the cost of bags. Come on, Arkansas. All the other states have a general container exemption, why not you?

Many states have a residential utilities exemption. Arkansas has it, but the threshold means you'd have to be so poor, I'm not sure how you'd afford electricity in the first place.

Many states do not have a broad non-profit organization exemption. And as with those other states, Arkansas does let a few organizations off the hook. You wonder what friends those organizations had that they were able to get an exemption. And what about all of the other deserving charitable organizations?

I have the feeling that Arkansas politicians have taken the concept of "adding more laws, but not cleaning out the ones you already have" to a new level. Have you seen the exceptions under their Consolidated Incentive Act? And I count 15 different additional taxes that the locals can impose.

Hey, I'm really not complaining. All that complexity makes for loads of entertainment when I prepare for one of my Taxing Policy webinars. And complexity keeps me employed. So I'm all for it.

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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 information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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Showing that you've handled the invoice correctly

[This is a major revision and replacement of an article from November of 2007. Nothing wrong with the original, just simplifying.]

According to one of the Golden Rules, if the vendor didn’t charge you tax, then you owe use tax (subject to a lot of exceptions ).

One of the important jobs of Accounts Payable is to catch the invoices that don’t have taxes charged and to accrue the use taxes. This is the outline of a procedure that you’ll need to customize to your own organization, but hopefully you'll get some ideas. You don't have to do it this way, but you should be able to document, on the invoice, why the invoice WASN'T taxable, or if you PAID the tax.

The image at the top of this article is a simple rubber stamp design. If you stamp each non-taxable invoice with something like this, you clearly demonstrate to the auditor that you have been carefully following an important procedure.

Here's the procedure:

1. Did the vendor charge you tax? Then you have no need of this rubber stamp - pay the tax (assuming the vendor charged the correct tax).

2. If the invoice isn’t taxable (based on your cheatsheet), you will now want to indicate why it isn’t taxable and therefore why you didn't accrue. A few sample reasons are:

RS - purchase for resale
DM - purchased for direct use in manufacturing process
RP - real property, not tangible personal property
S – service, not taxable
EX1 – exempt for reason number 1 from your cheat sheet.

Write the reason in the space available on the rubber stamp. Now you have something clear, on the face of the invoice, explaining why you don't need to pay tax on this purchase. This makes it easier for the auditor to quickly review and move on.

3. If taxes weren't charged and the purchase was taxable, then you must accrue the use tax. Calculate the tax and post it as part of your invoice distribution (debiting UT expense and crediting the UT liability account). I assume you show your accounting distribution on the face of the invoice or in an attached document. Again, you make the auditor's job easier (and faster) if they can see, just by looking at the invoice, that you've accrued the tax. And they can follow it through your accounting system.

Use some method of showing, on the invoice, why it wasn't taxable. And if it was taxable, how you accrued the tax if the vendor didn't charge tax. You'll get less questions from the auditor, they work faster, and get out of your hair quickly. It's a good thing.

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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 information on 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.

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Felony Watch

Articles I've twittered recently about people who are probably going to get fitted for orange jump suits:

Florist faces prison time for stealing sales tax money - http://bit.ly/cotfWy

Women sentenced in dog, tax evasion- http://bit.ly/b9wd4o

Acct. sentenced 2 prison 4 sales tax fraud with New City eatery owner - http://bit.ly/dffs6G

Man convicted for not paying $250,000 in sales tax- http://bit.ly/dC9OwC - Oops - probation

Owner of Wing City Grille, other restaurants, pleads glty to sls tx thft - http://bit.ly/bPsXfS

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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 information on 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.

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Recent Twittered News Links

Florida businesses think streamlined sales tax going to solve the problem - http://bit.ly/9XQ1MA http://bit.ly/aZTMmy Better think again.

Food still fully taxed in Alabama - http://bit.ly/cKwz7W

Tax holiday for some appliances in MO - http://bit.ly/bO4qOr

Bredesen warns TN state workers' pay cut absent big-ticket item tax - http://bit.ly/a73jme - It's blackmail time!

Amzn e-book battle with publishers http://bit.ly/9mZF7L Don't fight with Amzn.com on sales tax - they got it figured out!

Audit suggests ending sales tax break in New Jersey's UEZs http://bit.ly/bnnB38

Sales tax evasion in Georgia - http://bit.ly/9Hv3Ed

Florida yacht tax cap gains another ally - http://bit.ly/dzDHfk

An interesting edu for youngr voters about the reach of the state's treasury into their pockets - http://bit.ly/aGBpz0

Washington State’s 30 new tax laws - http://bit.ly/dpVAKq

Amazon Fights North Carolina Data Demand - http://bit.ly/bZiELi

Pennsylvania aims to raise $190 million via tax amnesty- http://bit.ly/910Jo0

Mo. Lawmakers Vote To Overturn Sales Tax Rulings on resale - http://bit.ly/910Jo0

Should Massachusetts Reduce Its Sales Tax? - http://bit.ly/bEkMKL

I wonder if it's an election year thing. Florida gov gets back-to-school tax 'holiday' bill - http://bit.ly/bhmm24

Baltimore City hotels balk at spike in taxes - http://bit.ly/cWalmQ And MD says they're NOT anti-business.

New Post on the Sales Tax Guy: Janitorial Services http://bit.ly/d9S1Kr

Cash-strapped states go online, hoping to tax sales - http://bit.ly/cyOJq0

In a State’s Search for Sales Tax, Amazon Raises Privacy Concerns - http://nyti.ms/azxDxA

Fact checker: Walmart shuffle isn't likely to make tax dent - http://bit.ly/cyOJq0

Illinois may have sales tax holiday - good idea since they're broke - http://bit.ly/a6fKmv

Kansas halfway to 1% increase - http://bit.ly/aCQKbz

Loss of Sales-Tax Break Could Force Cuts at Middle Ga. Non-Profits - http://bit.ly/cbymxY

Kansas Legislature approves 1 percent sales tax increase - http://bit.ly/dmnHn8

Orange jumpsuit time!: New Hartford sub shop owner arrested In tax probe - http://bit.ly/9SZ0ML

Va. To Hold Hurricane Preparedness Sales Tax Holiday - http://bit.ly/9IOtM2

NV Sales Tax Accidentally Raised by Legislators, Governor During Special Session - http://bit.ly/cI1IIm

Just when you thought you saved a buck, the “Tax Man” cometh http://bit.ly/aBQjDk

TN - Sales tax exemption proposed for flood victims - http://bit.ly/aqmm4C

NY Eateries in Tax Crackdown - http://bit.ly/a5cfLF

3rd Annual Texas ENERGY STAR Sales Tax Holiday - http://bit.ly/97Lq1b

Arizona OKs sales tax increase to balance budget - http://bit.ly/bt7bah

New York Governor Proposes New Soda Tax - http://bit.ly/ch5V6O And people wonder why sales tax is complicated

Retailers eager for sales-tax holiday - http://bit.ly/9qUhhC

TX Sales tax takes a holiday on some appliances this weekend - http://bit.ly/bcAggC

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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 information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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Freight Charges

This article was originally written in August of 2007. I recently reviewed it and it still is correct!!! But I thought I'd add a few additional items.The taxability of freight or delivery charges is one of the most frequently asked questions. And the rules vary all over the place. In more than half the states, freight charges are taxable. This means that you would add the charges to the merchandise total in determining the basis for the tax calculation.

This means that, if the sale is taxable, then the freight will be taxable in those states. But if the sale is not taxable (eg. manufacturing equipment or resale), freight isn't taxable.

Here are some additional points. Remember though, that whether or not freight is taxable is only a question if the sale is taxable.

1. If the seller is actually separately showing his inbound freight (the freight the vendor pays to acquire the property), then that charge is usually included in the basis - it's taxable. For freight charges to be non-taxable, they can only be for shipments from the seller to the buyer.

2. In states where shipping charges are NOT included in the basis, there are usually restrictions. Here's a laundry list of the possible requirements. Note that these are highly variable:

• Is the freight charge separately stated? This is universal. For shipping charges to be non-taxable, they must be separately stated on the invoice.
• If the sale terms are FOB origin, then the freight isn't taxable. Does the ownership transfer at the shipping point?
• The seller can't make a profit on the delivery charge: the charge better be pretty close to what the carrier actually charged the vendor. If the seller's freight charge is more than the freight he paid, the freight charge is taxable.
• Did the seller ship via common carrier or in his own vehicle?
• Does the buyer have the option of arranging their own shipment or going and picking up the goods at the seller location?
• Was the freight charge separately agreed upon? In some states, having it be on a separate line on an order form is enough. In other states, it must be a separate physical contract. In other states, it depends on the precise wording of the agreement. If there's any restriction that is a highly gray area, this is the one.

4. Shipping charges billed directly to the buyer by a common carrier are generally not taxable (these are "collect" charges). The buyer owes no use tax on those charges.

Please remember that this is a taxing policy that is highly variable from state to state. You need to research this carefully.

Then there are those "easy" states who just say "Is the sale taxable? Then the freight is taxable." I love those states.

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The Sales Tax Guy http://salestaxguy.blogspot.com
See the disclaimer on the right.
Don't forget our upcoming seminars and webinars. http://www.salestax-usetax.com and there's more sales tax news and links here http://salestaxnews.blogspot.com

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

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Leaked Photo

This is purportedly an image from the photo shoot for Jim "I got the sales tax blues" Frazier's new album cover and collateral material. Fans will remember after his initial smash success with "File that sales tax!" he almost immediately angered and alienated his fan base with his next album's title "I love my Nikon more than my Harley". It appears as if Jim's production color scheme has been lifted directly from Dana's "pink guitar girl rocks" album artwork. An artist who's lost his artistic vision ?

This critic can only hope that Jim's music senses haven't left him - as clearly his sense of color has.

Jim's production company was not available for comment as to the authenticity of this photo at the time of this upload.

[A friend (sirchuckles) posted this on Flickr and I had to pass it on to you folks.]

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