Saturday, July 17, 2010


"What am I going to do with this?"There's real property. And then there's tangible personal property. We defined both last year.

Usually, sales of real property aren't taxable. Although services performed on real property are often taxable.

Tangible personal property is, by default, taxable. And services performed on tangible personal property are very often taxable.

But there's a third type of property: intangible personal property. This is property that really is a right to something. It may be documented by a piece of paper, metal or plastic. But that item only documents the right. Intangibles would include stocks, bonds, licenses, permits, etc. Since intangible personal property is pretty obviously not tangible personal property, then intangibles would be, by definition, not taxable.

This is one of the reasons why most of the sales made by government agencies, particularly at the state and local level, aren't taxable. They sell mostly permits and licenses, which are intangible. This is also why you don't have to factor sales tax into your investment planning. There's no sales tax on stocks. Gold? That's a different story.

And in most states, gift cards and certificates aren't taxable when you buy them. When I bought that card in the picture above, I paid $50 with no tax. I didn't really pay $50 for a piece of plastic. I'm dumb, but not stupid. I paid that $50 for the right to buy $50 worth of food from one of the restaurants that accept the card. Generally, states will not impose tax on these kinds of pre-purchases. The tax gets imposed on the purchase when the card is used. When they handed me the bill at the restaurant, it included tax. I then simply paid the bill (including the tax) with the gift card.

One exception is phone cards. Most states do impose sales tax on phone cards.

It's too bad money can't buy happiness. Because at least it would be exempt from sales and use tax.

The Sales Tax Guy

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.

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