The Sales Tax Guy: October 2010

Wednesday, October 27, 2010

Paperwork. There's no excuse.

As I've been perusing the news, one particular problem, which is eminently solvable, keeps coming up. So let me just say now: make sure you know what the paperwork requirements are, that you fill out the proper forms, and that you do things ON TIME!

Three examples:

Numerous sales and use tax appeals are lost because the businesses who suffered the assessments didn't file the necessary notices on time. Come on! And don't rely on the auditor to tell you what your deadlines are. I've seen at least one situation where the auditor gave incorrect information about the appeals process. When the taxpayer used that as an excuse, the courts basically said, "tough." Independently verify what you need to file and when you need to file it.

Enterprise zones, opportunity zones, etc. give nice sales and use tax exemptions, usually for businesses located in economically distressed areas. But there's paperwork and approvals that you must fill out and file.

And the classic example of paperwork that most of you are failing to get - exemption certificates. Get them. Remember that some states don't have to give you any time to get them when the auditor shows up. And you won't be able to get them from some of your customers when you ask. So get them now!

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 more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget 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.

Wednesday, October 20, 2010

FAQ: Why do I have to pay sales tax when I buy a used car?

This question came up on Twitter a couple of days ago. It's a frequent query, so I thought I'd respond to it here:

I'm not a "taxes are evil" guy. That said, charging sales tax on a used car seems weird. Hasn't it been sold already?"

The thing to remember is that sales tax is not a one-off tax. Most people think it is, but it's really not. Think about the name of the tax. It's called a "sales" tax. That means that every time it's sold, sales tax applies. So when the car is sold new, there's sales tax. When the dealer sells it used a few years later, there's sales tax. And when it's sold a few years after that, there's sales tax.

Obviously, the amount of the tax will go down every time the car is sold, but it's still subject to sales tax every time it's sold.

It's the same way with other stuff. Say you buy a painting at a art dealer. She'll charge you sales tax. A few years later, you discover it's incredibly valuable and you have an auction house sell it for a million dollars. They'll have to charge sales tax to whoever buys it. Even though you already paid sales tax on it.

Because every time there's a sale, there's sales tax.

There's one exception, and that's occasional sales. But let's keep it simple for now.

Monday, October 18, 2010

Notice a change?

I decided I needed to get the design of this blog into the 21st century, so I took advantage of some new templates provided by Blogger (Google). As a practical matter, I think it's a little more readable, which is the most important thing. Please feel free to comment on the change. Thanks for your indulgence.

The Sales Tax Guy

Newspapers

Newspapers are treated a little like magazines in many states. If they're sold by subscription, they may be exempt. However, they're not always taxed in the same way.

In fact, in most states, newspapers are simply exempt from sales and use tax. Whether sold over the counter, from a newsstand, or by subscription, they're usually exempt. The reason that I've heard most often for this state of affairs is that imposing sales tax on newspapers would somehow interfere with freedom of the press.

My own opinion is that, if you're the hapless politician who decides that imposing a sales tax on newspapers is a good idea, you should probably not count on getting any more endorsements or favorable coverage from your local print media. If you know what I mean.

But there are complications. There are states where newspapers are taxable. And there are some significant questions that don't come up when you're talking about magazines. While magazines AND newspapers are sold from stores and newsstands, what about the sales made from folks just standing on the street hawking papers; or sales from vending machines? And do they tax the sales of newspapers by carriers ... you know, the paper boy? These are all situations that are up for grabs in states where sales tax is imposed on newspapers.

You, the consumer, will rarely even notice that there's a tax on newspapers. This will be one situation where the tax will usually be absorbed, even if illegally. Which is probably why the publishers would really be upset if it came up as a way of balancing the state's budget.

But then, who reads newspapers anymore? (I kid).

Friday, October 08, 2010

Manufacturing Exemption: The "Use It Here" Rule

Here’s a sneaky situation involving the manufacturing exemption.

There are quite a few states who require that, in order for the exemption to work, the use of the exempt items must be within the state. This makes logical sense, given the purpose for the exemption. But there are a couple of situations (that I can think of) where a problem would occur:

Situation 1

The reason I even thought about this rule was because of a guy in the class who ran a truck routinely from his plant in state B to pick up manufacturing equipment at a dealer in state A. He had asked an unrelated question, and I started thinking about it and realized that there was a problem.

Let’s say you’re the seller in state A. Your customer, from state B, comes in and picks up manufacturing equipment. You try to charge him state A’s sales tax, but he waves around his exemption certificate from state B, maintaining that he’s going to be using this equipment in manufacturing. But in YOUR state, the manufacturing exemption only applies to manufacturing equipment that will be used in state A. The "use-it-here" rule. Since the purchase will not be used in state A, the customer’s state B manufacturing exemption is worthless.

Even if the buyer fills out state A's manufacturing exemption form instead, it won't be valid because he's not "using it here." And you will owe state A the sales tax you should have charged your customer.

The solution is easy - simply ship the equipment to the customer in state B. Then, since it’s a shipment out of the state, state A has no jurisdiction, and the delivery is in state B. Everybody happy.

A similar problem exists if state A didn’t have any manufacturing exemption at all. In that case as well, the buyer’s state B certificate is irrelevant. Same solution.

Situation 2

You purchase equipment and have it shipped to your location in state B. There’s a manufacturing exemption in state B, so no sales or use tax. But you then reship the machine to state C. Since you never used, or intended to use, the purchase in your plant in state B, and state B has a “use it here” restriction, you will owe use tax on that machine to state B.

Note that state C has a manufacturing exemption, but state B doesn’t care. And since you stored (used) the equipment in state B, they get to nick you for the use tax.

Remember, not every state has this "use it here" rule, so check it out first.

And if you can think of any more situations where this "use it here" rule would be a problem, please let me know.

Wednesday, October 06, 2010

FAQ: The out of state vendor hasn’t charged me sales and use tax, but they should have. How do I make them?

This is a simple question, but it’s surprising how often I get asked.

There are two likely reasons for the out of state vendor not charging you use tax:

1. They don’t know anything about what’s taxable in your state. All they know is that, if that if they’ve shipped it out of their state, they don’t have to worry about it.

2. They don’t collect taxes in your state because they’re not registered. You may think they should be, since you constantly see their sales rep in your office, but you’re not going to win that argument (unless you’re Walmart). And frankly, it’s not really a problem. You just accrue the use taxes and have a nice day. You’re always going to have to accrue some use taxes, so just systematize the process and you’ll be fine.

By the way, if you have “demanded” that the vendor start charging tax, how do you know they’re charging the correct state tax? They may be charging the tax for their state (which is generally wrong). Or they might “say” they’re charging your state’s tax, just to keep you happy. They might just be pocketing the extra billings.

Hey, it happens. If you’re going to demand that the vendor charge tax, and they do, make them give a copy of their permit for your state to make sure they really are doing it right.

Saturday, October 02, 2010

Sales and Use Tax News

Here are a few items I’ve picked up from RIA’s State & Local Taxes Weekly Newsletter. You should subscribe too. And please keep in mind I’ve REALLY summarized these items, so check out the details before taking action or making a commitment.

Alabama

There are lots of stories about the state winning because the taxpayer didn’t cross the i’s and dot the t’s. But they lost in this case because the state apparently didn’t fill out the assessment paperwork correctly. So it makes sense to be sure the paperwork they give you is correct. Taurus Investment Group, LLC v. Ala. Dept. of Rev., Admin. L. Div., Dkt. No. S. 10-339, 07/06/2010

California

For taxpayers affected by the San Bruno explosion and fire, they can get an extension on their taxes. Of course, there are forms to fill out. California SBE News Release 98-10-Y, 09/10/2010 ; Employment Development News Release #105, 09/10/2010

Florida
The cap on sales and use tax for a boat is $18,000 for purchases or use after 7/1/10. Florida Tax Information Publication 10(A)01-07, 06/22/2010

A tennis instructor pays the city a fee to be able to offer lessons on the city-owned courts. That’s a license to use real estate. It’s taxable in Florida. The city should have charged sales tax on the fee. Florida Technical Assistance Advisement 10A-033, 07/02/2010

As of 1/2/11, government agencies (except Fed) will be issuing Certificates of Entitlement to contractors to allow them to buy materials for public works projects tax free. Florida Tax Information Publication 10(A)01-18, 08/16/2010

Illinois

You’ll be able to pay your use taxes on your personal income tax return, and there’s a use tax amnesty program in effect after 12/31/10. 35 ILCS 5/502.1

Indiana

Water heater rentals are taxable. AWHR America's Water Heater Rentals, LLC v. Indiana Department of State Revenue, Ind. Tax Court, Cause No. 49T10-0710-TA-50, 07/15/2010

Kansas

Point of purchase rebates for energy efficient appliances do not reduce the tax base. Kansas Private Letter Ruling P-2010-006, 09/09/2010

Labor to install fencing in new feedlots is not taxable. Labor to install fencing on new rangeland is taxable. Kansas Private Letter Ruling P-2010-007, 09/13/2010

Kentucky

Small cities and counties can get a rebate on the taxes collected on admissions to government facilities. Sales tax rebate on sales at a governmental facility, 07/16/2010

Massachusetts

If a customer’s check is NSF, and you haven’t filed the return for the month that the sale was recorded, you can deduct that sale on line two of your return. Otherwise, you have to treat it as a bad debt. Massachusetts DOR Directive 10-3, 07/07/2010

Wind turbines and towers used to generate electricity for consumers are exempt. Massachusetts Letter Ruling 10-3, 07/07/2010

Michigan

If you add a piece of equipment to a truck that is exempt under interstate commerce, it’s taxable, unless it replaces a component when it was sold. Michigan Internal Policy Directive 2010-1, 06/28/2010

New Jersey

Cable companies are being reminded that the equipment provided to customers is taxable. Notice to Cable Television Service Providers—Customer Premises Equipment, New Jersey Division of Taxation, 09/03/2010

Missouri

Canned software delivered as “load and leave” was ruled to be not taxable. Filenet Corp. v. Director of Revenue, Mo. Admin. Hearing Commn., Dkt. No. 07-0146 RS, 08/20/2010

New Mexico

A couple operating a babysitting service got busted for not filing gross receipts tax returns. In the Matter of the Protest of Flores, New Mexico Taxation and Revenue Department Decision and Order No. 10–05, 03/24/2010

New York

All Empire Zone exemptions expired on June 30, 2010 New York Technical Service Bureau Memorandum TSB-M-10(6)S, 06/30/2010

Movies delivered via satellite to theatres are not taxable since they aren’t TPP. But movies delivered on a hard drive ARE taxable. New York Advisory Opinion TSB-A-10(27)S, 06/29/2010

Roller coasters qualify as capital improvements. In the Matter of the Petition of Amusements of WNY, Inc., NYS Division of Tax Appeals, ALJ, Dkt. No. 822534, 08/04/2010

Auditor audits nightclub - can’t get records, even though he has the contact information for the previous owner. Auditor assesses the previous owner based on estimates. Auditor loses. The court said “deliberate chose the course of least resistance.” In the Matter of the Petition of John Smythe, NYS Division of Tax Appeals, ALJ, DTA No. 822160, 08/26/2010

Just a reminder - the clothing exemption is temporarily being suspended. New York Technical Service Bureau Memorandum TSB-M-10(16)S, 09/07/2010

If the dealer includes free oil changes for life in the price of a car, and clearly says so, then his purchases of oil are for resale. New York Advisory Opinion TSB-A-10(39)S, 09/14/201

South Carolina

SC has a pretty broad interpretation of taxable communications services. If the online service facilitates communications, or provides information, it’s a taxable communications service. S.C. Code Ann. § 12-36-60, S.C. Code Regs. § 117.329.4, South Carolina Private Letter Ruling 10-2, 07/29/2010

Texas

Own a server that’s kept in Texas? Or any TPP, for that matter. They say you’ve got nexus in Texus. 34 Tex. Admin. Code § 3.286, effective 07/11/2010

There’s going to be an Energy Star holiday in May 2011. 34 Tex. Admin. Code 3.369, effective 09/09/2010

Utah

Out of state residents can purchase off-road vehicles tax free. Utah Informational Publication 5, 06/01/2010

Virginia

They have a new data center exemption. It’s only for equipment and TPP for the data center, not general improvements to the building. Virginia Public Document Ruling 10-121, 06/29/2010

Energy star holiday 10/8 to 10/11 Virginia Public Document Ruling 10-222, 09/23/2010

West Virginia

Energy Star sales tax holiday through 11/30. West Virginia's Energy Star Sales Tax Holiday Begins, Governor's Press Release, 09/01/2010

The services of an IRS Enrolled Agent aren’t taxable as professional services - as long as they’re acting as one. West Virginia Administrative Notice 2010-25, 09/09/2010

Articles You Need to Read!

Welcome to the Sales Tax Guy, a production of salestax-usetax.com.

If you're new here, you may wish to start your exploration with our article on Sales Tax in a Nutshell and our subject index.

We've also written master articles on sales and use taxes:

a Guide to The Sales Tax Guy

the various Taxing Policies,

Things that will get you in the worst trouble,

the Golden Rules of Sales and Use Taxes, and

the Essential Actions you need to take.

And here are the best resources for finding answers to your questions as well as our seminars!

Disclaimer

Please keep in mind that our purpose is to provide general information to familiarize you with certain issues. The information we provide may not apply to your particular situation or to the applicable state, may oversimplify an issue, or may omit a point that is relevant to you. In addition, exceptions, unwritten rules, and different interpretations abound. And every state (and sometimes local jurisdictions) will do it differently. Therefore you should not rely on the information provided for your specific needs.

After reading any of our material or participating in training or coaching, you should always consult with an attorney, CPA or tax adviser who is a local expert in sales and use taxes for the applicable state, and/or do your own research in authoritative publications before applying the principles or suggestions mentioned.

See our suggestions about the best resources for finding information.