Friday, February 25, 2011

An Interesting Issue with Rental of Tangible Personal Property

Skyjack

I came across an interesting item when I was browsing New Jersey's sales and use tax rules today. It's regarding the leasing and rental of tangible personal property.

First of all, to recap the general rule in most states: the rental of tangible personal property is a taxable sale. The lessor must charge sales tax on the rental charge of the TPP. But this also allows the lessor to buy the equipment "for resale" so he doesn't have to pay sales tax on his purchase. All he has to do is provide a resale certificate to his vendor. Done.

Now this particular glitch is one I noticed because it was clearly spelled out for New Jersey. But it probably applies in the other states as well.

The lessor buys equipment to rent. He pays no sales tax. He charges his customer tax. But what happens when there's an operator involved?

Now we have to figure out if the real transaction is the hiring of the operator, with the equipment becoming incidental to the real purchase of the operator's services.  Or are we still renting a machine and the operator is just there because we don't know what levers to pull? 

There are a couple of different ways that the states handle this:

1.  If the operator has control over how the machine is used, it's no longer a taxable rental (with some variations on what is meant by control).
2.  If the cost of the operator is more than the cost of the rental, it's no longer a taxable rental.
3.  If there's an operator, it's no longer a taxable rental.  Period. 

Here's the glitch:  Let's say you routinely provide your equipment with an operator.  And based on the way the state's law works, the rental becomes non-taxable.  Then you really can't be purchasing the equipment with a resale certificate anymore, because you're really not buying for resale.  You're not charging sales tax anymore because you're not making taxable sales.  You're really using your equipment, or rather, your operator is.

So, if you're the lessor, you should have had your vendors charge you tax (or you should have paid use tax) when you bought the equipment you rent with an operator. Which means, if this is new to you, you owe the state a bucketload of money. 

Interesting huh?  I wonder how many leasing companies do this;  Or have gotten busted on this.  And I wonder how many auditors even check for this.  

This illustrates a larger issue.  Many sales tax exemptions are based on how you will use the purchase (or not use it, in the case of the resale exemption).  But if you change your mind later, you lose that exemption.  How many of you are paying attention to this?  Here's another example where sellers get burned all of the time.

Hope I didn't ruin any weekends.

Well, OK, yeah, I kinda do.  (grin)




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

Friday, February 18, 2011

Felony Watch: Links

Roof Apparatus

Putnam businessman arrested for failing to pay over $1 million in sales taxes
This may be the biggest I've seen yet - the tab is over a million on a couple of masonry supply yards. Don't all of these assessments make you wonder, when the vendor charges you sales tax, if the money is going to the state, or going into the vendor's pocket? midhudsonnews.com

St. George restaurant owner faces sales tax evasion charges
It's a pizza place and the tab is $90,000 (pure amateur compared to the item above). standard.net

Ex-Anderson Mayor Rex Lynch arraigned on felony charges
This time they get an ex-mayor. The article talks mostly politics, but the gist is that he allegedly evaded sales tax on some vehicle sales. knoxnews.com

Albany bar owner, Rankins, gets six months in jail for not paying sales tax
Yeah, some orange jumpsuit time! Nice to see. The tab is $132,000. What a surprise, a bar owner. troyrecord.com

Brooklyn Park business loses sales tax permit
The tab is $92,000. And this is different - a landscaping business. hometownsource.com

Missouri moves to close Comfort Inn Kansas City Airport in sales tax dispute
Supposedly, they didn't have a sales tax license before they opened. You'd think that would be one thing on the "franchise opening a business checklist." bizjournals.com

Ontario County Man Charged In Theft Of Sales Tax
Former cop, allegedly didn't file returns, then was contacted, under reported collections, quit filing again, and now is in court - maybe jail. The tab? $240,000 What kind of business? Pizza place. oneidadispatch.com




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. 

Monday, February 14, 2011

A Sneaky Sales and Marketing Trick - Revisited

SirChuckles Gets a New Tat...

Listen up sales and marketing people.  Since I'm currently working on educating you, here's an important tip that I wrote back in June 2010.

If the following conditions are happening to you, you really, really need to read that article.

1.  Do you have an out of state competitor who regularly steals business from you because they don't have to charge tax, but you do?

2.  Do you know, or at least suspect, that they have nexus in your state? 

3.  Are you sneaky and nasty?  Actually, that's kind of a silly question if you're in sales.  I kid.

Then take the steps mentioned in this article.  You probably didn't know you could do these things (neither do most accounting types, so don't blame them), but depending on your state's laws, you can at least make some trouble for that competitor.

Enjoy. 



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, February 09, 2011

Sales and Use Tax for Sales and Marketing People

Lots of Suits at Gate B16

OK, for the record, I used to be in sales.  I've had several careers, and I spent 12 years in sales and sales management.  And I now own my own company, which counts as sales too.  So I know from where I speak.   I'm not just some guy from Accounting trying to make your life miserable.

Well, actually, I am trying to make your life miserable.  But that's a side benefit.  You see, I've never lost my accounting roots.

There are a few things that you folks need to know about sales tax.  First of all, it's a SALES tax.  Doesn't that sound like something you that you should be familiar with?

This project is going to take more than one article to cover, so I'm going to start with the most important points, and then add links to additional articles as they get written.  I'm sure your accounting people will forward you the link whenever an article pops up.  In the meantime, you can subscribe to this blog (see the box on the right at the top of the column) or you can follow me on Twitter.  I actually post other stuff besides sales tax on Twitter.  Like Dilbert.   

Here are the first two points, and they're closely related.

If you have offices, warehouses, property or even people in a state, then you may have to start collecting taxes on stuff you sell and ship there.  Even if your people don't live in that state, or maintain an office in that state, you may have "nexus" in that state.  You may be required to charge that state's tax on what you deliver there, and follow their rules on what's taxable and not taxable.

This may be disappointing for you because one of the major reasons you're making sales in that state is simply because you always thought you didn't have to charge tax.  Bummer.  Now you do.  You're going to have to start working harder.

Which brings up another problem.  What you think is taxable or exempt isn't the way it is there.  Every state taxes things differently.  For example, let's say you sell computer equipment and you're based in Chicago.  You send your sales people and installers up to Wisconsin on a frequent basis, but you don't maintain an office there.  That is, unless you consider the passenger seat of your sales rep's car to be her office.

You now have nexus in Wisconsin.  Which means that everything you deliver in Wisconsin needs to have Wisconsin tax imposed.

But wait, there's more (salespeople love that term, don't they?).

You know all that service and installation work you do in Wisconsin?  You should be charging Wisconsin tax on that too!  Wait a minute!  You're thinking that repair labor charges and installation charges aren't taxable.  They aren't.  In Illinois.  But you're in Wisconsin now, bub.  And they are taxable there.  See what I mean about it being different there? 

So to recap: you can make your company subject to the jurisdiction of another state by having facilities, people or property in the state.  In other words, a physical presence in that state.  When this happens, you have nexus in that state.  And then you have to collect that state's tax and follow their rules, which are probably completely different from the rules in your state.

Here's another example, then I'll send you on your way.

In most states, contractors pay sales tax on the building materials that go into the job.  This is the case in New Jersey.  But New Jersey has a "flow-through" exemption.  This means that if they're doing a project for a non-profit organization or a government agency, the construction contractor can get an exemption for the sales tax on the materials for that particular job. 

But Pennsylvania doesn't have a "flow-through" exemption.  And many contractors from New Jersey get jobs in Pennsylvania.  And they bid on the jobs assuming that there is a flow-through exemption.  They didn't know it's different there.  Then they start having materials delivered to the job site in Pennsylvania and discover that it's all taxable!  And they have now underbid the job.  I hear about this every time I do a seminar in New Jersey.  Contractors are getting burned on this all of the time.

Always remember, it's different there.

Ok, you can now go back to making sales.  But stay tuned.  There will be more articles written just for you (and anyone else who finds them useful)




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. 

Thursday, February 03, 2011

Would you like an on-site seminar? Right now!

Actually Doing My Job

Interested in having more than four or five people trained?

Interested in having your people have a more interactive seminar experience?

Then you just might want to have us come to your business and do an on-site, customized seminar for you.

We've reduced our pricing, and included more in that price to make on-sites more attractive. Our fee is only $1200 and that includes customization to your state with a little extra adding and deleting as well. You can't beat that (really, I don't think you can beat that). Travel is extra, of course, but if you're within 8 hours of Chicago, you can even reduce that cost.

Maybe you don't have enough people in your company, but know of another organization in the area that could use some training? If a few companies want to join together to bring us out, we're thrilled.

So make some calls, run the numbers, and bring us out. We'd love to hear from you. Please contact us at jfrazier@gadwall.com or 630-406-5861.




The Sales Tax Guy
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.