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

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

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