Things Change

I was doing an on-site seminar earlier this week, and one of the things that came up, that I thought would be worth mentioning here, is that things change.  The problem is that we make decisions about sales and use taxes (along with everything else) and then move on.  A few years pass and things have changed.  But those decisions are still in place.  And if someone asks about it, you say, "Oh, we decided about that years ago."

Have you reevaluated the situation to see if the sales tax situation has changed?

Here are just a few things that immediately spring to mind where you might make a decision, and see the situation change, resulting in a serious error down the road.

Nexus
A couple of years ago, you decided the the presence you had in a state did not mean you had nexus.  You were even right!  But then, over the years, you have more sales people visit the state, you start renting equipment in the state, do some seminars, send your own trucks into the state, or some court cases are decided which result in you now having nexus.

And then, there are the new states you're in that you haven't even considered.  

Taxable services
You've determined that the services you offer aren't taxable in the states where you sell.  But are you subscribing to a tax newsletter to make sure that the state doesn't make those services taxable?  States are constantly looking for ways to expand their tax base and adding taxable services is one of the ways.  If you're not staying up to date, you're in for a surprise.

Occasional sales of equipment
In the past, you've occasionally sold the odd piece of equipment.  Those were occasional sales in most states.  But your business has grown and now you're an equipment dealer.  I just wrote an article about this last week. 

The moral?  Periodically you should take a big picture look at your past sales tax decisions and see if anything needs updating. Don't assume that the decision you made a couple of years ago is still good.

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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 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. 

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Want to keep up on the Amazon news?

Our good friends at Amazon.com are making a LOT of sales tax news lately.  Whenever I look at the news, most of the articles seem to be about Amazon.  There are "associate" laws being passed in various states, including Illinois I'm embarrassed to say.  Then you've got politicians, editors and business people complaining about the unfair advantage Amazon has.  I don't necessarily disagree with their sentiments.  It's just that their lack of grasp of the underlying laws is really annoying.  And I'll bet very few of those politicians, editors and business people pay the use tax on their Amazon.com purchases anyway.  Sigh.

Rarely is there a reasoned and intelligent article, and when I come across those, I try to tweet them.  But I'm going to avoid the rest of it.

So if you're game to keep track of Amazon's sales tax adventures, here's a link for you.

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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 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 (jungle - Amazon - get it?) is hosted on Flickr. If you'd like to see more, click on the photo. 

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Parables and Illustrations: Do you sell equipment?

If you sell old equipment, you may be making taxable sales.  Have you taken a look at this problem?

One particular construction company that I'm familiar with (heavy/highway) is constantly buying new equipment.  Constantly.  The owner really likes new equipment (he must have been a big fan of Tonka toys as a child). 

In the old days, as he bought new equipment, the owner would need to sell the odd piece of used equipment.  This happened a couple of times a year and the transactions were concluded over a beer at the local tavern.  These were "occasional sales" and wouldn't be taxable. 

But, as the years went by, and the company grew, they found themselves getting rid of more and more used equipment.  They added "selling equipment" to the job description of one of the purchasing guys and started paying him a commission.  They parked the equipment in front of the building, put a sign up, and installed lights so that the equipment could be seen at night.  The deals were now closed at the office, not over a beer.  The company had become a used equipment dealer.  But they did not realize that.  Until the audit.

The state came in and noticed the amount of cash being thrown off by the equipment sales.  They also noticed the lights, signs, etc.  The auditor said, "you know, you should be charging tax on all of those sales."  The company talked to a lawyer, who referred them to a sales and use tax lawyer, who told them they were screwed.  The assessment was over $300,000 with the interest and penalties.  The lawyer helped get that reduced, but it still hurt.

Another situation was similar, but not as painful. 

A hospital found themselves selling lots of used medical equipment.  They could afford to be spendthrift because of the patient mix in their service area (lots of private insurance).  They sold the used equipment to other, poorer hospitals, clinics, and physicians offices.

Yes, the hospital was a non-profit organization.  But sales by non-profits are usually taxable, other than fund-raising events.  So this hospital should have been charging tax.

"But wait! Weren't they selling the equipment to other exempt hospitals?  So the sales would still be exempt, right?"

Yep.  But remember that not all hospitals are government or non-profit operations.  There are for-profit hospitals too.  And they sold equipment to physicians and clinics who are generally taxable.

Luckily, unlike the construction company, this organization realized what they were doing and began collecting taxes before they got caught.

Not such a horror story, but illustrative anyway.

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There are three major points to be made here:

1.  You may be selling so much equipment that you become an equipment dealer.  If you're doing more than selling the odd item over a beer, you should take a hard look at the situation.

2.  Your core business may not be your only source of taxable sales.  Other sales may be taxable without you realizing it.  Until the audit.

2.  Your company changes.  If you make a judgment about the taxability of something today, will the same set of circumstances and laws exist in five or ten years?  You need to frequently re-analyze what you are doing.  Don't just rely on the decision that was made in the good old days.

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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 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. 

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