Wednesday, November 23, 2011

Great Article: "Food or Candy? Milk or No?"

"Hey, Jeff.  You know those Wild Turkeys that we've been seeing?  Well, there was a Revolutionary War encampment here last night and....."

from avalara.com

More in the adventures of trying to figure out the food exemptions.  This little exercise will show you how to calculate tax on a Twix candy bar and a Frappuccino.  Heck, if you're buying a Frappunccino, sales tax isn't going to be on your mind.

Enjoy the article anyway.  And Happy Thanksgiving.  And I'll be honest - I just wanted an excuse to use the picture.


This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles." 

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. 

Tuesday, November 22, 2011

Sales Tax on "Software as a Service" / SaaS / Cloud Computing

Clouds

"How do we tax SaaS* services"

This question came up in a webinar yesterday (thanks, Heather) and, after Googling it, I thought I'd share the tiny bit that I've learned, my brilliant solutions, and some relevant articles.

Essentially, there isn't much published on this.  There are some articles that pretty much say the same thing: there isn't a lot of law to get your teeth into.  As with most new technology, the states are taking their time catching up.  Some of them are still trying to deal with downloaded software!  And only a few have ventured into downloaded content, like music and movies.

But I have come up with two solutions to the problem.  and you're not going to like it.

Solution 1 - Rental

1.  I think that the closest existing type of transaction that would cover Software as a Service (SaaS) is software rental. Think about it.  That's really what is going on.
2.  Downloaded software is treated like TPP in most states and therefore taxable.
3.  Rental of TPP is taxable in most states.
4.  Therefore, SaaS should be treated as the rental of software and should be taxable in states where downloaded software is taxable, and rental of TPP is taxable.
5.  Don't do this!   Hold off, at least until you've chewed this over with your sales and use tax consultant.  Heck, your own state may not take this position, and therefore why self-assess when they wouldn't.  But from a theoretical sense, this seems to be the answer. 

Solution 2 - Tax SaaS as a service

Alternatively, if we consider SaaS as a service, then it gets stickier.

In states that tax data processing services (not many), SaaS would seem to be taxable.  That's easy.

With other states, they'll probably have to start passing laws.  Which, given the amazing skills of our politicians, will take some time.  Get back to me in 20 years.

Where is it taxable?

The next question is, since it's in "the cloud" how does any given state tax it?  Where is it taxable?  There seems to be a lot of hand-wringing about this.  But I think that this has already been dealt with, to a degree.  Whenever a taxable service is performed in one state, but the buyer receives the benefit in another state, it's usually taxable in the state where the buyer receives the benefit.  This isn't absolute, and I'm short-circuiting a lot of theory, but that seems to be the way that it usually works out.

For example, if you're in a state that taxes alarm monitoring services (many do), and you hire an out of state company to provide that service, the purchase of the service will usually be taxable in your state because that's where you're receiving the service.  Either the seller collects the tax if they have nexus, or you self-assess use tax.  But it's still taxable.

So, if you're using SaaS, and if the service is taxable based on one of the above methods, it'll probably be taxable in the state where the benefit of the service is received. Seems simple to me.

Selling SaaS

What about companies that sell SaaS?  Well, if you have nexus in states that have figured out how to make this taxable, then you're going to have to start collecting tax.  Welcome to the business world.  Of course, if Congress makes it easier for states to create nexus for you, that's not good.  But quit whining.  It just means you'll have to hire at least one more accountant.  Speaking as an accountant, that's not a bad thing.

Nobel Prize

I've just given everyone a guide to solving this SaaS / Cloud Computing problem.  So when will I be picking up my Nobel Prize for Sales and Use Taxes?

Links

Here are a few articles I found on the subject.  I didn't go deep in my search, so if you wish to mine the web further, please do so.

Accountingweb.com February 2010
forum discussion at softwareceo.com March 2006
Gene Hoffman at http://blog.vindicia.com April 2010 
Jeremy Aber at aberlawfirm.com September 2010
grantthornton.com - there are a couple of links within the article too




*Ya gotta love an acronym made up of upper and lower case letters.  Credit must be given to the techoids that came up with that one.




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 that haven't been 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. 

Friday, November 18, 2011

Great Article: A Summary of the Federal Nexus Bills

I got an email from someone named Gabriella who said I had a little stick.  But she could make it bigger.  How did she know?

from stateandlocaltax.com

A nice summary of the different nexus bills that are currently in Congress intended to allow states to force nexus on out of state sellers (like Amazon.com).  Clear, concise and with more info than I expected.  Heck, it answered MY questions.

Enjoy the article.

This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles."



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. 

Tuesday, November 15, 2011

Great Article: Can Luck Be A Tax Planning Strategy?

Yea!
from Derek Hoffman at http://salestaxinsight.com

Don't count on luck to get you out of a sales tax audit.  And don't trust that a call from an auditor to tell you that a refund awaits you.  Just like that letter from US Airlines - it may be a scam.  And I got one of those letters.  It smelled fishy, and a quick Google search turned up no info on a company called US Airlines.  Circular filed!

Enjoy the article.

This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles."  Enjoy.



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. 

Monday, November 14, 2011

Great Article: Sales Tax Outsourcing vs. Sales Tax Automation

 Zombie Squad II

from Robert Dumas at salestaxsupport.com

A short, handy-dandy discussion of the difference between sales tax automation and sales tax outsourcing.  No, wait, didn't the title just say that?  Dang, if I say any more about the article, I'll just be repeating the article, which isn't the point.  So I'll just shut up now. 

Enjoy the article.

This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles."  Enjoy.



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. 

Friday, November 11, 2011

Great Article: Stepping Through Sales Tax Nexus

In Flanders fields the poppies blow...

First of all, this is to remember our veterans.  Click on the picture to see the poem "In Flanders fields..."

Now, for sales tax stuff:

from TaxConnex.com

Nexus is one of the grayer areas of sales and use taxes.  And there are three big problems that you will face:  The first is figuring out if it's a problem.  The second is deciding if you need to register.  And the third problem is the registration process itself.  Brian at TaxConnex doesn't toot his horn here, but I will.  If you find yourself facing a nexus issue, you need to get professional help.  This isn't a DIY solution.

Enjoy the article.

This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles."  Enjoy.



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. 

Wednesday, November 09, 2011

A Short Course in Sales and Use Taxes for Artists (Part 1)

Big Artist, Small Picture

A reader (Richard Streitfeld at peaceloveandbusinessplanning.com) recently asked me about sales taxes related to art and artists and I referred him to an article I’d written a while back. We continued to exchange emails and he told me about the writing and training he’s done on this topic.  He inspired me to try my own spin on this. In weak moments I think of myself as an artist, so maybe an article for the right-brained folk might be interesting.

I’m going to be writing this article in multiple parts because this is going to take some time. And this should be useful not only for artists but for other entrepreneurs as well. Most of the issues an artist faces will be dealt with by other businesses as well. So this “course” will apply to pretty much everybody.

Some of you may have taken issue with something I said above. Yes, if you’re selling your art, you’re in business. And you should be collecting and paying sales and use taxes as the law requires, just like any business. I’ll make the assumption that you want to do that. Everyone should be paying their fair share, right?

I’m going to avoid some of the theory that I love to talk about it. I will also be omitting, skipping and simplifying to keep the right-brained among you interested. But please see the disclaimer.  Get a second opinion; don’t take my word for it. I’m just trying to give you an overview. I strongly urge that you sit down with an accountant and discuss the issues I’ve raised here. And if you don’t have one, you’re making a big mistake.

OK, let’s dive into it.



Things that you sell

I hate to break it to you, but to be very plain spoken, if you’re an artist and you’re in the business of selling your art, you sell stuff*. And sales of stuff are generally taxable. So if you sell a painting, you should be charging tax. And if you sell a photograph, you should be charging tax. If you sell crafts, you should be charging tax. If you're a musician and you're celling CD's at the back of the room, you should be charging tax.  It doesn’t make much difference if you sell five pieces a year or 500 a year. If this is your work, then you should be charging tax.

If you sell something from a web site, like Etsy, eBay, or your own web page, you should be charging tax. However, there’s a big exception here. If you’re shipping to someone who's not in your state, then you may not have to charge them tax. And the taxes that apply are based on the state you’re shipping to. If you’re not in that particular state, you probably don’t have to worry about charging taxes for that other state.

However, if you’ve visited clients (or prospective clients), done art shows, worked on an exhibit, have work on consignment at a gallery, or done any other kind of work or performance in that other state, or paid someone else to do so, then you may need to charge that state’s taxes. And yes, if you do that art show in another state, you should be collecting that state’s taxes on any sales you make both during and after the show.

Remember this also means that it's taxable when you sell something to someone who is in the same state you are.

And just charging taxes isn’t enough. You have to send that money to the appropriate state. Which means you must register in that state and start filing sales and use tax returns. You don't just write on a scrap of paper "here's your taxes" and mail them a check.  You have to register and then fill out a very left-brained form.

And to make matters even worse, the rules are completely different in every state. So if you do an art show in one state, and then do some production artwork in another, it's not going to be the same.

Are you sure you don’t need an accountant?

That’s enough for today. There’s lots more.

I'll post a link to the next articles as they get posted.  Here are all of them published so far.

Part 1 - Introduction and overview
Part 2 - Services that you sell and buy




*My definition of stuff, to make it really easy: A single piece of stuff is something you can hear, see or touch and that can be moved without damage. This isn't complete but it's about 90% of the way there.



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 that haven't been 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. 

Tuesday, November 08, 2011

Great Article: Check your nexus footprint

Boots, Leaves and Rail

from salestaxinsight.com

I've got a new term (actually, I've heard it before, but I'm gonna start using it now).  This short article talks about what happens when a state discovers you and thinks you have nexus.  It talks about how you should evaluate your "nexus footprint" on an annual basis.  This way, you make sure that your business hasn't changed since the last time you checked on nexus.

I also didn't know that November was nexus awareness month.  Must have been before my time.

Enjoy the article.

This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles."  Enjoy.



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. 

Monday, November 07, 2011

Great Article: Are you sure you want to appeal?

Ben Holds Court

from state-tax.blogspot.com

While this article is specific to Texas, it makes the point that you really don't want to let the audit get to the point where you go through the appeals / administrative hearing process.  The odds don't look very good.  Enjoy the article, and be scared - very scared.

This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles."  Enjoy.



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. 

Friday, November 04, 2011

Great Article: Virtual Chaos: Online Gaming

3 Pounds per Body

from stateandlocaltax.com

When I first read this, I wasn't sure.  The concept behind this series is to give you links to articles that I wish I had written.  Frankly, I never would have thought to write one about online gaming, since I don't do it.  Video and computer games just don't do anything for me.  Ever since I failed miserably at Pong.  Nowadays, I stick with Freecell.

But, some of you obviously do care.  And some of you may even be involved in these industries.  So to you I dedicate this daily link.

Essentially the article discusses recent rulings in Kansas and Missouri.  While you may not care about those two states, the article does give you some more global ideas about the issues involving online access, gift cards and downloadable software.

So enjoy, you crazy gamers.  Now, where's my Freecell.

This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles."  Enjoy.



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. 

Thursday, November 03, 2011

Great Article: Iowa's Pumpkin Tax

"Alas, poor pumpkin, I knew him well"

From the Tax Foundation

Many states have exemptions for food sold in grocery stores.  And pumpkins are food (although I'm not sure how much actual pumpkin is in the Pumpkin Spice Latte I had this afternoon).  The problem is that some pumpkins are not sold as food, but as decorations.  And Iowa decided that they needed to tax pumpkins when they were sold as decorations.  Scratching your head?  Read more.

This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles."  Enjoy.



The Sales Tax Guy
http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

Wednesday, November 02, 2011

Fabrication Services

Harley Jim

In most states, fabricators provide a taxable service. Fabrication broadly means taking stuff, then doing work on it and adding value to it (as opposed to repairing it). 

A more limited description of fabrication services is: receiving the customer's property, working on it, and then returning it to the customer.  The problem in this case is that, from a sales tax perspective, there is no sale of tangible personal property, other than some insignificant material like ink, solder, etc.  So in states that typically do not tax sales of services, this presents a problem.

Here is a short list of examples of fabrication services:

keymaking and locksmithing
tailoring (usually more than letting out the hem)
meat cutting and butchering
taxidermy
custom welding
custom assembly

Similar businesses, but that aren't quite the same are:

imprinting and silkscreening
engraving

What's the difference between these two types of businesses?  In fabrication services, something new is created.  To use a common manufacturing definition: "taking something in one form with one name and turning it into something else, with a different form and a different name."  Taking ten pieces of metal and welding them together per the customer's drawing is a fabrication service - something new has been created.

But a silkscreened t-shirt is still a t-shirt, even if it now has a cool Harley-Davidson logo.  Nothing new has been created. 

Many states will impose sales and use taxes on fabrication services, including imprinting and engraving.

But others will tax just fabrication services, excluding imprinting and engraving. 

And still others won't tax either service.

It's up to you to check in the states that apply to you (where you perform the work or where the customer receives the work).




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 that haven't been 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.  And if you think I just wrote this article so I could use the picture, well.....

Tuesday, November 01, 2011

Great Article: San Juan car dealers lead in sales taxes, but are more needed?

Auburn Cord Duesenberg Museum

In these short bits, I try to give you links to articles that have longer lasting appeal than just news.  That's what I use Twitter for.  But I found this one interesting because it delves into the decisions that local politicians make about sales tax revenue.  Note, for instance, the impact of the renovation of an Interstate interchange on sales tax revenue from a couple of businesses.  It's a short read, but illuminating.

This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles."  Enjoy.



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.