Go ahead and have a nice Thanksgiving...

Please excuse my friend - he develops an attitude at this time of year.

Can I just pass on the tax?

A reader today posed this scenario. 

Mark is the manufacturer and sells to the retailer

Rhonda is the retailer who sells to the customer

Calvin is the customer

Apparently, Mark is charging Rhonda sales tax. 

Rhonda therefore incurs the cost of the sales tax.

Rhonda would like to pass on this cost to her customer, Calvin.

Can she?

There is an obvious question here

Why can't Rhonda buy from Mark for resale? This would seem to be the obvious and legal solution.  Particularly since Rhonda is required to charge Calvin tax if the sale is taxable and she has nexus in the state.

Two exceptions spring to mind

It's possible that this is a drop shipment and Mark has to charge Rhonda tax but Rhonda doesn't have a way to charge Calvin tax since she has no nexus in the delivery state. 

It's also possible that Rhonda is a contractor.  In most states, she pays tax to her vendors for her building materials but doesn't charge tax when she bills Calvin for the job.

These are the obvious and common exceptions - there are more.

Other than the above exceptions, Rhonda should be buying for resale and charging tax, if the sale is taxable.

However, if she is incurring sales tax for some reason (like the two listed above) and she can't pass it on, or is not allowed to pass it on, then it's a cost of doing business, and she has the ability to fold the tax into the price of her goods.  The only obvious restrictions I can see are:

Rhonda doesn't price herself out of the market and

the customer agrees to the price

Note that these are not sales tax law restrictions...this is just business.  Rhonda can set her price at any point she wishes, as long as the customer agrees.

However...

Rhonda generally can't charge Calvin something called "tax" in a state where she isn't registered.  Rhonda might think this is a way to recover the money from the customer without having to negotiate a new price.  Unfortunately the law generally requires that you must be registered in a state before you charge that state's taxes.  In addition, if she were to be audited, the state would ask her why she has not remitted that "tax" money to the state.  If Rhonda needs to show a charge on the invoice, call it a "we're going to hold you upside down and shake money out of your pockets" surcharge.  But don't put the word "tax" on Rhonda's invoice to Calvin.

And if Rhonda is making a taxable sale to Calvin, then she is required to charge Calvin tax, if she has nexus in the state.  And she should obviously be buying for resale.

Bottom line

If Rhonda is making a sale to Calvin that is taxable and she has nexus in the state, she should be charging Calvin tax.

If the vendor is charging her tax, she should figure out why she can't buy it for resale.

If it's some other situation where she's incurring tax as a cost, she can't pass it on as "tax."  But she can fold that cost, like any other cost, into her price. 

Geez, this stuff is complicated!  If you're reading this and desperately waving your hand because Jim missed something, I know.  But the more holes I fill in, the less understandable this is.  Suffice to say, it's messy.

And don't even get me started on absorption

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The Sales Tax Guy http://salestaxguy.blogspot.com
See the disclaimer on the right.
Don't forget our upcoming seminars and webinars. http://www.salestax-usetax.com and there's more sales tax news and links here http://salestaxnews.blogspot.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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Lots of Traveling (in which I brag a little)

A Twitter inquiry over last weekend intrigued me and made me go back through my seminar records.  I sure am glad I kept a spreadsheet!  Please indulge me while I brag:

1.  Since I've started doing seminars on the road in 2000, I've worked in every state...yes all 50.  And I've done over 800 seminars in those states.  By the way, I don't have a burning desire to go back to Anchorage in the winter.  And you might think Hawaii would be neat, but it's nowhere near as much fun when you have to work.  I'm waiting for the call to do a sales tax seminar in Rome, but I'm not holding my breath.

2.  I've done over 500 in-person classes in 40 different states on sales and use taxes.  And that doesn't count the webinars. 

3.  I've also done other seminars besides sales and use tax, but not for the last few years.  They were mostly payroll law, AP, and some accounting-for-non-accountants presentations. It's tough to make that last topic fun, by the way.  I even did some search engine optimization sessions in the really early days - before all the spammers took over.  But now, my heart belongs to sales and use taxes.

What's my favorite hotel?  To sleep in, Marriott.  But not to actually do a seminar in, ironically.  For the actual seminars, frankly I prefer Holiday Inn Expresses, Hampton Inn's and Courtyards.

And if you're a revenuer for South Dakota or Connecticut (or any other state where training is taxable) and think that I have nexus in your lovely states, I'm sorry to disappoint.  All of my appearances in those states were as a contractor of a seminar company.  I wasn't even allowed to give out my blog or website address. 

So, that's where a lot of my pictures come from - the last 14 years of travel. And I have pictures from all 50 states!

A big thanks to Sylvia Dion for the query. You'll find her on twitter at @SylviaDionCPA 

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The Sales Tax Guy http://salestaxguy.blogspot.com
See the disclaimer on the right.
Don't forget our upcoming seminars and webinars. http://www.salestax-usetax.com and there's more sales tax news and links here http://salestaxnews.blogspot.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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Do I have to get exemption certificates in states where I don't have nexus?

I get this question every once in a while - so hey, it's a blog entry!

The situation is that you're selling something taxable to a customer in state A.  You're in state H.  Do you have to get an exemption certificate from them when you don't have nexus? 

It depends.

1.  How sure are you that you don't have nexus?  Nexus situations can change.  You may have decided in 2010 that you don't have nexus in state A, but in the meantime, those jerks in sales have made a couple of big sales there, sent in a crew of installers, made arrangements with a repair firm to provide service, and the VP of sales has been visiting every couple of months.

If you haven't figured it out, you now have nexus in state A.  But if you're basing your assumption on the decision you made in 2010, you're gonna be in trouble.

It would sure be nice to have that exemption certificate.

2.  How much of a hassle is it to get the certificates?  If your customer in state A is practically begging you to take his certificate, then, oh, what the hell, take it.

On the other hand, if your customer is one of those pain-in-the-butt mega-retailers who refuse to cough up the resale certificate, then, maybe you want to take the chance.

So the two factors to consider are your confidence level in whether or not you have nexus balanced against the hassles of getting certificates. 

Another thing to consider is that Congress may eventually pass something that looks like the Marketplace Fairness Act.  That means that if you're a larger company*, you'll eventually be required to collect taxes in all states, regardless of whether or not you have nexus.  So you'll need to be getting certificates from all the states anyway.  But this is probably a couple of years off (I hope).

Frankly, putting on my strict, no-risk controller's hat, I'd establish a policy that we get exemption certificates from everyone.  That way if that dang sales guy goes behind my back to state M, I'm covered. 

*part of the argument is what "large" means

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

See the disclaimer on the right.

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com
and there's more sales tax news and links here http://salestaxnews.blogspot.com

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