The Sales Tax Guy

Oldie but Goodie: The moral and ethical issue of not complying with sales and use tax laws

2012-02-13T06:00:00.000-08:00

Sometime, paying the correct amount of sales and use taxes just drives you crazy. I expect you to pay the right taxes. But there may be situations where it just costs too much! I take apart the issue in this classic, spruced up, and improved article.

Beware of sales tax seminars in state capitals.

2012-02-09T19:50:00.000-08:00

This article may not be terribly helpful to most of you. But it’s kind of funny. And there’s a point to the story. But it’s mostly kinda sorta interesting. Oh, what do I know? Read the dang story.

A couple of years ago, I was doing a sales tax seminar in a hotel that just happened to be in the state capital. It was a small city (as many state capitals are) and the class wasn’t very big. I was sitting at the registration table waiting for the first folks to arrive. I scanned the roster and came to “Joe Smith, XXXX Department of Revenue.”

“Oh, great,” I thought. That’s just what I need - a sniper, and from the state too. All I could hope for was that the participant worked in accounting. Revenuers have accounting departments, right?

A “sniper” in public speaking and training circles is someone in the audience who thinks they know more than the speaker, and is anxious to show off their dazzling brilliance. I’ve found pepper spray is helpful.

As it happened, Joe was the first one to arrive. I asked him, as he was signing in, what he did at the Department of Revenue. “I’m the director of the sales tax audit division.”

Oh, great. This was shaping up to be a bad day.

I wanted to chat, but other folks started arriving and he wandered off to take a seat in the front row. In the front row! This day was looking even worse.

I decided I needed to make sure the rest of the group knew he was in the room. I didn’t want someone blurting out, “Yeah, I need some sales tax advice. I’m the accountant for Arnold’s Pizza Place, over on 31st and Hillside. In fact, my boss gave me a bunch of coupons for everyone in the class. Our address and a map are right on the coupon. Here, pass them around. Make sure everyone gets one. Don’t forget that guy in the front row. Anyway, we’ve been collecting sales tax for years but never paid it to the state. Is that a big problem?”

And yes, I’ve had that question in my seminars. Really.

I didn’t really feel comfortable just starting the seminar saying, “Attention everyone, this is Joe. He runs the audit division for the state. You might want to shut up. Just saying.” Instead I did something I never do, “OK, it’s a small group, let’s go around the room and introduce ourselves.”

I know, you hate it when we do that, don’t you?

The last person to introduce himself was Joe. After doing so, I noticed that everyone else had the look people must have when they get to the top of the first drop on the roller coaster. Joe then said, “Now I’m not here to collect names for our auditors. You folks have nothing to worry about. We got the seminar brochure in the mail, so we thought we'd see what Jim here was saying.”

Oh, yeah. This was shaping up to be the worst day of my life. I also made a mental note to tell the marketing department to, in the future, not send brochures on tax topics to any state agencies.

Joe’s statement that he wasn’t looking for people to audit apparently wasn’t believed. This turned into the most boring seminar I ever taught. For six hours, there were NO QUESTIONS. The audience, other than Joe, simply stared at me in absolute terror. There was an AUDITOR in the room!

Nobody would talk to me, even at the breaks. The only person that didn’t clamp their hand over their mouth and run from the room was Joe. So I picked his brain and got a lot of good insights into revenue department strategies, etc. So there was that silver lining - for me.

Here’s the relevant point for you folks. And I’m serious. Reconsider before going to a seminar on sales tax, or any tax or regulatory topic, in a state capital. There’s a good chance that there will be an auditor in the room. And you will not get the dynamic, interactive seminar that you paid for. I've done seminars in several state capitals over the years, and had experiences similar to what I've described in many of them. I ain't lying here. And the above is a true story!

Oh, in case you’re wondering, Joe said I got everything right and was pretty good Yes!

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: any images above are hosted on Flickr. If you'd like to see more, click on the photo. And the picture isn't from this seminar.

Great Article: On making sure your folks are trained and STAY trained

2012-02-08T11:21:00.000-08:00

from Tim Freeman and onesourceblog.com

I'm not sure I would have used the metaphor in this article, and I've been known to stretch some. But it gives me an excuse to use an airplane picture. The point is valid, however. If you're going to invest in systems, you must consider the downstream costs of training and development. 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.

February Newsletter

2012-02-07T19:28:00.000-08:00

Greetings and welcome to our monthly newsletter. If you have any feedback or questions, please let us know at jfrazier@gadwall.com. And we only send this out once a month, so don't panic!

Services
We offer webinars on a very densely packed schedule, allowing us to do Taxing Policy webinars for the 10 biggest states on a monthly basis, with other states on an almost quarterly basis. And our multistate webinars (Golden Rules, Nexu s and Best Practices) are scheduled almost weekly.

Please remember that we do custom scheduling, in case you just can't find the right combination of date, time and topic.

We also offer private, on-site, highly customized training for individual organizations. If you have more than 10 people to train, this can be a better solution for you, allowing more interactivity and problem-solving among your staff. If you're interested in exploring this, please drop me a line at jfrazier@gadwall.com.

Recent updates to The Sales Tax Guy blog

New Articles

Movie Production Equipment

One way of treating your auditors

Oldies but goodies: Older articles that we've spruced up and revised.

Use Local Experts

Predatory Auditors - a "Harvest" Audit

How do I find a sales tax professional?

Links to great articles from others

12 Sales Tax Tips for Small Businesses

Two articles on Groupon and Living Social, etc.

THE List of Sales Tax Exemption Certificate Expiration Periods?

State and Local Tax Due Diligence: Don't Restructure Without It!

The Biggest State Tax Story of 2011: Internet Sales Taxes

Open Your Mail

Beware of Posting Sales Tax Questions on Social Media Sites

I hope you've enjoyed (or at least found useful) this newsletter. Please remember that if you're not interested in receiving these in the future, feel free to unsubscribe. And if you have any thoughts, please let me know at jfrazier@gadwall.com

Thanks for your continued interest. And please feel free to forward this email.

Jim Frazier

salestaxguy.blogspot.com
salestax-usetax.com
takechargeseminars.com
gadwall.com

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This is the text of our monthly email newsletter. If you'd like to receive it via email, please subscribe here.

Our webinar schedule is now published through April 2012!

2012-02-06T15:49:00.000-08:00

Just letting you know that our sales and use tax webinar schedule through April 2012 is now available. You should click there. And then click again. And again.

Thank you.

The Sales Tax Guy

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

Great Article: Beware of Posting Sales Tax Questions on Social Media Sites

2012-02-03T13:32:00.000-08:00

from www.salestaxsupport.com

My heart always sinks when I do a public sales tax seminar and see a sales tax auditor shows up. I know that the rest of the class will go completely quiet and not ask questions. They're terrified that the auditor will notice. And with all this social media flopping around, you just never know when those auditors are lurking, waiting to pounce. Enjoy the article.

Great Article: Open Your Mail

2012-02-02T15:23:00.000-08:00

from Kelly Phillips Erb, at http://www.forbes.com

I've written about this myself, but it's a really evergreen topic. While the author discusses the need for you to read and respond to notices from the IRS, you get 'em from the state too. Read the dang notices. Enjoy the article .

Oldie but Goodie: How do I find a sales tax professional?

2012-02-01T15:38:00.000-08:00

I get a fair amount of questions from people who are in need of a sales and use tax professional, particularly one who can handle multiple states. I don't do that type of work, so I give these suggestions in this old article that I've touched up. You may like the picture too.

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

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

Great Article: The Biggest State Tax Story of 2011: Internet Sales Taxes

2012-01-30T14:07:00.000-08:00

from Sylvia Dion at The State and Local Tax "Buzz"

In 2011, more informed articles, misguided editorials, and downright scary blog posts were written about the ratcheting up of the nexus wars than any other sales and use tax topic. The states are looking for every scrap of sales tax revenue they can find, and they have online retailers in their sites. Sylvia provides a handy summary of what happened, and what Congress is doing about it. Enjoy.

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

And this is an article that I'm more than happy to see Sylvia write rather than me!

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.

Great Article: State and Local Tax Due Diligence: Don't Restructure Without It!

2012-01-27T08:28:00.000-08:00

from Brian Strahle and leveragestateandlocaltax.com

Be careful when you sell, buy or restructure your business. Sales and use tax issues may be hiding. Enjoy the article.

Great Articles: THE List of Sales Tax Exemption Certificate Expiration Periods?

2012-01-26T05:51:00.000-08:00

by Silvia Aguirre at salestaxsupport.com

There are all kinds of expiration dates for exemption certificates. And there is no one source to find them. There are, as I like to say, nooks and crannies that need to be explored. And you should never trust tables of information. Sylvia gives even more examples. Enjoy.

Oldie but Goodie: The Harvest Audit

2012-01-25T10:41:00.000-08:00

This is an old article that I've touched up and now present to you about "harvest audits."

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

One way of treating your auditors

2012-01-23T10:32:00.000-08:00

Years ago, I was the controller of a company with a very cooperative owner. "Chet" had a pretty luxurious office with TV, video games, bar, lots of space including a private gym, and his own shower and bathroom. He had also hired a very competent secretary by the name of Jane (and in those days, they were actually called "secretaries"). Truth be told, Jane pretty much ran the company. Chet just went along for the ride.

By the way, the picture is not of Chet, but I thought this article could use a mildly relevant illustration.

Whenever we got word that the sales tax auditor (or any other enemy auditor) was coming, we'd tell Chet he had to go on the road for a couple of weeks. His response was, "Got auditors coming, eh? Great! I've got to get out of here anyway. Jane! What customers should I go visit?"

So we would put the auditors in Chet's office and told them they'd have it for three weeks - until Chet returned. And Jane continued in her role as secretary, but now she was the mother hen for the auditors instead of Chet. And she did even more for them than she did for Chet. She NEVER got Chet coffee, but she'd bring the auditors coffee, pop, snacks, make copies for them, etc. She'd even order lunch in for them. And she kept the door to their office closed so they'd have "privacy." She would also "sssshhhhh" any conversations among the other executives that might be occurring outside of Chet's door so the auditors didn't hear anything embarrassing. If the auditors needed to go anywhere in the company she would escort them. The auditors were isolated pretty effectively from the staff of the company. Jane enjoyed her job as the auditor's "guard."

And the auditors lived in the lap of luxury for three weeks. But ONLY three weeks. They knew that, when Chet returned, they would be relocated to the dimly lit room in the sub-basement behind the furnace where we used to keep the asbestos. They were motivated, in other words, to wrap it up.

Just kidding...about the asbestos part.

We never knew exactly what they did for those three weeks, but they usually missed really important things that we worried about them catching. One IRS auditor completely blew the LIFO inventory adjustment, for example.

If you don't know what that is, rest assured it was a big "estimate" on our part. It's the kind of thing you REALLY don't want the auditors to ask questions about.

Every day, those auditors seemed to go home well rested. And that was important because we cared about the health of state and federal employees.

Whenever we put the auditors in Chet's office, we always had very fair, reasonable assessments. And we never found the need to appeal. Amazing.

This article was inspired by revisiting this one. I've often talked about this story in seminars, but never wrote it up. And touching up the old post convinced me to do this entry.

Great Articles: Two on Groupon and Living Social, etc.

2012-01-20T11:15:00.000-08:00

For whatever reason, I've had two good (and technical) articles circling for too long in my bookmarks. They're both on Groupon, Living Social and other similar services.

Yes, there are rather interesting sales and use tax issues associated with these type of offers. And I don't want to write about these topics. I mean I REALLY don't want to write about them. So I'll refer you to two excellent treatments. I have written a couple of articles on generic coupons, which were hard enough.

The first is from Sylvia Dion on allbusiness.com

And the other is from Rusty Little on http://dowlohnesprice

Personally, I don't use these offers. My life is complicated enough as it is.

Movie Production Equipment

2012-01-19T07:18:00.000-08:00

There have been a few articles written about this issue, mostly along the lines that it's a stupid exemption and that states should repeal it. I don't disagree. I have the sense that politicians like to grant these exemptions because they get to rub shoulders with Hollywood types, and they like to brag about how they got the latest Transformer movie made in their state. But according to what I've read, the economic and long-term job impact of movies doesn't seem to justify the giveaways that states offer.

I recently saw one state talk about $20,000,000 in credits given in one year. But they could only point to about 1000 long term jobs created, and they weren't even full-time jobs. That's $20,000 per job. I'm not sure that money couldn't have been better spent. But hey, what do I know?

States offer a couple of different types of movie exemptions for production materials and equipment:

1. The purchases are exempt from tax at the time of purchase and the producers present exemption certificates, etc. to the seller

2. The producers pay the sales and use tax and then get a refund, rebate or credit

3. There aren't any sales and use tax exemptions, but there income, franchise or occupation tax credits. Some states even offer grants.

For many states, these exemptions are conditional on the amount spent in the state or the money available to the state to fund the exemption.

As of this date (January 19, 2012) these states have some sort of sales and use tax exemption (item 1 or 2). If their special treatment is in the form of item 3, then I won't list it here. And some cities may do special things that won't be shown here either. Remember, this is just for education. Check these out yourselves to get more details.

Alabama
California
Connecticut
Florida
Georgia
Idaho
Kentucky
Louisiana
Maryland
Massachusetts
Mississippi
New Jersey
New Mexico
New York
North Carolina
Oklahoma
South Carolina
South Dakota
Texas
Utah
Washington

Remember, these are only for sales and use tax exemptions and there are details you need to check!

So get out there and make that movie. Tom Hanks is waiting for your call!

Oldie But Goodie: Use Local Experts

2012-01-18T11:37:00.000-08:00

This is an old article that I've touched up and present to you now about using local sales and use tax experts.
http://salestaxguy.blogspot.com/2005/05/using-local-experts.html

The Sales Tax Guy

http://salestaxguy.blogspot.com

Great Article: 12 Sales Tax Tips for Small Businesses

2012-01-17T07:47:00.000-08:00

from Avalara

They've been posting these tips over the last few days and I have been enjoying the pace. Finally they have them all posted and I strongly recommend you all read them. They're short, readable, and range from exemption certificates to nexus. They give examples and they're all valid and important tips. Enjoy.

January 2012 Newsletter

2012-01-06T08:32:00.000-08:00

Greetings and welcome to our first (finally) monthly newsletter. We'll probably be changing it each month, so if you have any feedback, please let us know. And we'll only be sending this out once a month, so don't panic!

First of all, the webinar schedule update.

Our webinar schedule is now available through the end of March. The target is to keep at least two full months available to you. We're now packing the calendar more densely too. On most days you'll find that there will be two (yes, two!) webinars.

This will allow us to schedule the Taxing Policy webinars for the 10 biggest states on a monthly basis, with other states on an almost quarterly basis. And our multistate webinars (Golden Rules, Nexu s and Best Practices) will now be scheduled almost weekly.

I hope you'll find that this new improved schedule means you'll find the date that works perfectly for you. And please remember that we do custom scheduling, if you just can't find the right combination of date, time and topic.

What about in-person seminars?

We're going to do a live seminar in the Chicago area on April 21, 2011. It'll be in the Oak Brook/Lombard area (western suburbs), and it will be an all day event. We've done quite a few private-onsite seminars in the last year, and I'm missing my public seminar days. So I'm anxious to get this rolling. This seminar will be all four of our webinars in one day (and the state we talk about will be Illinois). The price is planned to be $249 per person. More details will follow, but please pencil in this date on your calendar.

If this event goes well, we'll start rolling out live seminars nationwide. So if you want seminars in your area, tell your associates in Chicago to come to the seminar!

If you're interested in the Chicago event, please drop me a line at jfrazier@gadwall.com. You're not making any sort of commitment, but I'd like to get some idea of who is interested. We'll set up registration as we get closer.

Upcoming New Programs

We're going to put together a webinar called Sales and Use Tax for the Sales and Marketing Staff. Haven't got the outline worked out yet (and I'm not sure about the title), but if you'd care to give me some suggestions, I'm open.

And I've threatened to do a short 5 minute video geared towards upper management in your organization. That will come in the next month or so.

Recent Blog Posts

Illustrations and Parables: Don't overcharge the tax.

Sales and Use Tax Links

Felony Watch: Sales and Use Taxes

Things that will get you in the worst trouble

Sales Tax on Big Chickens?

FOB

Gotta watch those widget sales

A quick note to state tax departments

I hope you've enjoyed (or at least found useful) our inaugural newsletter. See, that wasn't too painful. We'll be issuing these on a monthly basis. Please remember that if you're not interested in receiving these in the future, feel free to unsubscribe. And if you have any thoughts, please let me know at jfrazier@gadwall.com

Thanks for your continued interest. And please feel free to forward this email.

Jim Frazier

salestaxguy.blogspot.com
salestax-usetax.com
takechargeseminars.com
gadwall.com

A Short Course in Sales and Use Taxes for Artists (Part 2)

2012-01-04T07:47:00.000-08:00

This is Part 2 of a "short course" on sales and use taxes for artists. Read the first article in the series for foundational information, more on how this series came to be, and a list of articles (at the bottom). Consider it a prequisite to this article.

Services that you sell (and buy)

In Part 1, the discussion covered the works of art that you sell (hint: they're taxable).

In this part, we'll talk about the services you may sell and buy. And yes, they're sometimes taxable.

Models
If the model is working independently, it's very rare that this service would be taxable (but never say never). However, if you've hired him or her through an agency, there are a couple of states where the fee is, to some extent taxable. And that includes any worker hired through a help supply service.

Make-up artists
Their services are even more taxable than models. Several states tax personal services including make-up. No agency needs to be involved for their services to be taxable.

Digital transfer
If you deliver your work to someone digitally, you might think there's no tax. Well... In the last few years, more and more states have started passing laws and regulations essentially declaring that digital downloads are taxable. And they usually include in the definition photographs, art, music, movies, books, photographs, etc. Essentially, if it was taxable before, and the only thing that's changed is the method of delivery, it's still taxable. Note, this hasn't happened yet in the majority of states. But it's coming. Let's face it. The states were counting on the sales tax on all those CD and DVD sales, but that's going away. I blame iTunes and Netflix.

Commissioned work
This is usually taxable. Even though it's custom and commissioned, you are selling "stuff" and therefore it's taxable. There are a couple of interesting exceptions. One state says that commissioned work that has no value to anyone else is not taxable when sold by the artist to the person who commissioned the work. And another state has an exemption for artists producing work at parties as long as the person giving the party hired them, not the individuals in the portraits. But if you're on the street doing cartoons for hire, you better be charging tax.

Restoration and repair
This is a big one. This type of labor is taxable in about half the states. So if you've been hired to repair, restore, or clean an item, there's a good chance you're performing a taxable service.

Doing work on the customer's property
This is even bigger. This type of work could range from pin-striping a car, to silk-screening, to engraving. Even though you haven't technically transferred any property to the customer, you have sold them a service which has improved their property and made it more valuable. This is usually taxable (and often called a fabrication service).

Admissions
If you charge an admission to a performance or display of your art, you may need to give the state some of that money. In many states, admission charges are a taxable service. And occasionally, the state doesn't impose a tax on admissions, but the local county or city will. Thankfully, there are frequently exemptions for registered (with the state) non-profit organizations.

Finally, remember that the rules are completely different in every state.

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

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.

When Construction Contractors Install Tangible Personal Property

2011-12-28T09:39:00.000-08:00

This is part of a series of articles on construction contractors

In virtually every state, contractors pay tax on the equipment and supplies that they use to build a structure. As with any business, they're using those items. But what about building materials? These are the ingredients that become a part of the structure. They are tangible personal property when purchased by the contractor and, after being affixed to the building, become real property. Examples would be structural steel, bricks, shingles, millwork, concrete, etc. That's what contractors do: they turn tangible personal property into real property.

In most states, the contractor pays tax on the building materials as well as equipment and supplies and he (or she) doesn't charge his customers tax - either on the materials or his services*. The materials transferred as part of the sale aren't taxable for two reasons:

1. The materials were used by the contractor to provide the construction contracting service. Therefore they are consumed by the contractor and he pays the sales or use tax.

2. The materials, when transferred to the buyer, are no longer tangible personal property - they're now real property. And sales and use taxes generally only apply to sales of tangible personal property. The contractor is the last person to buy the building materials as TPP and therefore he pays the tax.

Now the customer isn't getting something for nothing here. She (or he) does pay the tax; it's just buried in the overall price of contract as another cost of the contractor. Note that there's a danger when the contractor shows the tax separately on his invoice.

Sometimes a contractor does a job that doesn't involve major construction (eg. new or expanded building, or major remodel). What if they do a minor remodel or repair, or a smaller project like install flooring, fences, signs, communications equipment, appliances or other machinery and fixtures?

The question then becomes: is the contractor still doing construction contracting, or are they selling tangible personal property, with installation?

If they're still performing a construction contract, they they don't charge tax to the customer - they pay tax on the building materials, as described above.

But if they're selling TPP with installation, they should be charging their customers tax and buying the building materials for resale.

Easy, right? But how do you tell? When, for example, does a minor remodel become a major project?

In the absence of any specific rules, here's the general idea. If the contractor is installing something that is permanently affixed to the structure and integrated into the value or use of the structure, then the contractor has done construction contracting. In that case, he pays tax on the building materials and doesn't charge tax to his customers. But if he hasn't done all of those things, then it is considered a sale of TPP with installation and he buys the materials for resale and charges the customer tax.

Examples:

1. A telecommunications rack is installed in the wiring closet. The installation is not permanent - everyone knows that it'll be replaced in a few years. It's not affixed since permanent damage wouldn't occur if it was removed (it's just bolted to the floor). And it doesn't have any affect on the value or purpose of the building.

One way of telling if an item has any affect on the value or purpose of the building is to ask, "if the building were sold, would the new owner care about the addition?" Other examples of this kind of thing would be signs, satellite dishes, draperies and blinds.

2. A landscaping contractor plants a nice tree in the front of the building. In this case, it is intended to be permanent, and damage would be caused if it was removed after a few months. And the value of the building is enhanced by the landscaping. So it's construction contracting and the contractor would pay tax on the tree when he purchased it and would not charge the customer tax.

Except it doesn't always work that way.

Many states will override the logic, or help it along, by simply declaring that certain types of contracting are sales of TPP with installation, and are taxable to the customer and purchased for resale for the contractor. A typical project that is handled this way is carpeting and sometimes other flooring. Why?

Well, the cynical Sales Tax Guy notes that the state gets more money. Remember, if the contractor pays tax on his purchase of building materials (as a construction contractor) the state will get less money because the tax is based on his cost. But if the state can figure out a way to call it the sale of TPP with installation, then the tax is on what the contractor sells it for, which would typically be higher - more money for the state.

The other reason is that, with certain purchases, the true object of the customer is to buy a specific type of TPP, paying attention to things like the brand, model, features, capabilities, and price. They are really buying the TPP and the contractor is merely the installer. So it would be appropriate to treat as the sale of TPP with installation.

In a normal construction contract, the customer is more concerned about the capabilities and service of the contractor than the materials they use. I'm guessing that most customers don't really care about the brand of furnace (as long as it's a name brand) or the manufacturer of the bricks or shingles. Color and appearance? Yeah. But they'll let the contractor worry about the details.

Here's a stumper. What about window installation? In this case, appearance, features, brand and other attributes are very important to the buyer, probably as much as the ability of the contractor. So wouldn't it be the sale of TPP with installation? I'd say no, it would probably be construction contracting. Why? Because the windows are permanently affixed to the structure and integrated into the value or use of the structure.

So, when you're trying to figure out if it's a sale of TPP with installation; as opposed to a contruction contract, you can use logic, as I've described above. But check to make sure that the state doesn't have their own ideas. These are usually shown in the regulations, and sometimes, if you're lucky, in a publication on the state web site.

There are other ways that some states will determine if the sale is treated as the sale of TPP with installation. One is if the deal is billed as a time and materials contract where the labor is separated from the materials. Another is if the customer takes title and possession of the materials before the actual work is done (eg. a roll of carpet delivered a week before the installers arrive).

To summarize:

When contractors do construction contracting (eg. new or expanded building or major remodeling) they typically pay tax on the building materials and do not charge their customers tax.

But when the contractor does a job that is more of a sale of tangible personal property with installation, then it's likely that the materials will be taxable to the customer and the contractor will be able to buy for resale.

*Remember, the rules are different in your state. Probably.

Restaurant Container Exemptions (or the Sales Tax Guy talks McRibs)

2011-12-21T09:55:00.000-08:00

It's time to talk about containers again, for several reasons. First, this article gave me an excuse to take the above picture. Second, I therefore had a reason to visit McDonald's for a McRib. Third, how often do you get to write off a McRib as a business expense?

Most importantly, in my previous articles about containers, I didn't really talk about restaurants. But lately, I've started using McDonald's in the container section of my Taxing Policy webinars, so I thought it was time for a picture to illustrate the PowerPoint presentation. And, well, I haven't written an article in a while.

Most states have container exemptions. These allow the vendor to be able to purchase containers tax free if the containers will be sold, with the product, to the customer. Basically it's an extension of the resale exemption. The seller is essentially buying the containers for resale. Even though they're not billing the customer separately, they are billing them for the containers as part of the cost of the actual merchandise sold. In other words, Target didn't have to pay tax on the bag. Just like the socks inside the bag, they bought the bag for "resale."

So let's take the top picture apart and talk about each item.

1. The bag for the delicious fries, cup (and lid) for my iced tea, the box for the holiday pie, and the clam-shell for the wondrous McRib are all clearly containers. McDonald's doesn't expect them back from you. You bought them with the food. Therefore, they are containers that generally qualify for the exemption.

2. What about the napkins and straw? In most states, disposable items like these that are available for the customer to take, are also exempt. They obviously aren't containers, but they are clearly part of the selling price of the food and, once you've taken a straw, the restaurant would really prefer you not put it back. This kind of "free for the taking" rule is only for restaurants.

3. What about the brown tray? Did you buy it with the food? Can you take it with you? No. They didn't sell you the tray with the food. That tray was purchased by McDonald's to use over and over again (after they've cleaned it, of course). Unlike the above items, it was not sold to you with your food. It is a "returnable container." Therefore the restaurant paid sales tax for the tray.

4. Finally, what about the "place mat" on the tray? That's a stumper and I can see it going both ways. It is certainly something that has value to the customer providing a clean place for your fries to spill out of the bag. But it's also usually a marketing piece for the restaurant. I personally would take the position that it meets the test for a disposable item and therefore is not taxable. But the auditor might argue that one.

So there you go. Containers for restaurants. Remember, every state is different. Some states have broader rules, some are stricter. Do your research and don't take my word for it. See the disclaimer. And it's almost lunch time as I write this. Hmmm. Wonder if they still have McRibs at my McDonald's?

Merry Christmas and/or Seasons Greetings. May all your holidays be glad and let there be McRibs available at your McDonald's.

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.

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

2011-11-23T18:14:00.000-08:00

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.

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

2011-11-22T07:57:00.000-08:00

"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.

brianstrahle at 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.

Great Article: A Summary of the Federal Nexus Bills

2011-11-18T10:56:00.000-08:00

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."

Great Article: Can Luck Be A Tax Planning Strategy?

2011-11-15T13:04:00.000-08:00

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.

Great Article: Sales Tax Outsourcing vs. Sales Tax Automation

2011-11-14T10:14:00.000-08:00

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.

Great Article: Stepping Through Sales Tax Nexus

2011-11-11T10:07:00.000-08:00

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.

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

2011-11-09T15:32:00.000-08:00

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.

Great Article: Check your nexus footprint

2011-11-08T11:43:00.000-08:00

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.

Great Article: Are you sure you want to appeal?

2011-11-07T16:55:00.000-08:00

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.

Great Article: Virtual Chaos: Online Gaming

2011-11-04T14:10:00.000-07:00

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.

Great Article: Iowa's Pumpkin Tax

2011-11-03T16:47:00.000-07:00

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/

Fabrication Services

2011-11-02T12:32:00.000-07:00

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.....

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

2011-11-01T07:46:00.000-07:00

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.

Great Article: True, Scary, Funny Tax Stories*

2011-10-31T12:54:00.000-07:00

from Avalara

I love horror stories. And these are stories from the "other side" - where the auditors' souls reside. Boo!

Happy Halloween

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

Great Article: The Marketplace Equity Act: The New Competition on the Block

2011-10-27T13:33:00.000-07:00

from Sylvia F. Dion at www.salestaxsupport.com

At the time Sylvia wrote this, there were two bills in Congress to allow states to force tax collection on companies that do not have nexus in their state (what have been commonly and annoyingly called the Amazon.com laws). Now there are three such pieces of legislation that have been introduced. I try to avoid looking at proposed laws until someone actually signs them. Thank goodness Sylvia finds this interesting, and she's written a nice summary and comparison of the first two bills. I'm sure that the third bill will fall under her pen shortly.

In the meantime, if you want to get up to speed on the concepts and the first two versions, here ya go.

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. And yeah, the picture isn't of Congress or the Capitol. But I don't have a good picture of either, so you'll have to enjoy this one. Sheesh.

Let the other guy do it!

2011-10-26T10:28:00.000-07:00

I wrote an article yesterday where the customer was insisting that they weren't taxable and I suggested that they were. I also suggested that the customer provide the seller with proof that the purchase was exempt. I wanted to link to an article I wrote on this narrow subject, but found that I never did write anything. So here ya go. And yes, I'm going back and adding the link to yesterday's article.

I've written many times about where to find answers. Most of these resources require that you spend money, and all of them require that you spend your valuable time. But here's the thing. If you're a regular reader of this blog, or other sales and use tax publications, then you are probably much more well-informed on sales and use taxes than just about anyone else you're going to routinely meet.

When you find yourself in a situation where a vendor or customer is insisting that the sales tax law is different than you believe, make them prove it. Don't waste your time researching the issue when they are probably wrong. Remember, you're smarter than they are.

By the way, proof isn't "well, that's what my boss said." Proof is in writing with references to statutes, regulations, bulletins or court cases. "Well, the auditor told us to do it this way," isn't enough either.

Here's one way the dialogue might go:

You: "I understand what you're saying, but my boss and I have been to several sales tax seminars and webinars* and I read a lot about sales and use taxes and I've never heard about that rule. Can you email me the statute that gives the details. I'm going need something to show my boss."

Remember to always use your boss's persnicketiness as an excuse.

Them: "Well, I don't have that. That's just what my boss told me to do."

You: "And I appreciate that. But I still have to charge you tax unless I can show my boss something authoritative that shows it's exempt. You must have something like that in the files. Maybe you can call your CPA."

Let them pay the money to have the CPA research it. Remember that you're smarter than them. Relax. Go fishing. **

* an admittedly shameless plug

** picture tie-in

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.

Who CARES if they have nexus?!?

2011-10-25T15:22:00.000-07:00

I've heard these two questions so many times, including today, that I feel the need to put them to rest. So if I've suggested you read this article in response to an email, then ya best read it now.

Question 1: My vendor has nexus in our state. Shouldn't THEY be charging tax?

In a perfect world, yes, they should be charging you tax. But, you may have noticed that we're not in a perfect world. Your vendor may not realize they have nexus, or they do realize it but choose to ignore it. If you call them and insist they collect, you run the risk of:

a. Ticking off your vendor
b. Having to educate them about nexus, which is above your paygrade
c. Having them say, "OK, we'll start charging tax," just to make you shut up. This will come back to haunt you.

You could rat them out to your state's department of revenue, but that just seems...tacky.

But who cares? Just accrue and pay the use taxes the vendor should have charged you, and move on. There's no economic cost to do this, and if you have a decent system in place, not really any more work.

There is a risk however, of the vendor getting caught in a couple of years. They may come back to you for the tax that they didn't collect when they should have. Protect yourself from this hassle by having a clear audit trail on the invoice showing that you HAVE self-assessed use tax.

Question 2: My customer is based in Canada. I'm in Nebraska. He has nexus in Nebraska. I know this because I'm delivering the shipment to his warehouse here in Omaha. He says I shouldn't charge tax because he's in Canada. What should I do?

Charge Nebraska sales tax. Their nexus isn't the issue when it's something YOU sell. Nexus is only relevant to determine if a seller has to charge tax in states the seller ships into. If you're a customer of this company, see question 1. You shouldn't care about the buyer's nexus in your state. What you need to care about is properly taxing your sale.

And generally, that means to base your decisions on where the delivery occurs. Since that happened in Nebraska, you collect Nebraska tax. If they claim the purchase is exempt because they're in Canada, ask them for proof. Point out that if you go to Canada and buy something in a store there, you are not exempt from Canadian tax.

There might be other exemptions (eg. manufacturing, resale, etc.). But I know of no exemption in Nebraska for material delivered in Nebraska just because the customer is Canadian. Again, ask them for evidence that they are exempt. They should be able to provide you with a Nebraska or US law.

As a point of comparison, if you shipped the goods directly TO Canada, then they would be right. The delivery point is Canada and Nebraska sales tax would no longer apply. But that's not what's happening.

See why that delivery point rule is so handy?

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. By the way, I have no clue why I used it. It just seemed seasonal..

Great Article: Sales Taxes on Services: Yoga Classes, Veterinary Services, and ... Dog Socials?

2011-10-24T08:42:00.000-07:00

from http://www.taxfoundation.org

This article discusses the proposition that sales taxes should apply to both services and stuff. With which I have no problem, as long as the rates go down. But the great part is the fine points of taxing services in Connecticut. A state which has a LOT of fine points.

Click here for 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.

Great Article: Interviewing Your Sales Tax Outsourcing Provider Will Enhance Success

2011-10-19T15:18:00.000-07:00

from http://www.taxconnex.com

What a great idea! Who'd a thunk it? When you're hiring a sales tax outsourcer, or any systems company for that matter, don't just make your decision based on the slick sales person and a tour of the nice offices. Check on the people who will be providing day to day support. That is where the rubber meets the road.

http://www.taxconnex.com/Blog------/bid/74463/Interviewing-Your-Sales-Tax-Outsourcing-Provider-Will-Enhance-Success

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

Great Article: Saying “I Do” to Tax Software

2011-10-18T15:33:00.000-07:00

from http://www.salestaxsupport.com

Suzy Soo outlines five popular sales tax software systems and does a pretty thorough job of reviewing how you can match your needs against what they offer.

http://www.salestaxsupport.com/blogs/sales-use-tax/sales-tax-software-automation/how-to-select-sales-tax-software/

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

Great Article: Three Deal Breakers for Acquisitions

2011-10-17T15:35:00.000-07:00

From the good folks at http://salestaxinsight.com

About a year ago, I wrote a true horror story about this problem. This article summarizes the problem much more succinctly than I was able to do.

This link is a new series we're offering called "Excellent articles that I wish I had written." The short name is "Great Articles." Enjoy and learn.

Great Article: How a Color Coded Map of the US Can Reduce Sales Tax Nexus

2011-10-14T07:24:00.000-07:00

This is from TaxConnex and talks about a simple, graphic and proactive way for a business to manage nexus.

http://www.taxconnex.com/Blog------/bid/70899/How-a-Color-Coded-Map-of-the-US-Can-Reduce-Sales-Tax-Nexus

This link is a new series we're offering called "Excellent articles that I wish I had written." The short name is "Great Articles." Enjoy and learn.

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

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

Dealing with the Home Office

2011-10-13T09:23:00.000-07:00

A recent webinar participant had a couple of complicated questions, so we made a phone-date to chat when I knew I would be spending an hour or so in a Chicago rush hour. So, while I was in the warm embrace of traffic, we talked sales tax.

Warning, the language gets a tiny bit crude a little later. Just letting you know in case you have delicate sensibilities.

A problem she was having that ran through all of her questions was the problem of dealing with her corporate office. She was kind of the chief-cook-and-bottle-washer in the office at a branch location of a much larger (though not gigantic) company. She had grown so frustrated at the inconsistent guidance she was getting that she decided to sign up for all four of our webinars. Yay for her!

The conversation eventually evolved to talking about what she could do to solve the problem with corporate. Before I tell you the answer I gave her, let me put a different disclaimer than usual here: there's a reason I finally decided to start my own company.

I have spent years in the corporate world and years presenting seminars on regulatory issues (like sales and use taxes). I have heard this complaint more than a few times. I gave her this precious bit of wisdom:

"These problems are above your paygrade."

Folks, I want you all to learn about sales and use taxes. I want you to care about sales and use taxes. I want you to care about your company. And your company should want these things too. But if, once you've learned, they refuse to listen to you, then relax. This problem has now sailed WAY above your paygrade (but you can still be smug knowing you're better informed about sales and use taxes than they are).

See, if you're at the right paygrade, then when you complain, people will listen to you. And they may change things. They may do it grudgingly, but they'll at least pay attention and give you explanations. But if they won't do that; if they pretty much ignore your concerns, or respond in a blow-you-off kind of way, than the issue is above your paygrade. Simple. They've just told you in their own special way.

But that doesn't make you feel that much better, does it? Because when it all blows up, you're still gonna get in trouble, right?

Email is a wonderful thing because it solves a problem that I had back in the day. Back then, pre-email, we had to write "cover your ass" memos whenever we felt that an issue we had raised had been ignored. So we wrote something like, "in regards to the meeting we had today on the Johnson Project, I just want to confirm that you said that I should just forget about it." And our bosses would immediately spot that as a CYA memo. This was not a career enhancing move, but was usually the only thing we could do that would get us off the hook when the proverbial poop hit the fan.

Today, you kids have email. So you probably haven't even HAD a meeting. You've been exchanging emails with your boss that document the entire Johnson Project conversation. So when someone starts chucking poop, you've got cover.

So make sure you raise the issues via email, then go home at 5 and watch The Simpsons. Relax. Then go back to work in the morning, ready to face the bright new day, with a song in your heart, and ready to deal with some fascinating new sales tax issue.

And if you're corporate, listen! Those people may actually know more about it than YOU do. And if they won't listen to YOU, then it's obviously above your paygrade too.

You see, what it comes down to is that if they don't listen to you and respect your opinion, then you obviously don't need to worry about it anymore.

Now I know that some of you more responsible readers are going to still take ownership of the problem and want to solve it for the good of the company. And that's admirable and I don't want to discourage this. So please learn and try to solve the problems. But I don't want you to get ulcers and migraines from the frustration of dealing with people that don't care as much as you do. I have the ulcers to prove it.

At some point in time, go home and watch the Simpsons.

As I said, there's a reason I am out of that world.

And just to show you how hip I am, feel free to watch Family Guy too.

Great Link on Local Sales Tax Rates

2011-10-11T13:47:00.000-07:00

This article reviews the local jurisdiction rates running for really low all the way up to real bloodsuckers. From http://taxfoundation.org.

http://taxfoundation.org/news/show/27645.html

Great Link on Sales Tax Automation

2011-10-10T13:24:00.000-07:00

Nice short article on making sure you do your sales tax automation right. From http://salestaxinsight.com/2011/09/26/confessions-from-a-boat-enthusiast/

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

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

Great Article Link: Surprise! Surprise! Surprise! - The State Auditor Looked at Your Website???

2011-10-07T14:06:00.000-07:00

Years ago, I came across someone in a seminar who said they got caught by Washington because they had listed, on their website, their manufacturers' reps. It turns out that one of those reps was based in Washington. Washington had audited the rep firm and then simply searched the web for any other companies with this firm listed on their web page. Bingo!

So, as this article from http://dowlohnesprice.blogspot.com says, watch what you put on your web site.

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

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Link: Groupon, Living Social, etc.

2011-10-06T16:26:00.000-07:00

A very good explanation from http://dowlohnesprice.blogspot.com/ on the sales tax issues involving these deals that companies like Groupon and Living Social are offering. The article particularly addresses MA and NY, but can be helpful in understanding the issues in any state.

And for some background, here's an article from 2009 on good old-fashioned coupons.

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

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Link: Top 5 Activities that Cause Nexus for Technology Companies

2011-10-05T10:46:00.000-07:00

TaxConnex recently published an excellent white paper that really covers all the bases when it comes to having nexus in a state. They describe WHY nexus is a problem and how you get it. And don't let the title fool you. While it's directed at technology companies, fishing tackle companies will find it useful as well.

http://www.taxconnex.com/top-5-activities-that-cause-nexus-for-technology-companies/

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

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Enterprise Zones

2011-08-30T20:06:00.000-07:00

Most states have economically depressed areas, usually urban but sometimes rural. Politicians want to encourage businesses to locate in those areas (more jobs, more votes). So they offer sales and use tax exemptions as incentives. They also often offer non-sales tax incentives, like income tax and property taxes. But I think I'll just talk about the sales and use tax piece, if you don't mind. Enterprise zone is the generic name for this exemption, and most states call it by some variation of that term.

Interestingly, this is about the only exemption that is based on where an item is purchased, sold, or used.

The incentives usually include some mix of the following exemptions, depending on the state:

No sales and use taxes on purchases of building materials used inside an enterprise zone.

No sales and use taxes on any purchases to be shipped to and used in the enterprise zone.

No sales taxes on items sold in the enterprise zone by a business in the zone.

There are usually some mix of the following restrictions, depending on the state:

Companies receiving the exemptions have to meet employment and/or investment targets.

Companies can't simply move from one part of the state to the enterprise zone, causing growth in the enterprise zone and loss in the former location of the business.

The seller AND the buyer have to be located in enterprise zones, but not necessarily the same one.

Companies have to register with and get prior certification from the economic development agency du jour.

The exemption is available for local taxes only.

The sales may not be exempt. But the company can apply for a refund or credit.

Zones have expiration dates.

The certifications of businesses in the zones have expiration dates.

Some states have a variety of different types of zones with different rules. For example, Pennsylvania has: Keystone Opportunity Zones, Keystone Opportunity Expansion Zones, Keystone Improvement Zones and First Class City Improvement Zones. Sheesh.

Why I hate Enterprise Zones (warning, you're entering the "editorial zone")

Let's see:

1. Politicians want private companies to do something, like set up businesses in blighted areas.

2. So they write tax exemptions encouraging that.

3. But they want to make sure those sneaky businesses don't make TOO much money in tax savings, nor abuse the exemption.

4. So they add nuttier and more complicated restrictions into the rules. Notice that I wound up listing a whole lot more restrictions above then actual exemptions.

5. Politicians also appear to be too lazy to just update the rules for a zone. They have to write new ones piling on the old ones (see Pennsylvania above).

6. Businesses that might move into the area look at the rules, sigh, and say, "never mind." Therefore these enterprise zones don't accomplish what the politicians wanted and promised.

What you should do

Check to see if your company, or any of your vendors or customers, are already located in an enterprise zone. In other words, are there exemptions available to you that you weren't aware of?

Factor any tax exemptions into your expansion plans.

Make sure you understand the rules clearly before taking action.

Get a professional to assist with this if the rules are as complicated in your state as I've implied.

Get a professional anyway. If you're making business decisions based on some system a politician has set up, you want to make sure you do it right.

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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Got an iPad?

2011-08-29T13:28:00.000-07:00

I've just tested it on our last webinar and it truly works...kind of. You can download the gotomeeting app and join our webinars. The screen looks nice and it seems to be pretty fast. There is ONE problem though. And it's a biggy. There's no chat function that's available on the regular clients. Which means you can't text in your questions.

This isn't the end of the world since I do invite voice questions at the end of the webinar so that folks who haven't been able to chat can ask questions (eg. people who phone in and follow along on the paper copy of the handouts).

So if the iPad, with its limitations, works for you, huzzah!

Yes, I've been spending too much time at our local renaissance fair recently.

Oh, one more thing. I haven't heard of an Android version yet.

Felony Watch: Links to Stories About People Doing Bad Things

2011-08-17T18:47:00.000-07:00

Some relatively recent news items about sales tax evil-doers

Gadsden AL businessman charged with sales tax evasion myfoxal.com

Bronx County Restaurateur Faces Felony Tax Charges Failed to Remit over $500,000 in Sales Tax to State and City readme.readmedia.com

3 North Georgia Business Owners Indicted for Tax Theft newschannel9.com

Former Loris SC councilman, wife face sales tax charges thesunnews.com

Liquor store owner charged with $380k sales tax evasion NY midhudsonnews.com

Rye Man Accused Of Stealing $380K In Sales Tax NY northcountrygazette.org

Brooklyn Park business loses sales tax permit MN hometownsource.com

Ex-Anderson Mayor Rex Lynch arraigned on felony charges TN knoxnews.com

Miller’s Essenplatz’s owner convicted of not paying sales tax NewarkAdvocate.com

Former North Naples restaurant owner accused of stealing $67,000 in sales taxes naplesnews.com

Aurora IL gas station owner charged with sales tax fraud couriernews.suntimes.com

Bronx Businessman (Truck Rental) Failed To Pay $400K In Sales Tax northcountrygazette.org

Lake Elmo man faces 9 counts of tax evasion MN startribune.com

Pasco café owner accused of failing to pay sales tax (WA) tbo.com

Coraopolis car dealer faces charges (PA) timesonline.com

Guilty plea entered in theft of sales taxes (used car dealer) buffalonews.com

Norwalk CT Businessman Accused Of Stealing More Than $15,000 In State Sales Tax (liquor/convenience store) Courant.com

Ocala car dealer arrested on tax charges ocala.com

Tax Lien Forces Kushi (restaurant) To Shutter With Hopes To Reopen Wednesday DC
dc.eater.com

Local Auctioneer Serving 90-Day Jail Sentence (SD) yankton.net

Tri-Cities WA Home Builder Charged With Tax Fraud keprtv.com

Omaha guy mulls moving company but may owe a LOT of taxes to Nebraska due to playing games with vehicles - allegedly omaha.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/

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Sales Tax Poetry

2011-08-10T09:00:00.000-07:00

Collect sales tax, you kept?
Beware the tax man, he'll catch you.
Orange suits will look nice.

Now, you're all supposed to snap your fingers and say, "Cool, man. Cool."

This was published for fun in the latest issue of e-AP News Trust me, there are no anthologies coming.

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

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Editorial: What's the point of a sales tax holiday?

2011-08-02T10:00:00.000-07:00

Warning - I have absolutely no real facts to back me up, merely surmises, my own experiences and assumptions. But I'll bet I'm right. This is just pretty much a rave-out.

Seems to me that most retailers really don't get much benefit from sales tax holidays. They have to stock up for that one particular weekend in August. They have to reprogram their POS systems. They probably have to staff up as well. They may even pay their staff overtime if they happen to be paying attention to wage and hour laws (which is a big "if"). They'll get in arguments with customers about whether or not this particular school supply qualifies for the exemption. Is it a purse? Or is it a school bag? And then they see a slide in their sales for the non-holiday weeks surrounding that one particular weekend in August.

In other words, do retailers see any long term, increase in profits? I'll betcha they don't.

But there are two situations where holidays can benefit retailers.

1. If they're on the border with another state that doesn't have a sales tax holiday, then they can steal business from that other state. I wonder though, if the retailers would be so enthusiastic if they had to enclose a flyer with each purchase advising the customer that when they return back to their state, they will owe use tax on their purchase to their state. In other words, legally, it's pointless to go to another state to take advantage of a sales tax holiday and then use those clothes in your state. You know, use tax?

I always find it funny that politicians know that they're stealing business from the other state, even use that as a justification for the holiday, but still whine about losing tax revenue from Amazon's failure to collect taxes. Isn't this kind of the same thing? They're creating a system where the buyers are failing to pay the required use taxes in their home states.

2. I can see, from a marketing perspective, that having a sales tax holiday is a great way to build enthusiasm, a festive atmosphere and maybe a buying frenzy. But can't the retailers just buy some balloons and have a "storewide sale?" Essentially, by making it a sales tax holiday, ALL of the taxpayers in the state are paying the marketing costs of the retailers. Doesn't seem fair.

There is one group that definitely and always benefits from a sales tax holiday - politicians. An example:

I live in Illinois, who, up until last year, never had a sales tax holiday (at least in my memory). Then, in the midst of a massive and spectacular budget crisis (I've heard we are now the most broke state in the Union), we have a sales tax holiday. Which is just going to mean a bigger budget crisis. Why did we have one? Well, let's just say that our beloved governor was running for reelection and it was a tight race. Need I say more?

I guess I will. Politicians love to pat themselves on the back about sales tax holidays. But the holidays cost the state tax revenue, probably don't help the retailers, and steal business from other states without really benefiting the customers, who then owe use taxes in their states.

Cynical? Yep. Correct? I'll betcha. What do I think of politicians? Not much.

Enjoy your sales tax holiday, if you live in or near one of these states.

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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Your taxes at work or why you shouldn't assume the auditor knows what they're talking about.

2011-07-26T18:14:00.000-07:00

I was doing a seminar in the Capital of East Dakota a few years ago.

When I walked into the meeting room a couple of hours before the event, I was surprised by the number of participants that were on the roster. Usually, in a city the size of Snagglepuss (the capital of East Dakota, as if you didn't know), I would have expected about 20 to 30 people. But the list showed almost 80 folks. This was pretty close to a record for me. I've only seen crowds of that size in Manhattan. And this wasn't Manhattan. Not even close.

I took a look at the roster again to see if I could find any reason for the big numbers and immediately spotted the cause. Almost 50 people were from one organization...the East Dakota Department of Revenue.

I groaned. It's never a good thing when someone from the tax department is at one of my seminars. It's not that they interfere. In fact, they are usually complimentary about the program. What drives me nuts is that everyone else in the seminar shuts up. There's virtually no interactivity, no questions, no comments...nothing! After all, who is going to ask a question about their sales tax issues when there's an auditor sitting in the front row? And the auditor isn't going to ask any questions - they don't want to look like they don't know about sales tax. So it turns into a really boring seminar for the audience.

In this case, I had not just one auditor, which is bad enough. I had 50 of them, far outnumbering the civilians in the room. It did not promise to be a good day.

And it didn't inspire confidence in the East Dakota Department of Revenue either. As a seminar presenter, you can tell if your audience is getting the material you're presenting. You see smiles of comprehension, knowing nods, and people ask questions to clarify points as opposed to "Can you explain use tax again?" In this class, I was looking out on close to 50 people who were clearly lost. There were a lot of dull stares coming from the auditor part of audience. Their lack of understanding was confirmed by the questions they were asking at the breaks. I felt like saying, "Wait a minute, you guys are sales tax auditors?"

You may be wondering how the civilian part of the audience was doing. I saw nothing but pure terror on their faces. And they kept making sidelong glances at the auditors that were sitting among them. Also interesting was how many of them had taken off their name badges.

During one of the breaks, I was chatting with one of the few auditors who I could see was getting the material and asking smart questions. I asked him, "Why are you guys here?"

He said, "Oh, this is our in-service training for the year."

I said, incredulously, "For the year???"

"Yep. There's not a big training budget"

"Who's minding the store?"

He said that this was only about one third of the audit staff.

Now think about this...

The price of this class was $200 per person. Even if they got a deal from the seminar company I was working for, they probably still paid $7000 or $8000 for those 50 people. And they were only a third of the staff.

For that same price, they could have had someone do a custom seminar for their entire audit staff, not just one third of them. Instead they got a seminar not designed for them, but for businesses and taxpayers. And this one day general seminar was their only training for the entire year!!!

So there are two take-aways from this:

1. The auditors in your state may not be getting the training they need, so you should not assume they're always right.

2. The training department for your department of revenue may not be spending your money wisely.

Please keep in mind there are are lots of good, knowledgeable, and competent sales tax auditors out there. I have met quite a few. If you get one of these folks, your audit will be professionally conducted by a sharp representative of the state.

But there are a lot of dolts out there too. Particularly in East Dakota. I mean, they named their capital Snagglepuss!

By the way, other than the made up geographical names (which I'm having fun with), this is an absolutely true story.

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/
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Illustrations and Parables: Intercompany Transactions

2011-07-15T12:10:00.000-07:00

Bill* invented a machine to curry wockies.* His problem was that while he knew the machine would be a real boon to the wocky service industry, it was really, really expensive. He had a lot of trouble convincing the industry to use his machine because of the ridiculously high initial cost. Finally, one of his investors suggested a tactic that has been long used by inventors with money. He bought his customers and made them use the Frazier Wocky Currier*.

In the Great State of East Dakota*, which is in the heart of the wocky region of the country, he bought ten small little wocky service companies, spread throughout the state. Since he didn’t really want to get into the wocky service business, the typical deal was, “Here’s a pile of money for your company. You keep running it the way you like. You can even keep the same name on the sign. I don’t care. But, whenever a situation comes up where you need to curry wockies, you have to use my machine.”

From a financial perspective, he simply bought all of the shares in the corporations of these little service companies and let them stand as separate, but commonly owned, subsidiaries of his own company, The Frazier Currier Company*.

His corporate empire looked something like this*

The machine was a success. It was incredibly effective and the customers were thrilled. In fact, the local companies actively looked for opportunities to curry wockies, so they could use the machines even more. Everyone made money.

The Frazier Currier Company manufactured the machines and then shipped them to the service companies.

Business got so good that sometimes they couldn’t get enough machines. So they would move machines from one service company to another to meet local demand.

Then the State of East Dakota audited them.

And the auditor noticed that they were selling these very expensive machines from the parent to the subsidiaries and no sales tax was being charged. And that the subsidiaries were selling the machines to each other, and no sales tax was charged.

Frazier Currier Company argued that these were just movements of machines between branch locations, that they weren’t sales.

But the auditor pointed out that every branch, as well as the parent, was a separate corporation. And in East Dakota (and in most states), corporations are legal persons. Transfers of tangible personal property and taxable services between persons, are sales. Period. The assessment was over $10,000,000.

The only way the Frazier Currier Company was able to negotiate the assessment down, was by bringing East Dakota’s leading bankruptcy attorney to the negotiations.

So what’s the moral of the story here?

First of all, bring a bankruptcy attorney to the negotiations.

Seriously, you need to make sure, when you are transferring taxable goods and services among subsidiaries and parents, that you are properly taxing the transactions. In most states, they look at the form and nature of the transaction. Is there formal paperwork? That makes it look more like a sale. Is there just a note to the bookkeeper so he knows where the machine is? Maybe it’s not a big deal. Is it an occasional sale? That might get you off the hook. But you need to know.

And here’s the kicker. This is not well documented in most state’s statutes and regulations. This is one of those areas where you need a local consultant who knows the customs and audit practices of East Dakota or whatever state you're in.

The irony is that, of all of the accountants and lawyers that Bill used when he set up the business, he didn’t have a sales tax expert. That august personage could have told Bill to set up leasing arrangements so that every machine is owned by The Frazier Currying Company and is LEASED to the subsidiaries. Because, in East Dakota, there’s an exemption to the rule for intercorporate transactions if they're leases.

*I’m using fake names to either protect the innocent, the guilty or to just be funny.

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

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Printing and Publications

2011-07-07T08:52:00.000-07:00

I had a rant all set about the "Amazon tax", but I decided you needed some actual content, as opposed to me editorializing, so here you go. I might do it in a day or so, after the steam stops coming out of my ears.

There are several issues to consider when it comes to printing and publications.

First of all, printed products are usually taxable. They're tangible personal property and therefore, by default, taxable. But there are plenty of exemptions, which we'll talk about.

Take newspapers for instance. You know, those things that get ink all over your hands. We used to read them when we were riding in the stagecoach. Now we have iPads.

Anyway, in some states, there's a sales tax on newspapers. Consumers usually don't see this because the tax is absorbed into the price when sold from a machine or street vendors. In other states, there is simply no tax on newspapers. And I'll bet that, in those states, there are editors who are complaining about all of the big corporate exemptions. But are they complaining about the exemption they get for newspapers? Didn't think so.

Dang. And I wasn't going to editorialize.

Magazines are different. They are often taxable when sold over the counter, but there are some states where they are exempt. And if they are taxable when sold over the counter, they're usually not taxable when sold by subscription. The subscription one is tricky. There are states that DO tax subscriptions. And they have a field day with doctors' offices.

Newsletters and other periodicals, when sold by non-profits, are often not taxable, with some restrictions.

Then, there is the definition of what precisely IS a newspaper, magazine or newsletter. For example, newspapers often specifically have to be printed on newsprint and come out at least weekly. And magazines often must be published at least quarterly, have advertising, and soft covers. And then there's the question of taxability if the publication is delivered digitally.

Finally, there's the printing of advertising, catalogs, brochures, and similar custom printed documents.

There are a couple of states that make this easy. In those states, custom printing is considered a service and is not taxable. Done!

However, most states will say that custom printing is taxable.

One general exception for custom printing is product that is shipped out of the state. While there are usually specific laws that state this, it's rooted in this golden rule.

There are a couple of states that say that custom printing, if shipped via common carrier (like the Postal Service) to the individual customers and prospects, even within the state, is not taxable. This presents a bookkeeping challenge. If you have 100,000 brochures printed, how many will be mailed to your customers, and how many will be kept for handing out at tradeshows, etc? And the method of delivery is important. In one state, the law requires that the delivery must be by US Mail. Not Fed Ex. The US Mail. Gotta be careful to read the entire rule.

To summarize the big points:

Stock printing: generally taxable
Newspapers: often taxable
Magazines: usually taxable
Publications by non-profits: often not taxable
Subscriptions: often not taxable
Custom printing: usually taxable
Printing shipped out of state: generally not taxable
Custom printing shipped within state to individual customers: sometimes not taxable

Remember, every state will be completely different.

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.

Sales Taxes and the Amish

2011-06-28T09:12:00.000-07:00

There have been some stories this week about some problems that Amish are having with a new rule in New York requiring EVERYONE to file electronically. This means the Amish too. This is a pretty thorough article. While it makes for a good story, I'm not sure it's that big of a deal.

I've always found the Amish culture interesting and have read about it over the years. And I've even done sales tax seminars for them. One thing to keep in mind is that Amish rules are very intricate and convoluted. It's not so much that they have a problem with electricity, but that they have a problem being connected to utility lines, which connects them to the outside world, which weakens their community. For Amish, preserving their community is paramount. And admirable.

So they don't have phones or utility-provided electricity. But you'll often see public telephones near their communities. And they may use battery or generator powered electric devices in their shops and on their farms. But it's all highly variable. They make these decisions locally and some groups are stricter than others.

I have a friend whose company has more than a few Amish customers. There's usually a problem because they can't use the internet, web or email, have trouble faxing in orders, and the mail is too slow. They can't take digital pictures of damaged goods and email them for the obvious reasons. She can't call them back when they leave a message because, well, they were standing at a pay phone. But she tells me that they are almost invariably the nicest customers to deal with.

So what has this to do with electronically filing sales tax? They can't. Period. Electronic filing requires a computer, internet connection, email and the web. They don't do any of those things. So what's the solution?

As the article I mentioned above shows, after some prodding of a typically unresponsive and resistant government bureaucracy, they were told that they can still file their returns by mail. And here's the other thing. Most Amish have accountants. THEY can do all the things necessary to file electronically.

Electronic filing is a good thing. It helps avoid errors, and allows the government to cut some staff that were doing data entry. Making the "G" more efficient is highly desirable, if unlikely. Plus, in this instance, the rule gives more business to local accounting firms. Which is a wonderful thing.

So don't worry about the Amish (I'm guessing you weren't). I'll be honest, the real reason I wrote this was to use that nice picture I took in southeastern Pennsylvania. And to dazzle you with my knowledge of things that have no relationship to sales taxes.

Have a glorious day. I don't know about where you are, but here in the western suburbs of Chicago, it's a beautiful day. Why are you reading this blog? Go outside and play! Go on, git!

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.

Links: News

2011-06-24T07:26:00.000-07:00

Tax break for Nebraska tanning salons gets burned
I like this one, if only for the headline kearneyhub.com

Jerry Brown vetoes California budget money.cnn.com

States Increase Taxes For Ninth Consecutive Year avalara.com

Sales Tax News Roundup avalara.com

ESCONDIDO: Walmart deal depends on $750K sales tax subsidy nctimes.com

Ohio Use Tax Update speedtax.com

Texas Two-Step—One Step Forward, One Step Back avalara.com

Maine does away with aircraft sales taxes stamfordadvocate.com

RI considers taxing over-the-counter drugs boston.com

eBay leery of 'Amazon tax' on online sales in California therepublic.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.
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Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

Links- Nexus

2011-06-22T20:26:00.000-07:00

Here is a selection of recent links I've come across

Navigating Nexus - Multistate business operations face a wide variety of state taxes
Nice details about how you are exposed to nexus - Journal of Accountancy

Amazon offers Texas 5,000 jobs in trade for sales-tax exemption Seattle Times

Texas Two-Step—One Step Forward, One Step Back Avalara

Internet company FatWallet hops the Illinois border to Beloit Wisconsin State Journal

Map: Amazon’s sales tax battle Geekwire

Texas Clears Up Server-Nexus E-Commerce Sales Tax Issue ecommercetimes.com

Sales Tax Nexus - Victory for the Internet Retailers! taxconnex.com

Working up a tax storm in Illinois washingtonpost.com

Internet Sales Tax to be Introduced in US Senate foxnews.com

The Problem With Online Sales Tax cpatechreviews.com

Barnes and Noble Wants Amazon's Rejected Affiliates auctionbytes.com

On Line Travel Services Subject To Sales Tax in D.C. sabrix.com

Sales Tax Nexus Changes Will Surprise You taxconnex.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.
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Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

Sales and Use Tax Books You Should Own - Redux

2011-06-14T11:21:00.000-07:00

This article first appeared back in 2007 and I thought it should see the light of day again.

These are sales and use tax books that I strongly recommend as reference tools. If you have to worry about a few states, you really should own them. If you are in only one state, they may be overkill, but are still worthwhile. Both books cover all of the states.

Guide to Sales and Use Taxes (from Research Institute of America)
This book has an enormous amount of information for each state, with the material broken up into 15 subchapters within each state chapter. It also has an opening chapter which is basically "sales tax 101." If the book is weak, it is in two areas: there aren't any citations, and it sometimes provides too much data with too little interpretation. These deficiencies are made up for in the next book.

Sales and Use Tax Deskbook (from the American Bar Association)
Each state's treatment is written by an attorney who specializes in that state's sales and use taxes. While I've only met a couple of them, I heard of many more. So far, they have all been heavy SUT litigators and highly "plugged in."

The book actually provides less detail than the Guide (above), but does provide more interpretation of the laws, as well as citations. So you can read the basic information, then drill down to the statute, regulation, bulletin, court case, opinion letter, etc.

Here are two particularly useful items provided by the book:

1. It gives you the rules for taxation of exports out of the state. Now you'll have ammunition for your discussions with vendors who are charging you their state's tax as opposed to the correct one (yours).

2. For most states, the book shows the "drop ship" rules, which will, again, help with vendors who really don't understand this particular topic.

I actually recommend both books if you have the budget.

First of all, owning both books gives you the ability of second sourcing or even third sourcing your research. It's always helpful, on confusing issues, to see if the books agree.

The other reason is updates. By owning both books, you can flip-flop your purchases. One year get an updated version of the inexpensive book, next year get the expensive one, and so on.

Finally, you'll notice I'm not offering to sell you these books. That's because I want you to trust that I'm not biased here. I'm not recommending them to make money. Contact the publishers and they'll be happy to sell them to you.

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.

New Cover Art for the Latest Sales Tax Guy Album!

2011-06-13T09:52:00.000-07:00

A friend of mine gave me the moniker Jim "I got the sales tax blues" Frazier. He's now shot two "album covers." Here are his comments about this picture on Flickr (and you can click on the picture to see it and more of his photos).

You heard it hear first folks.

We have once again gotten the scoop on Jim "I got the sales tax blues" Frazier's next Album.

Rumor has it that the title is "So you want to date my daughter?" and the above is some of the artwork from the album.

Rumored tracks include "Better start running now", "From an appropriate distance", and "Make her cry, I make you cry".

Here's his previous "cover" shot

His real name is Chuck Isdale and he is very...creative ;-) You should see his Gloria Swanson tribute.

Full disclosure: the gun isn't real, I don't play the guitar, and they aren't my daughters.

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

Historical Places

2011-06-06T08:41:00.000-07:00

I had a question from a webinar participant last week about the "landmark exemption." I had to honestly respond that I didn't have a clue about what he was talking about. In a subsequent exchange of emails, I figured out that Texas has an unusual and obscure exemption for contractor's services performed on buildings that are the National Register of Historic Places.

I've been doing training on Texas sales and use taxes for eight years and that's the first time I'd ever heard of it. My excuse is that Texas has some of the more spectacularly complicated rules about contractors. And this is a pretty obscure rule. In order to find information on it, I finally had to resort to doing a text-search for "historic" in my RIA database. But once I figured out what was going on, I found that there were a couple of good lessons for you folks.

First of all, who would have thought there was an exemption such as this? I did some additional research in other states and only found one other state, Connecticut, that has a generic exemption for construction related costs on historic buildings. TWO STATES! There are a couple of other exemptions floating around, but they tend to be for specific projects such as a YWCA building in DC, provide tax credits if the projects promote tourism, or are for projects covered by non-profit organization exemptions.

I find it hard to justify this exemption. The tourism related credits I get - there's a tax revenue pay-off for the state that will probably offset the credits. But, with states desperate for money, they're giving exemptions for restoring a historic building? Now I am a big fan of historic places - they're one of my photography projects. But is the presence or absence of a tax credit really going to have an affect on an owner's decision about restoration? I'll bet the net result is that some well connected folks get some tax benefits, and the state loses a lot of money unnecessarily. Sigh.

The second point is that there are some really obscure exemptions out there. Always be looking to take advantage of the lack of common sense on the part of our elected representatives. Pay particular attention to continuing transactions that will result in big dollars, as well as the one-off big deal. And, now that you've read this, keep an eye out for historic site exemptions while you're at it.

Finally, to complete the discussion about historic places, there's another exemption that is a little more common. Many states impose sales tax on admissions charges. And many of those states grant exemptions for admissions to historic sites.

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

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

"Main Street" retailers better be careful what they wish for

2011-06-02T12:36:00.000-07:00

Most of the sales tax news that I see these days seems to have something to do with states going after Amazon.com. The discussion includes other big Internet vendors - but I'll just say Amazon.com, because that's what everyone else says.

Many of the articles, letters, blogs, comments, and editorials go something like this:

"In order to be fair, Amazon.com should collect sales tax so that the local retailers, who have to charge sales tax, can compete fairly.

This opinion reflects a basic ignorance of the system. It's USE tax when it's an interstate shipment. I know, I'm being fussy, but the level of ignorance displayed drives me crazy. Now if they just took a few webinars...

There's also this common theme:

The state is out of money. If we can make Amazon.com pay taxes, we'll be in high cotton."

Which misses the point. The local customer is paying the taxes. Amazon.com is just being forced to collect it. Make no mistake...there is no shifting of the tax burden to Amazon.com.

And this one

"The state should fix this."

Which is wrong. The states have been trying to do this with aggressive nexus assessments and silly laws involving "associates" in the states. It hasn't worked out really well. The states can't fix this. It's an interstate commerce issue.

But every once in a while, someone makes the correct observation:

"Congress needs to fix this."

Now they've identified the problem. Congress (or the Supreme Court) can fix this by making nexus much simpler. All those "Main Street" local retailers argue that if Amazon.com ships into a state from out of state, they have to charge the local state's tax. OK, Congress can wave the Magic Nexus Wand and make this the law of the land:

Regardless of their physical presence in a state, the seller must charge the taxes for the destination state and remit the taxes to that state.

Nice and simple. And fair.

Full disclosure: I don't want this to happen. Then nobody will sign up for my nexus webinar. I much prefer it complicated. ;-)

But, please remember that all those journalists, editors, chambers of commerce, and local businesses are clamoring for fairness.

Well, folks, here's the part that you don't realize you're wishing for.

If you're like most "Main Street" businesses, you also have a web site. And that almost always means that you sell stuff outside of your state. Guess what? YOU will have to start charging tax on your shipments too. Yep. You want it to be fair, don't you? If Amazon.com has to charge taxes when they ship into your state, and steal your business; then YOU should have to charge taxes when you ship into some other state and steal someone else's business.

I can just hear the howls of protest:

"Oh, no. There will be a dollar limit. Only sellers who have annual sales in excess of $100,000,000 will have to deal with this 'fairer' rule."

That doesn't sound fair to me. And it doesn't sound fair to that guy in the other state whose business you've stolen.

I also wonder if the newspaper publishers who are demanding this "fairness" realize that some of the states where they sell subscriptions actually do tax newspapers. Which means even THEY will have to start charging taxes and filing in those states. And, of course, the famous newspapers probably sell hats, t-shirts, etc. from their web pages. Guess what? Hee hee hee.

And for the politicians. Your constituents, George and Martha, will suddenly be unhappy when they realize that "making Amazon.com pay sales taxes" really means that George and Martha will have to start paying those taxes. Amazon will lose business because they have to charge tax. But George and Martha will have to pay it.

Be careful what you wish for.

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.

Detailed Manufacturing Rules

2011-05-31T06:00:00.000-07:00

Every state has different rules for manufacturing. And I covered the major rules here. Today, I thought I'd review some of the more detailed taxing policies that you may deal with.

Where does the manufacturing process begin and where does it end? The first requirement to worry about, for most manufacturing exemptions, is that the item must be used in the manufacturing process. Usually, it starts at the first machine and ends at the last machine. The last machine is often packaging the product for the final consumer - putting beer in the can, for example. Sometimes the manufacturing process includes the transportation of raw materials to the first machine and transportation of the finished goods to the warehouse. And in a few situations, the process even includes the raw material and finished goods inventory as well as the shipping department. Not often, though.

Materials handling equipment, like lift trucks, pipes and conveyor systems, if used directly within the manufacturing process, will usually be exempt. But beware. There are a couple of states that specifically exclude this type of equipment from the manufacturing exemption. Also, some states require that the equipment be used exclusively in the process. The rest usually require that the equipment be used predominantly in the process. This is a challenge when you're running lift trucks all over the plant.

Concrete mixers are, in many states, considered manufacturing equipment. This is because, after the materials are loaded into the truck, there is still some processing being done in the drum as it's heading to the job site. Hence, it could be considered manufacturing equipment. But note that, in states where this exemption exists, it doesn't extend to the truck itself. The exemption only applies to the mixer.

Cleaning of manufacturing equipment is usually not considered directly used in manufacturing. However, if the cleaning is necessary for a food processor, then it's sometimes exempt.

Speaking of clean, clean rooms are sometimes exempt as well.

Sometimes, big manufacturing machines will require specialized concrete foundations. These may be exempt in some states, even though they are permanent (and really heavy) additions to real property.

Power generation equipment is frequently exempt if the power is being used by manufacturing equipment. Less often, transformers for electricity coming from mains is exempt.

Employee safety items, such as gloves, goggles, helmets, aprons, etc. are surprisingly not generally exempt, even if they are required by OSHA. One problem is that they are rarely directly used in the manufacturing process.

There are even more detailed manufacturing rules, but this should do for now. And I just realized that there were no jokes in this article. Sorry. Maybe next time.

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.

Golden Rule: Three Different Types of Property

2011-05-17T05:05:00.000-07:00

[This is an overhaul of an article originally written in February of 2009]

While there are variations for what constitutes real and tangible personal property, these are pretty good definitions in most states.

Real Property

Real property is generally property that has been:

1. permanently
2. affixed to other real property (like land and buildings) and
3. is integrated into the value or use of that real property.

Permanent usually means there are no plans or expectations to remove the item - it will last as long as the building or at least 10 to 20 years.

Affixed means that you'd cause significant damage if you removed the addition.

"Integrated" means that the additional property extends the life or increases the value of the existing real property. In addition, it would be something that would be expected in the building or that facilitates the purpose of the building (like a roof).

One test that I've seen is: if the building were purchased, would the new owner retain the addition, or would they probably tear it out? In other words, is the addition something that is fundamental to the purpose and value of the building? For example, if someone buys a house, would they keep the old draperies? Probably not. They might keep the Venetian blinds, but the drapes? Blech. Out they go!

Effect on construction contractors

If a construction contractor permanently affixes TPP to real property, and it becomes integrated into that real property, she has converted that TPP into real property. In most states, the contractor's sale wouldn't be taxable and she would pay tax on the TPP when purchased by her.

TPP - Tangible Personal Property

Tangible personal property is property that is perceptible to the human senses (tangible), and is not real property. See above.

A simpler way to describe at TPP that is not as accurate, but easier to grasp, is: tangible personal property can be moved without causing damage to the property or to any property it is attached to.

Note that sales of real property are not generally taxable, but that sales of tangible personal property are, by default,taxable. There are lots of exceptions and variations.

Intangible Personal Property

And then there's a third type of property: intangible personal property.

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.

Things Change

2011-04-22T16:26:00.000-07:00

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.

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.

Want to keep up on the Amazon news?

2011-04-15T14:08:00.000-07:00

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.

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

Parables and Illustrations: Do you sell equipment?

2011-04-11T13:38:00.000-07:00

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.

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.

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.

Illustrations and Parables: A weird invoice where they paid extra California taxes for a shipment of non-taxable items to Idaho

2011-03-04T10:28:00.000-08:00

The following is a true story. I've randomly changed the names, states and products so that nobody, least of all me, will get in trouble. But it had to be told.

I received a call from one of my previous class participants on Wednesday. Doris had emailed me a question the day before, but it was so long and involved that I wanted to talk about it on the phone. I had a long drive in Chicago morning traffic, so she called me back at the perfect time.

Doris had sold some boxes to Sam in Idaho. The boxes were containers for Sam's product so they were bought for resale and Doris had Sam's resale certificate. Doris had billed Sam, with no sales tax on the invoice, since it wasn't taxable.

But then Doris got a call from the Sam's distributor in California. For some reason, they were going to pay the bill. Here's the conversation:

Distributor: I have your invoice here for the boxes you sold to Sam. Why didn't you charge sales tax?

Doris: It's not taxable. They're boxes for his products so they qualify as exempt.

Distributor: No they're taxable. You need to rebill us with California sales tax.

Doris: You're wrong. They're not taxable. It's called the "container exemption." I'd be happy to send you more information.

Distributor: I need to have California tax on this invoice.

Doris: But I can't bill you California tax anyway. We aren't registered in California, don't do business in California and don't have nexus there. I can't collect taxes for a state I'm not registered in. Besides, the delivery occurred in Idaho, therefore it would be Idaho tax anyway. But it's not taxable!

Distributor: If you don't charge me California tax, we'll just add the tax to the payment.

Doris: If you do that, I'll just have to send you a refund check. We can't accept that money.

Distributor: We won't cash it.

At this point, Doris, realizing she was talking to a tree stump, gave up and sent me the email.

After we went through the whole thing, Doris asked, "I'm right, aren't I?" I said, "Absolutely! The best chance you have is that the person who handles the refund check won't have heard from this idiot. They'll deposit it and that'll be it. Out of curiosity, what part of accounting was the person from?"

Doris replied, "She was the sales rep."

"Ah. Now it makes sense."

If there's anyone who'll stick to their guns, on a topic they know nothing about, in the face of someone who clearly knows what they're talking about, it's a sales rep. (I kid, I kid. I spent years in sales)

I explained to Doris that she needed to keep very detailed notes on this situation because of two potential scenarios:

1. The California distributor gets audited by the state of California who discovers that taxes were paid to Doris. The auditor will ask Doris what she did with the money, since she's not registered in California. Doris will need to be able to document that she did refund the money.

or

2. The California distributor hires a reverse sales tax auditor who comes across this weird invoice where they paid extra California taxes for a shipment of non-taxable items to Idaho. [Boy, as soon as I wrote that, I knew I had the title of this article.]

The auditor will immediately call Doris and demand a refund for the overpayment. Again, Doris will need to be able to document the refund.

Now the other thing that the sales rep didn't know about (and many of you probably don't know either) is that refusing to cash the check doesn't really solve the problem. After about a year or so, depending on the state, it will become an unclaimed property issue. Doris will have to send a letter to the company telling them they have an uncashed check. If they still refuse to cash it, Doris will then turned the money over to the abandoned property department of the state. Her job will then be finished. The money has been paid, in this case, to the state.

Now, when that reverse sales tax auditor calls about the overpayment, Doris can just say, "Yeah, that company you're working for refused the payment. We had to turn it over to the state treasurer. Call them. Not my problem anymore."

But, as I said, Doris needs to document the heck out of this. Because she'll be lucky if this doesn't pop up again in the next three or four years.

And here's a message for sales people, or any non-accounting folks out there. If the accounting people seem to know what they're talking about, there's a chance they do. I'm just sayin'.

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.

An Interesting Issue with Rental of Tangible Personal Property

2011-02-25T12:30:00.000-08:00

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.
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.

Felony Watch: Links

2011-02-18T10:40:00.000-08:00

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.

A Sneaky Sales and Marketing Trick - Revisited

2011-02-14T15:04:00.000-08:00

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.

Sales and Use Tax for Sales and Marketing People

2011-02-09T13:50:00.000-08:00

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.

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

2011-02-03T10:48:00.000-08:00

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.

FAQ: What if I underpay my taxes?

2011-01-31T07:57:00.000-08:00

This question came in over the weekend and I just answered it. I've sanitized it, because it's worth mentioning to those of you who are relatively uninformed about this:

Found your Sales Tax Guy blog while doing some research. I'm hoping you can answer a question for me.

I own a small retail store in New Jersey. I recently discovered that my now former accountant was underpaying the amount of sales tax I owe. We collect the correct amount (8.75%) but it looks like we have been sending about 7.75% to the state every month for the last three years!

Should I just forget about the past shortages (we're paying the correct amount now) and hope that the state doesn't discover the error? How could the state discover the error anyway unless I brought it to their attention?

Doreen, of all of the possible mistakes that you can make, this is dang near the top of the "really bad" list. Have a look these articles.

You need to get professional help from someone who knows their way around sales and use tax. It'll be expensive but not as expensive as the price you'll pay if you ignore this. And New Jersey is broke, so they're even more aggressive about finding unpaid taxes.

They'll find you. It's called a "sales tax audit." And this particularly problem is one they'll probably find in the first hour or so of the audit. Snap.

Find some help.

Jim

This also brings up an issue I've talked about before. While your accountant may be highly knowledgeable at income taxes, there's a good chance that he or she knows virtually nothing about sales and use taxes. But the eventual responsibility will rest with you. So make sure that whoever you take advice from on this topic actually knows something about it. And make sure they're doing it right.

Jim

Illustrations and Parables: Don't overcharge the tax.

2011-01-18T14:42:00.000-08:00

This article is based on a recent story about a retailer who kinda screwed things up. I’m not going to identify them, or give you a link to the original story because I’m going to severely mock them and I don’t need no trouble with no lawyers. Consider this fiction “inspired” by actual events.

1. The store has been overcharging their customers for nine months by 1 percentage point. The correct rate was 7% and the store was charging 8%. No mockery here…this stuff happens.

2. This is not just one store. There are several other stores in the chain. So I’d assume they have competent accounting folks. This, as it turns out, is a big assumption.

3. The extra money wasn’t paid to the state. The error was at the cash register, but they were remitting tax to the state at the correct rate. So they were holding on to all that overcharged tax. The owner wasn’t sure how much was over-collected, but estimated it was a couple of thousand dollars. Wasn’t sure? Does he have accountants, or monkeys with pencils?

4. A customer finally noticed the error (after nine months) and called the store. The assistant manager said there was no error, because the store was in a special taxing district; and that’s why the rate was a point higher than expected.

5. The customer then called the city and found out there was no special taxing district. In other words, the assistant manager was, er…wrong. What a surprise.

6. The customer then called the store again and was told, again, that the store had not made a mistake. Amazing how much trouble those assistant managers can get you in. They’re OK for checking restrooms and time cards, but you really should never let them near the phone. And if a customer calls about the same issue twice, maybe the problem should get escalated. I’ve never done much customer service training, but that seems like an obvious idea.

7. The customer called the local newspaper and they called the store. This time the assistant manager awoke from his stupor and got the owner involved. Within an hour, the owner called the paper, admitted they had made a mistake, had reprogrammed the cash registers, and was pretty embarrassed about it. He guessed that the mistake was when the last rate change had occurred (which makes sense). Amazing what a call to the local media will do.

8. The customer (and me for that matter) can’t understand why it took nine months for anyone to notice this. It seems like there was a general ledger account that had a whole lot of extra cash sitting in it. Heck, I wasn’t the world’s most detailed-oriented controller, but even I would notice that.

9. The owner said he’d issue refunds to anyone with receipts (who keeps those for very long?) or who is signed up for the store’s rewards program, which tracks purchases. But the rest of their customers…there shall be no refunds for them.

10. The owner then said he’d donate the remainder to charity. But the state said, “Not so fast, buckaroo.” The law (which is pretty typical in most states) says that, if too much tax is collected, it must be turned over to the state. The state did say that they’ll refund him the money after he refunds it to the customers; if he provides proper documentation. But the state gets the money first, and the excess stays with the state. Here’s a tip for the owner…before you start babbling to the media about a topic (sales tax) for which you obviously don’t have a clue, you might want to do some research. Or call those people with the letters after the end of their names.

OK, enough with the mockery. Here are three pieces of advice for those of you who collect sales and use tax from your customers. And these will be getting added to our best practices webinar as well.

1. Balance!
Every month, someone in accounting should be reconciling the amount of taxes you collect to the amount of taxes you pay. This should be one, relatively easy part of the normal sales tax return preparation. Unless you’re really sloppy, I can’t imagine that this would take more than a few minutes.

There, was that hard? But doing this will avoid these kinds of embarrassing and tough to solve mistakes that will really tick off your customers. And you’ll avoid the press calling your boss. We don’t want that.

2. Double check when the rates change!
Whenever there is a rate change, expect that this kind of thing will happen. So check your sales for the first few days or weeks to make sure that every system (or sales person’s price list, manual, etc.) has been updated with the correct rate change. If you overcollect the tax, refund it immediately. Usually if you do it within the same month, the state doesn’t care.

3. Escalate tax issues quickly
Don’t let non-financial personnel make decisions or talk to customers about sales and use tax. They really don’t know what they’re talking about. And you probably want to get a sales tax pro involved quickly.

Remember, this is not an uncommon occurrence. Don’t let it happen to you.

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 (I’m thinking that’s the assistant manager) is hosted on Flickr. If you'd like to see more, click on the photo.

Sales and Use Tax Links

2011-01-06T15:54:00.000-08:00

Wow, I haven't done one of these for a while. Sorry about that. Let's catch up.

Streamlined sales tax effort stalls, for now
Written from Arkansas' perspective, but a worthy commentary on the current state of affairs. thecitywire.com

Seven questions you should ask before choosing the right returns outsourcing provider.
I'm not sure all of these questions should be actually asked of your sales tax vendor, but they should be investigated nevertheless. cpa2biz.com

Wisconsin Wants You To Have Your Cake and Pay Tax on It Too
They changed the rules about ice cream cakes. Oh the horror. sabrix.com

Is Vermont's Sales Tax Driving Shoppers Accross The Border?
In the category of "duh", a study has concluded that New Hampshire's lack of a sales tax is stealing business from Vermont. sabrix.com

Medical-marijuana sales tax nets $2.2 million for Colorado this year
Cool, man. What's really hilarious though is that, every time I Tweet an article on this, I pick up a couple of legalize-marijuana followers. Do they even look at the rest of the tweets I've posted. Oh. Wait. Or, to give them the benefit of the doubt, I guess they could be into sales tax. denverpostcom

Largest Sales and Use Tax Delinquencies in California
California lists businesses who owe over $100,000. Amazing how many car dealers are on the list. Hmmmm. boe.ca.gov

How to Survive a Sales Tax Audit
1. Allow lots of time. This is gonna take a while
2. Keep good records. Too late now.
3. Be prepared to appeal. Don't take the auditor's word for it.
speedtax.com

January Sales and Use Tax Rate Changes
sabrixcom

City contract for private sales tax auditors in final stages (Oklahoma)
I'm bothered by the payment plan - it sounds like it's results-based. Not a good thing. tulsaworldcom

States Eye Digital Property as Source of Additional Revenues
Nice, short article on the topic. bnataxcom

Reverse Audit Reveals Georgia Owes $1 Million
If you haven't considered a reverse audit, maybe you should. It worked for the City of Augusta. avalaracom

Mississippi Introduces Click Through Nexus Bill sabrixcom
Illinois moves to tax online purchases internetretailer.com
The Bad Math of the 'Amazon Tax' chicagoist.com
Sigh. Nothing convinces me more of the collective low IQ's of state legislators like their continuing attempts at this.

This is just the best of the links I send out via Twitter on an almost daily basis. You can get them faster by subscribing to my Twitter feed. You will get more than sales tax links though. Just warning you.

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

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/

Felony Watch: Sales and Use Taxes

2011-01-06T15:53:00.000-08:00

Car repair shop didn't pay the 264,753 they collected.
sabrix.com

Whopping $1.4 Billion Owed to California
This is money that sellers owe for taxes they've already collected. That is an awful lot of fraud going on. Sabrix.com

South Fort Myers pair charged in sales tax fraud ring
Convenience stores this time. Apparently, not only did they allegedly under-report their taxes, but collected taxes on sales that were exempt. naplesnews.com

Body-shop owner gets jail for sales-tax avoidance seattletimes.com

12 Tenn. county businesses charged with tax fraud
Total liabilty over $160,000. Convenience stores...check. Restaurants...check. businessweek.com

Indiana's Crackdown on Sales Tax Evaders Nets Some Very Lucky Dogs
Puppy mill failed to pay $311,000 in taxes. They got shut down and the dogs got much nicer homes. sabrix.com

New Program Matches Tax Evader with the Jail of His Dreams
Bar owner failed to pay $470,000 in taxes. The liability is now $1,300,000. avalara.com

NY restaurateur's sentence: Deliver pizza to poor
It's the typical restaurant scenario - charged his customers tax, but didn't pay it. He has to repay the taxes, plus provide a LOT of pie to the less fortunate. ibtimes.com google.com

You can get these links faster by subscribing to my Twitter feed. You will get more than sales tax links though. Just warning you.

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

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.

Things that will get you in the worst trouble

2011-01-04T12:43:00.000-08:00

I've talked about many of these particular issues, over the years. So I thought I'd compile a master article so that you can, at a glance, see if you're doing anything really, really wrong.

First of all, I should define what I mean by "trouble."

1. Big assessments and big fines

2. Embarrassing assessments that, while not crippling the company, will nevertheless do bad things for your career

3. Large-scale overpayment of taxes. See item 2 regarding career impact.

So let's begin our hall-of-shame of sales tax mistakes.

1. Making sales that are taxable and you didn't know it. Do you perform taxable services? What about non line-of-business sales? Do you, for example, sell a lot of used equipment? Do you maintain a company cafeteria? You're probably selling more than just what's on the top line of your income statement. And don't even get me started about the other states you sell to. See below.

2. Related to 1 - making taxable sales in states where you have should have been collecting tax and didn’t realize it. In other words, you have nexus in a state but you don't know it. And you don't even know what are taxable sales in that state. It's a very common problem, and the states would really like to catch you.

3. In another instance of making sales you didn't know were taxable, beware of making intercorporate sales. Depending on your company, your business model, how you handle your paperwork, and the volume of the transfers, this may or may not be a problem. But you need to make sure. Of all of the assessments I've heard of, the biggest were in this category. And the only possible alternative for one taxpayer was bankruptcy.

4. Not collecting exemption certificates on your sales. This will mean more work for you when the audit hits, as well as embarrassment with the auditor, your management, and your customers. And you'll pay some taxes, interest and penalties.

5. If you buy a business, make sure you don't inherit the seller's sales tax liability. If you buy as a bulk sale, you will, unless you do it right.

6. Not accruing taxes on your taxable purchases where no taxes were collected by the seller. AP generally knows this one, but may not have good systems in place to be sure of catching all of these invoices.

7. Overpaying taxes on invoices that you thought were taxable, but weren't. More tips are in our Best Practices file.

8. Who is the person in your organization who is most knowledgeable about sales and use taxes? It's usually the controller, but it's often the AP staff. But note how many of the above problems are related to the sales and marketing departments. And how many of your sales and marketing people have any knowledge or understanding of sales and use taxes? Right. That's what I thought. Here's one example of what they can learn.

9. Relying on bad resources for answers. Calling the state is a no-no. So is believing the auditor without getting something in writing. Here are good sources of information.

10. Finally, collecting sales tax, but failing it remit it to the appropriate state. Frankly, if you’re doing this, you shouldn't bother reading this blog anymore. What’s the point? Get measured for an orange jump suit instead.

Here's a link to some horror stories that will make excellent bedtime reading.

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.

Sales Tax on Big Chickens?

2010-12-28T11:53:00.000-08:00

You're on vacation and you stop in at an interesting looking art gallery. A giant chicken catches your eye and you buy it for $10,000,000. You're a collector of over-sized fowl and this one will be the crowning glory of your private art gallery. It's a good thing you've got that really high limit on your MasterCard.

The dealer prepares the invoice.

Chicken.............$10,000,000
Sales tax (8%)..........800,000
Total...............$10,800,000

Oh, come on! Whoever heard of paying $800,000 in sales tax? This can't be taxable!

Actually, it is. And you've just made the revenue department in this state very happy.

Let's use the golden rule of taxable sales:

1. There's a sale
2. It's tangible personal property. It's obviously tangible. You saw it and you sat on it. And it wasn't permanently affixed to the floor. So it's tangible personal property.
3. The sale was made by an art gallery - someone in the business of selling art - a retailer.
4. You're buying this for your home or office, not to resell, so you're the end user.

Congratulations, you owe sales tax.

Now, you didn't get rich by just throwing around $800,000 here and $800,000 there. There's got to be a way out, right?

Hmmm. Not really. There are some common evasions, but no real and legal way out.

1. You can ask the gallery to ship it out of state to your home in Gotham City, where all the best Big Chicken collectors hang out. There's no sales tax when you ship out of the state, right? The dealer, who just got audited last month, points out that he can't do that. Since you're in the store, and effectively have control of the Big Chicken as soon as the sale is signed, you have taken delivery in the store. That means that the state you're in has jurisdiction and will impose tax. If the seller doesn't do this properly, he'll get nailed by the auditor (again) when she comes back in six months.

2. Even if you convince the dealer (maybe he's new and hasn't been audited yet) to not charge tax and to ship it to your home in Gotham City, you will now owe use tax on that objet d′art in the great state of Gotham. And since you're so stinkin' rich, you know they're going to audit you one of these days. Actually, unfortunately this doesn't happen all that often. You do owe the use tax. Whether you pay it or not is more of a reflection of your character. Bruce Wayne would pay the use tax. Just sayin'.

A different scenario

Let's say you're driving down a dirt road while on vacation, and see a yard sale with that chicken standing there in all of its glory. In a cloud of dust you slam on the brakes and kind of casually ask the rube what he wants for that "old chicken."

"Ah'll take $10,000,000 please. Ah inherited that from mah Daddy and he durn told me whut it were worth."

Dang. You write him a check since he can't take a credit card, and have him arrange for shipment to Gotham City.

Now, there's been a change in the situation. It's no longer a sale by a retailer, it's an occasional sale. Since the farmer isn't a retailer (he was having his annual yard sale) he doesn't collect sales tax. And since you purchased the item in an occasional sale, you owe no use tax, either in the state where you bought it, or in Gotham. Remember, the sale wasn't by a retailer, therefore it wasn't a taxable retail sale.

So in this scenario, you've saved the $800,000 in sales and use taxes. Legally! But only because you bought it in an occasional sale. Buy it from a dealer, and you owe the tax.

As is usually the case, not every state does it in the ways I've described. There are variations in several states on the way they handle in-store purchases that are shipped out of state, as well as use tax on occasional sales. Do your research!

Which leaves us with the moral of this story:

If you're going to buy big chickens, stick to the dirt roads.

Yep, I know. Sometimes these articles just write themselves.

This is our last article for 2010. It has been a good year for us and I hope it has been for you as well. We currently have January and February on our webinar schedule and will be adding March, hopefully by the first of next week. Happy New Year!

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.

Peas on Earth

2010-12-23T11:53:00.000-08:00

I realize that I'm getting this out kind of late, but we all get Christmas cards late, don't we? Anyway, I'd like to wish all of you a Merry Christmas. And if that's not your holiday, then I simply hope you enjoy the blessings of this season. Thank you for your support.

Jim Frazier
The Sales Tax Guy

FOB

2010-12-23T11:45:00.000-08:00

When I started writing this, I thought I'd give you a link that would explain what FOB meant. I was surprised that there are several different meanings for FOB, other than the one I was going for. This Wikipedia article should be sufficient to help you understand this term as I plan to use it.

To oversimplify, FOB means where the legal title to the shipment transfers to the buyer. If the terms are FOB Origin (or shipping point), then the legal ownership of the goods transfers when the seller ships them. If the terms are FOB Destination, then the seller hasn't transferred the ownership to the buyer until they arrive at her receiving dock.

Legal ownership determines who is responsible for the freight, and who suffers the economic loss when the shipment is lost in transit. If you're the seller, you want to transfer ownership immediately, which means you're going to want the terms to be FOB Origin. If the item is lost, it's the buyer's problem.

On the other hand, if you're the buyer, you would prefer to have the terms be FOB Destination, which means that the seller still is responsible for the shipment, until it arrives at your dock. Purchasing agents usually negotiate terms as FOB destination just for that reason, particularly on more expensive items.

The question of the effect of FOB comes up frequently in sales and use tax conversations because people think that the FOB point determines the state that has jurisdiction over the transaction. It doesn't.

The state that has jurisdiction is, very simply, almost always the state where the physical delivery occurs, or where the buyer takes control over the goods - which is pretty much the same thing. This is because the tax that is imposed, when we're talking about an interstate sale, is use tax. And use tax is generally imposed when the buyer uses (or controls) the goods. No matter what the terms are, the buyer doesn't control the goods until they arrive at her dock (if shipped by common carrier).

Conversely, if the buyer (or her agent) picks up the goods herself (not using a common carrier), then the physical delivery occurs at the shipper's dock. This is so, even if the original terms of the sale were FOB Destination and the buyer changed her mind at the last minute. What counts is where the physical transfer of control took place, not where the contract terms state the ownership transfer occurs.

Think about it. If it was that easy to manipulate the state that had jurisdiction, then all Amazon.com would have to do is put their warehouse in Oregon (no sales tax in Oregon), and then ship everything FOB Origin. Then there would simply be no tax at all. But that's NOT how it works. What determines the state with jurisdiction is where the physical, real transfer of possession or control takes place. That's an event that can't be manipulated by contract language. And so that's the event that really counts.

When FOB does matter

Having said all of that, there are two states that specifically say that the FOB point determines which state has jurisdiction - Tennessee and New Mexico.

Tennessee isn't really a problem because they have a big loophole. As long as the seller arranges for the shipment of the goods, and the buyer doesn't pick them up, or arrange for the pickup, Tennessee doesn't claim jurisdiction. But if the buyer picks up the phone and calls the common carrier and arranges for them to pick up the goods at the dock in Tennessee, then Tennessee does claim that they have jurisdiction. The easiest way to solve this problem, other than letting the vendor arrange shipment, is to make sure the terms are FOB Destination. Then the loophole is moot.

New Mexico is different. They have no loophole. If you order something FOB Origin from Albuquerque, New Mexico says that the tax belongs to them. Period. This goes in the face of all of the things we talk about regarding interstate commerce. But the reason NM can get away with it is because they don't really have a sales tax. They have a gross receipts tax that is solely imposed on the seller. Since the transaction itself isn't being taxed, New Mexico can simply say that they get all of the taxes on anything that is sold in New Mexico, even if it's shipped out of the state. However, they are fair. If the terms are FOB Destination, they don't claim jurisdiction. So, as with Tennessee, the best solution when you're buying from NM is to make sure the terms are FOB Destination.

Please remember that there are some complications if you decide to make all of your purchases FOB Destination.

1. The vendor may not be interested in doing this. This is often an easy negotiating point, but sometimes the vendor stands firm. And you have to bring it up if you want the change. All sales contracts, if they're written by the seller, will state the terms as FOB Origin. That makes sense, since those terms are best for the vendor.

2. You may wind up paying the freight if the terms are FOB Origin. That could be a significant amount of money - even more than the sales tax. So watch this one.

3. In some states, the freight may be taxable if the sale is FOB Origin.

Summary

FOB points don't count in determining the state that has jurisdiction. What matters is where the goods are physically delivered. Well, that's except for two states: Tennessee and New Mexico. In those two states, the FOB point should be Destination to make sure the tax is for the delivery state. And since purchasing usually works to set this up anyway, it may not be a big problem.

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.

Gotta watch those widget sales

2010-12-14T14:02:00.000-08:00

I had a question from a class participant a few days ago, and it was such a good question, I thought I'd use it here. But I promised her I'd sanitize the heck out of it. So think of this as a question "inspired" by the real question.

"My company is an HVAC contractor [in most states, contractor sales aren't taxable - they pay tax on the building materials they use]. We prepare widgets in our shop that will be attached to the HVAC equipment. Since it's part of the construction job, we just cost the materials used for the widgets to the job and pay sales tax on the few hunks of steel that we use.

However, we have a lot of customers who buy the widgets without our doing any actual HVAC work (our widgets are very popular and user installable). When this happens, we just send the widget to the customer, and bill them. We don't charge sales tax. Should we?"

You should be charging tax on the widgets that you sell at retail to your customers. If the widgets become part of the building where you're doing the HVAC work, then you would pay tax on the widget components when purchased.

But when you sell the widgets outside of a construction contract, you are making retail sales of tangible personal property, and those are taxable sales. You should be charging tax.

The problem is that, if you've already paid tax on the components of the widget when you bought them, and then you collect tax on your retail sales of them, then the state is getting too much money. In most states, there are two solutions (and you need to check your state rules to make sure of your options):

Purchases resold - Many states make provision for purchases you make that were taxed, and are subsequently sold at retail where tax is collected. The states usually let you deduct your "purchases resold" from your use tax liability.

Buy for resale - If your retail sales of widgets are substantial, consider giving your vendor a resale certificate for all of the widget components and pay no tax on any of those purchases. Then collect tax on your retail sales and accrue use tax on the materials that become part of your construction contracts.

Either way, there is extra bookkeeping involved. But if the retail sales of the widgets are substantial, you should come up with a solution before the next auditor finds it.

This is another example of a situation where a business was making taxable retail sales without even realizing it. Does anyone else have this problem? You betcha!

And finally, if you are actually manufacturing the widget, you should look into whether or not there are any manufacturing exemptions available to you.

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.

A quick note to state tax departments

2010-11-02T05:00:00.000-07:00

Here's a small suggestion to you folks at the revenue department. Every time I read about some business charging their customers tax and not remitting it to the state, it's almost always one of the following businesses:

Used car dealers
Mechanics
Restaurants
Convenience stores

And they're always independently owned. Seems like doing nothing but auditing these guys would clear out your deficits like that (snapping my fingers).

Just a thought.

By the way, if you're one of the aforementioned businesses, and you're feeling all offended now, here's the problem. While I'm miffed about your not paying the taxes the law requires, what really fries my shorts is that you are collecting the taxes from your customers, but not bothering to pay the taxes to the state. You're defrauding not only the state, but your innocent customers. That stinks.

Sales and Use Tax Links

2010-10-29T11:45:00.000-07:00

Arizona Krispy Kreme Loses Sales Tax Lawsuit sabrix.com
They tried to get the donuts to be treated as non-taxable sales, just like those sold from a grocery store. Except that they're not a grocery store.

California Ready To Tax "Recreational Marijuana Use sabrix.com
Well, that's one way to help with the budget deficit.

New State Business Tax Climate Index Tax Foundation
South Dakota is the nicest. And the worst? This may come as a surprise, but NY, NJ and CA don't fare so well. I'd retire to SD, but, dang it's cold up there!

Pay No Sales Tax on Solar Power in MA and CT! brightstarsolar.net
It's a sales pitch for solar, and beware of relying on this when making your decisions about solar power, but worth a look if you're considering this.

Medical Device Companies and Sales Tax: What's the Risk? bakertilly.com
This article highlights that it's different in every state and if you sell stuff outside of your state, you need to make sure you know how it's taxed where you're selling it. The article doesn't mention that you only care about the rules in other states if you have nexus, however.

Sales and Use Tax Becomes Increasingly Challenging for Companies [Outsourcing] cpa2biz.com
First of all, skip to the "risk and rewards" section unless you need lots of filler on background. But the list is pretty good. If you're thinking about outsourcing your SUT processing, this list is a very useful tool to find the right vendor. Let me put it this way: the vendors really don't want you to read this.

The Strangest Taxes and Deductions by U.S. State gobankingrates.com
The author lists a several interesting taxes, some of which aren't technically sales and use taxes. And many of them, while sounding silly, are pretty common (like the flour in candy rule). And I love her last line, "This is a pretty exhaustive catalog of taxation oddities, but there are many states we haven't covered." Uh, if there are many states you haven't covered, than it's NOT pretty exhaustive. I hate to be picky, but there you go. Anyway, you'll enjoy some of the odder ones, like the playing card tax in Alabama.

S.C. levies tax on services thesunnews.com
They do it weird in SC In the vast majority of states, when repair labor isn't taxable, service contracts aren't either. And when repair labor is taxable, then the service contracts are taxable. But in SC it's worked out to be just the opposite. Repair labor isn't taxable. But "service maintenance contracts" are taxable. The politicians passed the law to collect taxes that are collected when these contracts are sold by appliance vendors. But the dopey politicians didn't think it through and get the wording right. So now, if you provide a contract service of watering plants, you're providing a taxable service. And it sounds like an over-zealous tax department could extend the interpretation to most service activities, since they all really do involve "service," "maintenance," and "contracts." Foolish politicians. Does anybody think about this stuff? Oh, that's right. They don't.

Voluntary Disclosure or Tax Amnesty? bnatax.com speedtax.com
Two good articles discussing the two different types of programs.

And Amazon deserves their own section this time

Texas hit's 'em wsj.com
You see, they've got this warehouse near Dallas. They've got some corporate entity sheltering going on, but Texas has finally said, "wait a minute."

Texas Sends Amazon a $269 Million Sales Tax Bill dailyfinance.com

Amazon wins one round, but battles continue over taxing online sales seattletimes.nwsource.com
The decision wasn't a complete victory for the Big A. It was more about privacy rights than tax issues.

How North Carolina Overreached in Its Sales Tax Battle With Amazon dailyfinance.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.

Paperwork. There's no excuse.

2010-10-27T09:15:00.000-07:00

As I've been perusing the news, one particular problem, which is eminently solvable, keeps coming up. So let me just say now: make sure you know what the paperwork requirements are, that you fill out the proper forms, and that you do things ON TIME!

Three examples:

Numerous sales and use tax appeals are lost because the businesses who suffered the assessments didn't file the necessary notices on time. Come on! And don't rely on the auditor to tell you what your deadlines are. I've seen at least one situation where the auditor gave incorrect information about the appeals process. When the taxpayer used that as an excuse, the courts basically said, "tough." Independently verify what you need to file and when you need to file it.

Enterprise zones, opportunity zones, etc. give nice sales and use tax exemptions, usually for businesses located in economically distressed areas. But there's paperwork and approvals that you must fill out and file.

And the classic example of paperwork that most of you are failing to get - exemption certificates. Get them. Remember that some states don't have to give you any time to get them when the auditor shows up. And you won't be able to get them from some of your customers when you ask. So get them now!

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.

FAQ: Why do I have to pay sales tax when I buy a used car?

2010-10-20T09:37:00.000-07:00

This question came up on Twitter a couple of days ago. It's a frequent query, so I thought I'd respond to it here:

I'm not a "taxes are evil" guy. That said, charging sales tax on a used car seems weird. Hasn't it been sold already?"

The thing to remember is that sales tax is not a one-off tax. Most people think it is, but it's really not. Think about the name of the tax. It's called a "sales" tax. That means that every time it's sold, sales tax applies. So when the car is sold new, there's sales tax. When the dealer sells it used a few years later, there's sales tax. And when it's sold a few years after that, there's sales tax.

Obviously, the amount of the tax will go down every time the car is sold, but it's still subject to sales tax every time it's sold.

It's the same way with other stuff. Say you buy a painting at a art dealer. She'll charge you sales tax. A few years later, you discover it's incredibly valuable and you have an auction house sell it for a million dollars. They'll have to charge sales tax to whoever buys it. Even though you already paid sales tax on it.

Because every time there's a sale, there's sales tax.

There's one exception, and that's occasional sales. But let's keep it simple for now.

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.

Notice a change?

2010-10-18T17:12:00.000-07:00

I decided I needed to get the design of this blog into the 21st century, so I took advantage of some new templates provided by Blogger (Google). As a practical matter, I think it's a little more readable, which is the most important thing. Please feel free to comment on the change. Thanks for your indulgence.

The Sales Tax Guy

Newspapers

2010-10-18T12:44:00.000-07:00

Newspapers are treated a little like magazines in many states. If they're sold by subscription, they may be exempt. However, they're not always taxed in the same way.

In fact, in most states, newspapers are simply exempt from sales and use tax. Whether sold over the counter, from a newsstand, or by subscription, they're usually exempt. The reason that I've heard most often for this state of affairs is that imposing sales tax on newspapers would somehow interfere with freedom of the press.

My own opinion is that, if you're the hapless politician who decides that imposing a sales tax on newspapers is a good idea, you should probably not count on getting any more endorsements or favorable coverage from your local print media. If you know what I mean.

But there are complications. There are states where newspapers are taxable. And there are some significant questions that don't come up when you're talking about magazines. While magazines AND newspapers are sold from stores and newsstands, what about the sales made from folks just standing on the street hawking papers; or sales from vending machines? And do they tax the sales of newspapers by carriers ... you know, the paper boy? These are all situations that are up for grabs in states where sales tax is imposed on newspapers.

You, the consumer, will rarely even notice that there's a tax on newspapers. This will be one situation where the tax will usually be absorbed, even if illegally. Which is probably why the publishers would really be upset if it came up as a way of balancing the state's budget.

But then, who reads newspapers anymore? (I kid).