Safe Harbor Thresholds? - Yeah, we got yer thresholds right here. And they're just like South Dakota's!

 

States are treating the safe harbor thresholds from Wayfair as the only thing they have to worry about.

They figure if they say that $100,000 in sales or 200 invoiced sales per year is what gives you economic nexus, than they're good.  They're ignoring all of the other stuff about South Dakota's tax system that the Supreme Court seemed to really like.  Things like state administration, simple tax base, simple rates, and belonging to the Streamlined Sales Tax Project. You know, stuff that makes it simpler.

So it's going to be interesting when states like Louisiana, which is pretty much the exact opposite of South Dakota in terms of the simplicity, think they can just impose economic nexus, use the Wayfair thresholds, and they'll be cool.

Do these people read?  Like, the Supreme Court decision?  Or any of the countless articles that have been published on this?

And when the first court shuts them down, you know they're going to get all huffy.

Jim Frazier - The Sales Tax Guy
http://salestaxguy.blogspot.com

See the disclaimer on the right.

Surveys? Freaking Surveys??? (warning - snark attack)

I just saw a  survey sent to state revenue officials regarding sales tax nexus. I've also seen one that involves enforcement of drop-ship rules.  There are others around. 

I'm not going to discuss the survey results - I'll leave that to the publishers.  The point is that, when it comes to some topics, we have to figure out how the state is going to enforce the law based on surveys!  Really?

My admittedly naive philosophy is that the laws should be written in some official place.  They should be in statutes, regulations, bulletins and court cases.  These are things that someone can look up.  They shouldn't have to be compiled by a publisher doing a survey.

I'm not blaming the publishers.  I'm blaming the states for coming up with nutty positions about gray areas based on stupid and complex laws that they created.  The publishers are just trying to provide us with some useful information.  I get that. However, I can see some problems.

Let's say that you take a position, based on the latest survey done by Joe's Sales Tax Consultants and Tattoo Parlor.  The survey measured the amount of time you must have a service person in a state before you have nexus.  It mentions Frank Derp as the source of the information for that state, and says that you would need a repairer in the state 10 days in order to have nexus.  Therefore you've carefully managed your visits to the state so that you're only there 9 days.

When you get audited, the auditor says you have nexus.  "But wait!" you splutter, "we kept it to 9 days and this survey (which you triumphantly slam on the desk) says it's 10 days."

There are at least three unpleasant ways this can go for you: 

1.  The auditor says, "I don't care what some survey says.  I talked with my boss and he said you've got nexus.  So that's it."

2.  The auditor says, "Oh yeah, that answer was given by Frank Derp.  I heard about that.  When the survey came in, they brought it up at the staff meeting.  Nobody wanted to fill it out, so Frank got stuck with it because he was sick that day.  We all laughed when we saw the answers he gave.  He was high on Dayquil."

3.  The auditor says, "Oh yeah, that answer was given by Frank Derp. He was an idiot.  He got fired a month after that survey came out."

This is the problem with surveys.  They're not official.  I agree they're necessary to be able to get some feel for the squishy enforcement positions of the state.  But if it's a gray area that requires a survey because the official laws aren't specific enough, proceed carefully.  Because the only laws that really count are the official ones.  And if it's gray enough to have to do a survey, how can you be sure the auditor will stick to the survey and not use his own, or his supervisor's judgement?

Your option, if the auditor sticks to his guns, is to fight it...which is going to cost you money.  And do you really think, if you wind up fighting this all the way to court, that the judge is going to pay much attention to what Frank Derp said?

---

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

See the disclaimer on the right.

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

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

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I predict a sales tax holiday in Illinois in 2014

Warning - snark attack coming.  Remember, you were warned....



I live in Illinois.  Our motto is (or should be) "Three of Our Last Six Governors Have Gone to Jail"

So allow me to be a little cynical about something that I think will happen this year.  Illinois traditionally doesn't have sales tax holidays.  However, we had one (just one) in 2010.  We didn't have one before and we didn't have one after.  But, by a pure, sheer, and amazing coincidence, it was an reelection year for our beloved governor.

So, I'm making a prediction, right now, that we'll have one in 2014 - or at least there will be significant talk of one.  You see, our governor is facing reelection again and it looks like it might be a close race.  A sales tax holiday fits right into his wheelhouse. 

Gee, can I be MORE of a curmudgeon?

---

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

See the disclaimer on the right.

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

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

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Oh, Come ON! - More Nutty Rules from your elected representatives and public servants.

From time to time, I come across just plain stupid rules that pretty much make no sense.  You know they wrote the law with absolutely no thought to whether it made sense or not. I'll also classify this under stupid politician tricks, because, well, they are.

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In Missouri, over the counter drugs are taxable, which is the case in most states.  But for disabled persons they're exempt from sales tax, but only if the right paperwork is filed.  Here's the relevant law:

"Sales of over-the-counter drugs when sold to an individual with a disability or to the individual's agent are exempt from tax. When selling over-the-counter drugs to an individual with disability, the retailer should obtain a purchaser's signed statement of disability. The retailer should retain these statements for three (3) years. The statement should include the purchaser's name, type of purchase and amount of purchase, and be signed by the purchaser or the purchaser's agent. The retailer should request a form of identification, such as driver's license, credit card, etc. to verify the identity of the purchaser."

It's good to take care of disabled people.  But why not just make it simpler by saying that OTC drugs are exempt for everyone?  Some states do this.  And, as an effort to make sales tax less regressive, it's probably a good idea.  But, come on!  Only a career bureaucrat, or your standard-issue politician, could think this kind of paperwork is a good thing.  Oh, wait, I remember now...Missouri is the "show me" state.  So I guess they want to be "shown" that the buyer has a disability.   

By the way, I've never seen the above law, or anything like it, in any other state.  And I didn't find any definition of "disabled."  So I guess Missouri didn't want to "show me" that part.  It's also not clear whether the disabled person has to provide this documentation every time he buys a bottle of aspirin, or whether or not he only has to file once. 

I'm guessing the politicians did this to be able to say that they gave a benefit to the disabled, but made the benefit so hard to exploit that there really was no loss of tax revenue.  They do that a lot.  See Minnesota's Capital Equipment exemption.

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Let's continue to pick on Missouri...

In many states, there are exemptions for fund-raising sales by non-profit organizations.  Generally they're restricted to an annual dollar amount, a small number of events per year, or a few days per year, usually less than a week or so.  In most cases, the rules would cover most of the non-profits and churches I've been involved with. 

But in Missouri, all sales by non-profits are exempt from sales tax, as long as the proceeds fund the mission of the organization, which you'd expect.  Let me repeat the key phrase here...all sales - for the entire year! 

Now, again let me say that I have nothing against non-profits.  Some of my best friends are non-profits.  But making all of their sales exempt seems like Missouri is giving away the store. Don't they have budget problems like every other state?  And before you start spluttering...keep in mind that taxing non-profit sales doesn't mean you're taxing the organizations themselves.  Since the tax is added to the bill, the tax is merely being passed on to the customer.  As long as the organization does it correctly, they have no financial burder, other than filling out the return and keeping a supply of pennies handy. 

And if you're going to say that this would interfere with their funding, keep in mind that the vast majority of states don't grant a year-round exemption!  They grant a limited exemption to cover occasional fundraising events. But, in Missouri, if the hospital runs a gift shop, those sales are exempt all year.  Why can't the gift shop charge tax like every other gift shop in Missouri?

Hey Missouri politicians!  Need some money?  I got your money right here!

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Moving across the Mississippi River, let me now talk about Illinois.

Where to start?  Illinois is an insanely complicated state.  I attribute this to the low IQ's of most of our politicians (I live here so I'm partly to blame) and their complete inattention to the effects of the laws they pass.  Maybe the fact that many of our governors and miscellaneous government officials wind up in jail has something to do with it too.

Anyway, our rocket scientists in Springfield came up with something called the Manufacturer's Purchase Credit (MPC).  This is another one of those laws that appears to only exist in one state - Illinois.  Don't these dopes talk to the dopes in other states?  Because this one is just plain sad. 

In most states that have lots of manufacturing, exemptions are granted for equipment and supplies (I'm seriously over-simplifying).  In Illinois though, you earn a credit for the tax you would have had to pay on the equipment you get tax free under the manufacturing exemption.  And you can apply that credit against your supplies.

First of all, most people just can't get their head around this concept.  "Wait a minute, I'm getting a credit for taxes that I would have paid?  And it's only 50%?  And what the hell are these forms?"

There is a lot of bookkeeping involved and and complicated reports that have to be filed.  I wouldn't be surprised if only a fraction of manufacturers understand this well enough, and have the bookkeeping skills, to take full advantage of this.

Wait a minute.  Maybe they were talking to Missouri (and Minnesota) after all!  Sneaky suckers!

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Finally, we come to Massachusetts.  These jugheads passed a law a couple of months ago to tax computer services.  While other states do tax this, it's not a good idea for a state that is trying to position itself as a high-tech hub  (ya see, that's because "high-tech" usually involves computer services).  That last comment was for any politicians that might read this.  The rest of you knew what I was driving at. 

Anyway, at the time, there were lots of protests against this tax, but the legislature passed it, and the governor signed it.  They ignored the rabble because they're politicians, and they don't have to worry about what people think until the election.  And who cares about the businesses anyway?  And then the howls really began.  And the politicians realized that the election really wasn't that far away.  After a couple of months, the legislature repealed it, almost unanimously, and the governor signed it. You can almost see the tails between their legs.  Oops.

I will give these lunks credit for recognizing their mistake and fixing it.  But they were still stupid to pass it in the first place.  Do you politicians even read the laws?  Or if that's too much, maybe an executive summary of the law?  Or think ahead?

If you'd like to read more, here's a nice summary of what took place. http://www.wickedlocal.com/carver/topstories/x1843589170/STATEHOUSE-ROUNDUP-Saying-oops-on-tech-tax

So here are the take-aways:

1.  Politicians aren't terribly smart, but they might just be devious enough to pass an exemption granting a benefit, but making it difficult to take advantage of that benefit.

2.  Or they're just dumb. 

And to any politicians that actually read this, I didn't mean you. You knew that, right?  Still pals?

---

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

See the disclaimer on the right.

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

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

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It's Only Fair...

I came across this article this morning, and it's so brilliant in its insight, I just had to comment here and link to the article.  Hat tip to @StateTaxNews for the link. 

I'm not a big fan of the Marketplace Fairness Act.  For one thing, I'm always suspicious of any use of the word "fair" by a politician.  But, as this article points out, fairness can run both ways.

MFA would require that businesses collect tax for other states if they ship to those states.  It's insanely complicated. But what about people coming into a state to avoid taxes in their own state.  Think about people from Wisconsin going to Minnesota to buy clothing (the example in the article).

But what about people in Washington state who go to Oregon to avoid sales tax on appliances (this is a big problem).  Should Oregon retailers be required to collect Washington sales tax if all they do is put the TV in the customer's SUV?  Ditto for retailers in New Hampshire and Delaware.

What about people from Chicago, where the sales tax rate is insanely high, who go to the outlet malls in Kenosha, Wisconsin to take advantage of a substantially lower sales tax rate.  Shouldn't those malls be required to collect the tax for Chicago?

If you're going to make retailers from other states collect taxes based on where they ship to, it seems clear to me that retailers in other states should collect the taxes for people who are trying to avoid tax in their home state.

Seems only fair.

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

See the disclaimer on the right.

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


Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo. And if you're desperately trying to see the connection...Superman stands for "justice".  Get it?

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Movie Production Equipment

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!

---

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

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Enterprise Zones

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.
http://www.salestax-usetax.com/
Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo. 

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

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.
http://www.salestax-usetax.com/
Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo. 

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Sales Taxes and the Amish

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.

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

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. 

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Want to keep up on the Amazon news?

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

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

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

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

See the disclaimer - this is for education only.  Research these issues thoroughly before making decisions.  Remember: there are details we haven't discussed, and every state is different.  Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/
Picture note: the image above (jungle - Amazon - get it?) is hosted on Flickr. If you'd like to see more, click on the photo. 

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A quick note to state tax departments

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.

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

See the disclaimer - this is for education only.  Research these issues thoroughly before making decisions.  Remember: there are details we haven't discussed, and every state is different.  Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

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

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Avoiding a Regressive Tax

While I was writing the food article a few days ago, I got to thinking about a common complaint about sales and use taxes. The problem is that these kinds of taxes tend to be regressive. The burden of the tax seems to fall more on the poor than on the rich. The idea springs from the fact that certain things are bought by everyone, rich and poor and therefore the poor spend more on these items as a percentage of their income than the rich. Therefore, sales and use taxes take up a larger percentage of their income than that of rich folks.

You could argue this issue, but I'd rather not because it'll get in the way of the point I'm trying to make.

In order to minimize the regressiveness of sales and use taxes, states implement various exemptions on things that are pretty much basic necessities. So you'll see tax exemptions for the following items:

Prescription drugs (almost universally exempt)

Food (offered in many states)

Residential utilities (gas and electricity for homes - available in most states)

Clothing (in a few states, mostly in the Northeast, plus sales tax holidays in other states)

Repair labor on motor vehicles (I've only seen this in one state, but it's not a bad idea)

And a service that is rarely taxed is hair care. You almost never see the services of a barber or hair stylist listed as taxable.

In addition, the perusal of just about any state's mix of exemptions and taxable services will find that the taxes are imposed much more often on businesses than individuals. A cynical person might think that this is merely a way of making voters happy. A more idealistic person would probably believe that this is another effort at making the state's taxes less regressive.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different.

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

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News, Links and Commentary

Arkansas has released rule 2010-1 for tax treatment for vets in that state. If you're an Arkansas veterinarian, all I can say is get the rule, get a bottle of the beverage of your choice and allocate an hour or so to figuring it out. Hey, at least you have some exemptions, so that's something.

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Florida would like you to know that there is no sales tax on admissions to these events: National Football League Pro Bowl; National Hockey League All-Star Game; Major League Baseball Home Run Derby held before the Major League Baseball All-Star Game; National Basketball Association All-Star Game; National Basketball Association Rookie Challenge; National Basketball Association Celebrity Game; National Basketball Association 3-Point Shooting Contest; and National Basketball Association Slam Dunk Challenge.

Talk about an exemption that doesn't need to exist.

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Georgia passes laws to conform to the Streamlined Sales Tax Project

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Illinois now provides that any qualified building materials sold for the Illiana Expressway (to bypass the Borman on the south for you locals) will be tax exempt. This road is years away, but it's nice to know that Blagojevich's replacement is thinking ahead.

And the new guy has signed off on the Illinois sales tax holiday in August. myfoxchicago.com

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Michigan's governor gives up on trying to tax services. When are they going to learn? detnews.com

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Mississippi's sales tax holiday coming up at the end of July. wapt.com

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Be careful about data processing services in New York. While they're not taxable, New York is treating the use of software remotely as the taxable sale of canned software. Sneaky. (New York Advisory Opinion TSB-A-10(4)C, 05/27/2010) There's a little on this from AccountingWeb

A New York restaurant failed to keep anything resembling proper records with missing receipts, paper tapes, mislabeled years. Frankly, it simply sounds like they had a pretty cavalier attitude about accounting. So the state decided to simply observe one day's business (a Saturday) and estimate the restaurant's tax liability from that one particular day.

The message here is keep records! If you don't have anything to audit, the state can start doing things the hard way - for you.

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An Ohio company claimed that they were in the business of "transportation for hire" and were entitled to an exemption on the trucks and equipment they purchased. They manufactured materials used BY shippers. That was it. But the owner claimed that they were a common carrier, without being able to show any documentation. "Hey, trust me, I'm a common carrier. Really." The state was not impressed. What's amazing to me is that this got to the appeals board. Either several parties involved in this were really stupid, or there's more to the story. I hope it's the latter.

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Oklahoma is the latest state whose legislators seem to have lost it. A new law goes into effect that requires out of state retailers (who have NO nexus) to provide notifications to their customers that they owe OK use tax. The rules are complicated. But I have just one question. If the out of state retailer has no nexus in Oklahoma, and therefore doesn't have to collect tax, how can Oklahoma make them provide all of this notice?

Sales Tax Buzz has some commentary on this.

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Tennessee Sales Tax Holiday in August. dnj.com

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In Virginia, they're essentially requiring larger vendors to give the state an advance. That'll solve the budget problems they're having and even give them a surplus. But it's just a sneaky way of forcing vendors to lend the state money. Sales Tax Buzz has the details.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different.

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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Lots of Weirdness in Arkansas

I'm going to have to start making fun of entire states in this series of Nutty Rules.

Rarely do I see such a patchwork of laws, nesting exceptions, and missing or downright conflicting rules. For example, installation services are shown as being not taxable. But there is this thing called "initial installation." It's taxable. Would someone please explain to me how often someone has a "second installation?"

And their manufacturing equipment rules are head-scratchers. There's an exception for equipment for new facilities and expanded capacity. And there's an exception for substantial replacement of machinery. What's left? It seems like the politicians really don't know what they're trying to accomplish. They also call things manufacturing, like drying agricultural products, that don't really seem like manufacturing. Maybe it's just me.

Let's talk containers. According to the regulations, only manufacturers, processors and restaurants can take advantage of this exemption. I can't believe that the corporate home of Wal-Mart wouldn't let retailers skate on the cost of bags. Come on, Arkansas. All the other states have a general container exemption, why not you?

Many states have a residential utilities exemption. Arkansas has it, but the threshold means you'd have to be so poor, I'm not sure how you'd afford electricity in the first place.

Many states do not have a broad non-profit organization exemption. And as with those other states, Arkansas does let a few organizations off the hook. You wonder what friends those organizations had that they were able to get an exemption. And what about all of the other deserving charitable organizations?

I have the feeling that Arkansas politicians have taken the concept of "adding more laws, but not cleaning out the ones you already have" to a new level. Have you seen the exceptions under their Consolidated Incentive Act? And I count 15 different additional taxes that the locals can impose.

Hey, I'm really not complaining. All that complexity makes for loads of entertainment when I prepare for one of my Taxing Policy webinars. And complexity keeps me employed. So I'm all for it.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different.

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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Editorial: Exemptions for Planes and Boats

In the furious effort to find new sources of sales and use tax dollars, states are looking to close loopholes. They're particularly in favor of those exemptions that seem to benefit the wealthy. You know, those fat cats who we need to tax and tax and..... Yeah, them. (I'm speaking ironically here)

Two obvious possessions of those evil wealthy people (again, irony) are airplanes and yachts. And amazingly, many states have sales tax exemptions for these things. Why?

Well, the obvious (and superficial) reason is that the rotten politicians (not so much irony here) gave the wealthy some nice exemptions because they're corrupt and they like rich people. But luckily, our heroic media (more irony) find out about these exemptions and stir up action.

The deeper reason for these exemptions, which is rarely noted when the media is on the hunt for ways to nail the fat cats, is that these exemptions create jobs. Planes and boats have to be built, repaired, maintained and stored someplace. And those activities create jobs, lots of jobs. If state A, which is right next to state B, has an exemption for planes and boats, as well as all of the maintenance work and parts, than state A is going to get a lot more business for their airports and marinas than state B. Yeah, the business owners will benefit. But they'll also hire people. This is a good thing.

Since airplanes and yachts are pretty expensive items, the sales taxes won't go unnoticed. If state A eliminates the exemption, those cheap fat cats will do whatever they can to avoid the sales and use taxes. They'll find some other state, that does have the exemption. And with them go those jobs.

So, by eliminating the exemption, state A's sales tax revenue will go up. But the unemployment will go up too. And since a lot of customers skedaddled, the tax revenue won't go up as much as the politicians and media had hoped.

Politicians, the media, and the voters need to understand that sometimes tax exemptions, whether they're for sales tax, income tax, property tax or whatever, often exist not just for lining the pockets of the business owners. They usually accomplish a valid objective of providing a beneficial business environment to create and maintain jobs. And, maybe even more tax revenue in the long run.

It's funny how often I'll see this typical series of sales tax stories come out of the media. The first ones will talk about how horrible all of these sales tax exemptions are. There will be demands that, in the name of fairness, the exemptions be eliminated. Then you start to see the stories of how the businesses will be affected. Then the politicians start saying things like, "well, maybe that exemption serves a purpose. We'll keep it."

It gets tiring to watch after a while. But I do it all for you, gentle readers.

As an addendum, airplanes and ships also generally qualify for exemptions when used by common carriers.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions.

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

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Amazon.com and Affiliate Programs - Updated and Refreshed

This first appeared in September of last year. This issue is currently dominating sales tax news again, mostly because of moronic politicians. So I've fluffed it up and reissued it. If you've read this before, I've added a few more politician jokes. They make it so easy.

In this past year, New York and a couple of more states* have made a very interesting play to create nexus for Amazon.com** in their states. I must give those politicians credit for creativity, but in the long run, it's not going to work. And it will hurt folks in their states as well. But politicians aren't rocket scientists, so we have to make allowances.

All of these companies** have "affiliate" programs. Individuals and small businesses put a link on their web sites so that whenever someone buys something through the link, they get a commission. Yay! Pretty simple. And a good way of generating traffic for the retailers.

But these politicians are arguing that an online store's "affiliates," who are merely living in their states, give the retailer a sufficient physical presence - or nexus. And maybe it does. But this isn't like a retailer building a warehouse or a store in the state. The retailer has no economic investment. All they have are affiliates in the state, who are basically small businesses and individuals. Therefore, it's very easy for the retailer to solve the problem if the state passes the law. Cut off the affiliate program in that state. Leave.

And that is precisely what the online retailers have done (except for Amazon.com in NY). They have skedaddled by cutting off those affiliates and therefore the commissions for those affiliates. And I can't blame the retailer. Sure, it'll hurt them because they've lost the revenue generated by the referrals, but I'm guessing that it's less painful than losing business in a state because they have to charge sales/use tax.

So the state gets no revenue anyway! The retailer has solved their problem by no longer having nexus in the state. And as an extra jab, the state has hurt their own people (voters) who have lost their affiliate income.

And, I repeat, the state won't get any of the revenue they were trying to snag anyway.

The irony is that this is such an easy law to get around. It's a shame that politicians (who generally don't get elected because of their SAT scores) can't see longer term than one budget cycle. They pass the law and the retailer cuts off the affiliates, making the law a waste of time. And they hurt the income potential of their own citizens . Really smart.

And what's to stop any potential or existing affiliate from setting up a virtual address in a state with no sales tax. If the retailer's records show they have an affiliate with an address in Delaware, and a banking and credit card address in that state, then New York or Rhode Island is out of the picture. Hmmmmm. Please keep in mind, I'm only thinking out loud. I'm SURE that won't work.

*Update: these states are either thinking about it, or have done it.

Virginia
Maryland
Rhode Island
California
New Mexico
New York
Hawaii
North Carolina
Illinois
Vermont
Mississippi
Colorado

**Amazon.com, Overstock.com and others

Here's Amazon.com's page on sales tax.

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

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions.

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

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Oh, come on.....

A small micro-editorial:

In at least two big industrial northern states, the governors are suggesting increasing the number of services that are taxed. Oh, but they'll reduce the tax rate to offset the larger tax base.

Oh, come on. Does anyone really think that will stick?

In a few years, either the same politicians, or a new set, will come up with some need to raise the sales tax rate. And they'll have a lot bigger tax base to work with.

But what about those additional services that were taxed when they reduced the rate? What, you're thinking that they'll be willing to give up taxing those services? Not a chance.

Please don't think I'm against raising taxes. If a government needs money, than they gotta do what they gotta do. My point is that they're sneaky about it.

As a rule of thumb, I always assume all politicians will try to raise taxes. And they will try to be tricky about it.

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

Here's information on our upcoming seminars and webinars. Don't forget, we just announced our February to April schedule!
http://www.salestax-usetax.com/

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

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The Usual Angst

I used that term in a Twitter post yesterday. It reflected the common theme of most sales tax news articles that I see these days. I shall summarize, so you can see how truly universal the problems are.

1. Everybody is targeting Amazon. com for some of their states' budget woes. Out-of-state sales is an issue, but it isn't just Amazon.com. There are a LOT of internet retailers who don't charge tax. But Amazon is big and "corporate" so they are the easy scapegoat. Some are even demanding that the greedy corporations voluntarily collect and remit taxes to the local states.

2. Sales tax revenues keep falling. Business is slow. There are limited options to closing the gap.

3. Journalists and politicians keep talking about closing the "loopholes," particularly "corporate" loopholes. Yet, amazingly, others want more exemptions. Hmmm. Discussed for the past two days.

4. Do we raise rates? Some want to do this. But others want to cut costs and services, or do something else to close budget gaps - like raising income or property taxes.

There you have it. 90% of the sales tax news fits into those categories. Depressing, isn't it?

Tomorrow I'll actually talk about tax policies. Yep, got the article written and everything!

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

See disclaimer and research the issues thoroughly before making decisions

Here's information on our upcoming seminars and webinars

Picture note: "angst" - get it? the picture above is hosted on Flickr. If you'd like to see more, click on the picture.

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What are there so many exceptions? (more)

Part 2 (see part 1)

3. And then, there's, well, politics. Politicians have to worry about making voters (or contributors) angry. How else to explain why farmers can buy much of their equipment and consumables tax free? It's not like the industries mentioned in part 1, where you need to attract them or they'll go to another state. What's the farmer going to do? Take his land and leave? But almost every state has vast exemptions for agriculture.

Exceptions usually start when the tax is imposed. Then people complain about it, they organize, and then the lawmakers pass an exemption (because they really hate it when you organize). And then other people organize. It's not just farmers. Other politically motivated exemptions, that come to mind, include: non-profit organizations, energy savings and alternative energy equipment, admissions to cultural events, marshmallows, etc. If a politician can keep a voter or contributor happy, then it's fair game for an exemption.

Of course, there are a few loopholes that are driven purely by backscratching, graft, corruption, etc. In every state I look at, there are laws that are clearly written to help out one particular company, or a friend of a friend. Clearly politicians do not always get special rules passed purely for the benefit of the state's citizens. Although they'll claim they did. And if honest politicians and newspaper editors want to clear away some of those, the way is open.

And then there are flags.

4. There are exemptions that are simply forced on the state by the Constitution. The Constitution restricts states in taxing the federal government, interstate commerce, and First Americans. There is not much the states can do about it. It's the Constitution. Tough to change.

But not being able to tax Amazon.com seems to be one of the biggest whines I read about. I just read a few more yesterday (I won't bother you with links - there are far too many and they all say the same thing: "Amazon is a big corporation and therefore bad and they must be taxed." The reason Amazon, and many other small, unincorporated, out-of-state sellers, don't charge tax is because of the Constitution and the commerce clause. But try explaining that to a editorial writers or politicians.

5. Finally, it's just complicated. There are lots of rules and exceptions because business is complicated. Because sales and use taxes are essentially based on transactions, adjustments have to be made for new and creative ways that companies find to do business.

I know people would like it to be simple, but it's not. Which is also good for little old me.

Oh, and two things that I'm sure all of those editorial writers won't complain about when they bring up loopholes: there's usually no sales tax on newspapers or newspaper advertising.
Sounds like a pretty significant loophole to me.

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

See disclaimer and research the issues thoroughly before making decisions

Here's information on our upcoming seminars and webinars

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