What do you mean, I can't stiff the state on sales tax by buying from Amazon.com???

One of the political columnists* I follow has recently tweeted about how he loves to buy from Amazon.com because he loves (paraphrasing) sticking it to the state for sales tax. While Amazon.com hasn't started charging tax in his current state, who knows?  This particular state has tried, just like California, Colorado and a few other states.

Legally you can't evade the sales tax by buying from Amazon.com or another out of state seller who doesn't charge sales tax.  Legally, you owe use tax instead.  See this golden rule.

Use tax was invented to plug loopholes in the law where sales tax didn't get collected. Essentially, the law works this way: if you have purchased something that should have been taxed, and it wasn't, then you owe use tax.

The best example is a book from Amazon. com. In most states, they won't charge you tax. But you're not off the hook. It should have been taxed, but Amazon.com didn't have to (that's another long story involving nexus). Therefore, you as the buyer must pay use tax  Unfortunately, the state doesn't have a good way to collect it.  They rely on the buyer to know the law and be willing to comply with the law.  And they're kinda ticked off about it.

They do give you the opportunity. In many states, there's a line on your state income tax return, usually near the bottom of the second page, where you're expected to put something in there. Most people don't. And states generally have a form for you to fill out to report your use taxes. This is probably one of the least downloaded forms the states have. If you feel a pang of guilt, and want to start filling it out, it often has a name like "consumer's use tax return." Look on the state's web page under forms.

Individuals simply don't get busted on this (very often).  Sometimes, states do have ways to find this information and it usually surprises the hell out of the buyer.  But most of the time, the state just throws up their hands and tries to figure out ways to require Amazon.com et al to collect that tax.  So far, disappointment has reigned.

But if you go around tweeting about the fact that you like to burn the state on their sales tax, eventually someone at the state revenue department may decide that a letter, if not an audit is in order. 

Businesses, who will get audited eventually, really need to worry about this. Because they will get audited and get caught.  Individuals?  Well, my job is to point the law out to you, and make you feel a little guilty.  Beyond that, you're on your own.

*I enjoy this guy, so I won't tell his name, or the state. Although I think the state knows by now.

[This is an update of an article I wrote in 2009.  I've spruced it up a little, but it was hard to improve on perfection.]

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The Sales Tax Guy http://salestaxguy.blogspot.com
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Great Article Link: Surprise! Surprise! Surprise! - The State Auditor Looked at Your Website???

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.

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The Sales Tax Guy
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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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Illustrations and Parables: Don't overcharge the tax.

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.

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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

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Mistaken Manufacturer

I exchanged a couple of emails with a past participant yesterday. She'd been stung during a sales tax audit because one of her vendors hadn't charged her sales tax. So she wound up having to pay the use tax, plus interest and penalties. Standard stuff, of course.

What was interesting is that, after the audit, she called the vendor and asked why they didn't charge her tax. Their response was that they didn't have to, they were a manufacturer and therefore exempt.

What?

Now, to be fair, the product was odd enough that I can see there being some really arcane exemption lurking in the statutes. So I suggested she check on that. But it amazed me (I should learn to never be amazed) that a company would think that the manufacturing exemption would apply to what they sell.

Just to make sure, for some of you who may be reading this, when we're talking about the manufacturing exemption, it's for the purchases of the manufacturer who uses them in manufacturing. Every state has different rules of course, but that's the big concept. It doesn't grant an exemption to what the company sells! Sheesh.

Now, I'm sending a link to this article to (we'll call her "Jane") who gave me the idea for this article (thanks and a gold star to you!). But I'm going to have to chide her a little. I talk about the fact that, when an in-state vendor fails to charge you tax on something you think is taxable, you should call them and find out why. If she had made that phone call back when these purchases were made, she might not have convinced the vendor. But she would have known to accrue the tax, and thereby avoid the interest and penalties that she paid as a result of the audit.

And, as a consolation prize, I did tell her that the vendor was probably going to get audited. Let's face it. When an auditor comes across a few invoices from an in-state vendor where they didn't charge sales tax for any apparent reason, they're audit-bait.

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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

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Illustrations and Parables: They get sneakier and sneakier

I picked up this story a couple of years ago. We'll use Virginia and Pennsylvania for the states, but those are not the real states involved.

The company in Virginia got audited by Pennsylvania for nexus. It turns out that they did have nexus, never realized it, and the auditor nailed them for a couple of hundred thousand dollars. The taxpayer understood they had really screwed up, so the audit wasn't as confrontational as it sounds like it ought to be.

During the audit, she asked the auditor, "How did you guys find us?"

The auditor was feeling expansive.

"You know how when you go into a diner, there's usually a box sitting on the cigarette machine or by the cash register with entry forms. You know, where you might win a fabulous, all-expenses paid trip to Disneyworld?"

"Yeah."

"Well, one of your employees filled out the entry card. The card asks questions like, address, employer, job title, etc. It also sneaks in a couple of other questions, like how often do you visit the state, and whether or not your visits are business related.

"Your employee gave your company name, said he was a sales rep, visited Pennsylvania 12 times a year, and the visits were business related. Your employee gave us everything we needed to determine that you guys have nexus in Pennsylvania."

"OK, I get that. But how did you auditors get that information?"

"Because we ran the contest."

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OK, I left a few extra lines there to let you think about that for a moment.

The Commonwealth of Pennsylvania was smart enough, and sneaky enough, to front a couple of thousand dollars for a contest in order to collect information from anyone who spends time at a diner. Obviously most of the responses would be worthless, but they are going to find a few nuggets of gold.

What amazes me is that the politicians and bureaucrats would be smart enough, but also adventurous enough, to do this. This takes some real creativity to come up with something this sneaky. My hat's off to them.

By the way, please remember, this isn't Pennsylvania. That's just the state I've been using. It could be your state. And I'm not telling.

So you might want to tell anyone representing your company that, when they travel, not to enter those contests.

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The Sales Tax Guy
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Watch what you report

This is part of an occasional series illustrating the ways that the states manage to find out about you not paying your taxes. Not that you would do anything like that.

The first method we'll talk about is by comparing numbers. This article caught my eye because it describes how a convenience store got busted for collecting sales taxes on tobacco and liquor, but not bothering to pay that money to the state. The amount of the taxes, depending on how you read the article, was probably over $300,000. Seems like this guy might be getting fitted for the orange jumpsuit. I mean, they mention "felony" several times in the article. Here's the press release if the above link doesn't work. And there's a picture!

The state figured it out because Texas now requires alcohol and liquor distributors to report their sales to individual stores to the state. By comparing what the distributors said they sold, to what the retailer reported as taxable sales, they can start focusing their auditors on the real problems.

You actually don't hear that much about this kind of comparison and data mining. It seems like comparing state income tax and/or franchise tax returns would also be on the agenda as well. But hey, it's just me. Still, it's nice to see Texas is thinkin'

So watch out. If your numbers don't jibe with the numbers someone else is reporting, it could be orange casual wear for you too.

No posting tomorrow on 12/31/09. See you on Monday. Happy New Year.



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

See disclaimer and research the issues thoroughly before making decisions

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Why don't states enforce absorption laws?

Part of a series on essential actions you need to take and this is the third article in my current "absorption" series.

Normally, you don't see absorption laws being enforced too often. I'm guessing that this is largely a function of the state figuring:

1. The seller is dealing with individuals as customers, and as long as the seller remits the tax to the state, the state is OK with it. Since the odds are long that the individual is going to pay the use tax anyway, the buyers don't need the receipt that is one of the purposes of absorption laws. Or,

2. The state gets the tax from both the seller and the buyer. Incorrectly I might add. Why? Because the seller builds the tax into the price (absorbing the tax). The buyer, not even realizing this is a possibility, sees no tax on the invoice and goes ahead and pays the use tax. The state gets the money twice. Pretty cool, huh? Buyers can avoid this by contacting the vendor.

A variation occurs when this issue comes up during an audit. The buyer gets audited and the auditor pulls a taxable invoice where no tax was charged. Obviously, the buyer will be assessed use tax. Even if the auditor realized that the taxes may have been absorbed by the seller, he or she isn't going to mention it. And when was the last time you heard of a buyer, during an audit, going back to a seller, and complaining about why they didn't charge sales tax?

By the way, it's a good bet that the auditor will put the seller on the list of companies to audit. He'll be hoping to get the sales tax from the seller since it wasn't apparently charged. He'll be disappointed when the seller shows that she did pay the tax. But she didn't pay enough. And that will be the subject of my last article (for a while) on this subject.

Sales Tax Guy

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So, what triggers an audit?

Here, in no particular order, are some reasons why the auditor might pay you a visit:

-They find invoices from you to your customers where you haven’t been charging tax. If you’re shipping from within the state, why the heck aren’t you charging tax if it’s a taxable sale? And if you’re from out of state, the auditor might believe you have nexus in their state, particularly if your customer mentions that your rep visits every week.

-They find invoices to you in your vendor’s files. And the vendor didn’t charge you tax on a taxable sale. They may decide to audit you to see if you’ve accrued the use tax.

-There are certain industries that just get pounded because the taxing policies are so complicated that it’s guaranteed that errors will be made (eg. manufacturing and construction). Remember though that the auditor isn’t looking for the errors that were made in the state’s favor. They’re only looking for situations where you failed to pay enough.

-And if one of your competitors gets audited, they may say something like, “well, everyone else does it.” And you know what’ll happen then.

-Some states have wised up to the fact that some professional services organizations (like architects, CPA’s and lawyers) haven’t been paying use tax on their purchases. And they had no clue because, since they didn’t have to file a sales tax return, they didn’t even see the line on the return that talks about how they owed use tax on their purchases.

-Asking for a large refund or credit is sure to attract that attention of an auditor.

-If you get audited for nexus by one state, and they find stuff, and they find you have nexus in other states, you'll get snagged by those other states. If you get nailed by one state for nexus, immediately contact a SUT professional to deal with the situation before the other states call you.

-And the final reason you get audited…they threw a dart and hit your name.

Sales Tax Guy

Tanning Salons

I recently heard of an interesting audit practice.

One of the things that sales tax auditors want to do is make sure that a business is not making unrecorded sales on which they should have paid sales taxes. In the particular state where I heard this, tanning services are taxable. But to make sure the salon was actually reporting all of their sales, the state reviewed their electric bills for the last few years. Why?

The answer? Since the major use of power in a tanning parlor is the tanning bed, then you can see a pretty close relationship between the use of the bed and the electricity cost for the business. Once you know the ratio (which the state has probably already calculated), then a simple comparison of the power use of the store versus the reported sales of tanning services will give the state a good (but not bulletproof) idea of whether or not all of the sales have been reported.

Occasionally, they have a flash of brilliance. What are ya gonna do?

Sales Tax Guy

Illustrations and Parables: There are penalties for evading sales tax

I had a seminar participant relate this story to me recently, and I just have to pass it on. I’ve edited this a little, particularly the geography.

A lawyer walks into a furrier in Miami and purchases a $70,000 fur coat. He tells the clerk to ship it to Atlanta…it is, after all, a gift. The clerk doesn’t charge sales tax because the coat was shipped out of the state. And we all know that there’s no sales tax on an interstate sale, right?

The store gets audited by the Florida Department of Revenue. They assess the retailer roughly $6,000 sales tax on this sale, as well as many others.

You see, it really wasn’t non-taxable because it was shipped out of the state. The coat was in the store when the customer purchased it. Only AFTER the customer had control over the coat was it then shipped out of Florida. The customer could, after the sale was rung up, have changed his mind and taken the coat with him. Therefore, the store should have charged him sales tax. This is the logic. Enforcement is spotty on this. But a few states, like Florida, codify this in the statutes.

Of course, the store then billed the customer for the $6,000 in taxes they failed to charge him. They sent an invoice, with a very apologetic letter to his home.

The customer came home from work that night, and his wife asked him about the $70,000 fur coat that she never received. He’s now divorced.

So the penalties for evading sales tax can be more than just the taxes.

Are you making taxable sales without knowing it?

Many businesses make sales that are taxable, and they don't realize it. I herewith start a new series (actually it's a continuation of a couple of other posts, but now I'm making it official) of situations where an organization should have been taxing their sales and didn't. I'll list a few examples here, along with some categories, but there will be many more in the future.

Sale of services in your state that are taxable, and you didn't even realize it. For example, this story about a recruiting firm in Pennsylvania who didn't realize that their services were taxable. Another one, which I was reminded of in a seminar the other day, was a bank that had acquired a convention facility and didn't realize that meeting room rental was taxable in their state.

Exempt organizations who think they're off the hook on the sales tax on their sales. A city in Texas who put a parking garage and didn't charge tax on their parking fees got stung on this one. They thought that, because they were the city, they didn't have to worry about that stuff.

Services vendors who don't realize that their services performed in another state, are taxable. Typically repair companies, contractors and professionals will get stung by this one. They don't even think about taxing services that are non-taxable in their home state. It never even enters their minds.

Non-core sales. Many companies are making sales that are taxable, but because the sales are a small part of their total operations, they don't think about the sales tax. I had a guy in the seminar who worked for a manufacturing operation that ran a cafeteria for their employees. Their sales of food were taxable sales, but the company didn't even think about those sales and got stung for over $100,000 in taxes. Other types of sales in this category include the company store and vending machine sales.

Occasional sales that aren't occasional sales Depending on the state, if you make enough sales of a particular type of product, you're no longer making occasional sales. You've become a retailer. For example, a business that has monthly surplus sales of office equipment and computers to their employees has probably become a retailer and should be charging sales tax. Another example would be intercompany sales between subsidiary corporations. If done often enough, they may become taxable sales, depending on the states rules regarding occasional sales.

And, of course, the big one, nexus. Beware of making sales to a state where you have the hint of a breath of the possibility of a potential physical presence. You may need to be collecting that state's tax.

Stay tuned for more stories.

Sales Tax Guy

Is your company like this?

I had a woman in my class the other day who had a real challenge moving ahead. Her company sells in about all of the states, and has a really mixed bag of taxable and non-taxable sales and customers. She actually had to take a day of vacation and come to the seminar on her own, paying for the fee out of her own pocket! She even purchased the books that I recommended, again, on her own. I truly admire her for her commitment, but shame on the company for ignoring a potential problem, and making this person pay for education necessary to do her job.

We didn't get into what her plans were, but I hope they involved one of these courses of action that I recommend to you if you work in this type of organization:

1. Get educated about this topic and become an expert. And keep bringing up SUT issues in meetings and email. Then, when the apocalypse (major audit assessment) happens, you can sit back and say, "I told you so." Enjoy.

2. Quit. Why is a smart person like you working for these chuckleheads?

3. Get smart about SUT and then quit. There are companies out there that value this expertise and will be very interested in you. Just type in "sales tax" at Monster.com and you'll find them.

Rant setting off.

Sales Tax Guy

Avoiding tax on your RV

"I have heard that you can buy an RV in a non sales tax state and if you live on the road (no state residency) - you don't have to pay taxes for it! Any truth?"

Good question. Here's the logic (I'm not saying it's the law, just the logic):

Generally taxes apply first where the property is delivered. So let's say that George buys an RV in the no-sales-tax state of Nomadia (I'm making that up - there's no state called Nomadia). As far as the dealer is concerned, there's no sale tax and George skates. But there have to be plates on the RV, so George gives his sister's address in Nomadia, where he gets his mail, including the bill for the insurance on the RV, as well as his forms from the IRS, etc.

Then George drives his RV around with no permanent residence.

But early next year, when George comes through town to pick up his tax forms, he'll also find a form for his state income tax for Nomadia. See, as far as the state is concerned, since he has registered the RV in Nomadia, that must mean he's a resident of Nomadia. Which means he now owes Nomadia income tax. And the reason they don't have a sales and use tax is that they have a really obnoxious income tax. Uh oh.

Now, while George can buy an RV in a no-tax state, George has to give an address somewhere. And that state will start thinking you're a resident of that state. And if that state has no sales and use tax, they'll probably have other taxes that may be even worse, long term. If not income tax, think property taxes.

But, let's say George actually gets his mail at his brother's house in Jimigan (another fictitious state). George better not EVER visit his brother, even for Christmas. If George attracts the attention of the local constabulary, they will wonder why the registration on the RV doesn't match George's driver's license which says he lives in Jimigan. They will probably make George plate the vehicle in Jimigan, and then, of course, pay the use tax. And possibly a penalty, with interest.

BUT WAIT, THERE MORE! Nomadia still things George lives there because that's where he registered the vehicle. So, George may wind up paying Nomadia taxes, Jimigan taxes AND the Jimigan use tax on the RV. George is going to wind up paying more to get a CPA to sort this out then the taxes he saved on the RV.

Dodge one loophole and there's often a noose waiting for you on the other side.

What actual states do is worthy of some professional research. But what I've given you is a logical discussion of what I see are the problems.

I tell my seminar participants this all the time: most states have found most of the loopholes since the first sales tax law was passed in 1930. For something like an RV, I'm guessing they will have figured this one out.

Sales Tax Guy
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Illustrations and Parables: You can run, but you can't hide

I tripped across this situation when I did this seminar in Washington state. But it's a fairly common practice elsewhere. But I just happen to have a nice picture from that part of the world.

Washington has a pretty high tax rate. Oregon, it's neighbor to the south, across the Columbia River (see picture), has no tax at all. So, if you're thinking about buying, say a big screen TV, and you live in the southern part of Washington, you might just think of going to Oregon to buy that appliance.

A woman in my class did precisely that. Apparently, there are LOTS of appliance stores along the border in Oregon who cater to their friends from Washington. She bought the TV in Oregon and paid no sales tax. Then she brought the appliance home in her car. A few weeks later, she got a letter from Washington advising her that she owed use tax on her purchase.

"How did they find us?" was the question she asked.

I said, "I'll bet you paid for that television by opening up an account at the store. You didn't write a check, use a credit card or pay in cash. Right?"

"How did you know?"

"The store filed a lien on the the TV which is a public filing. These things are now computerized in many states. All the state has to do is search the filings looking for a seller in Oregon with a buyer in Washington. Bingo!"

"Oh."

One more way that you can get caught is when you declare big purchases that you bring back into the US. US Customs shares that information with states.

So as we saw with the Florida story, states may find those big purchases that you thought were tax free. Don't be surprised if one day, you get a letter too.

By the way, searching those public filings would also possibly turn up retailers who may have nexus in the state. So if you are afraid of that particular exposure in states where you do business, you may want to avoid filing a lien.

Sales Tax Guy

Florida Will Find You

Let’s say Danny wants to buy a big screen television for $2,000. He goes out to jimbosfabuloustvs.com (I certainly hope nobody has that URL) based in Kentucky and places his order.

Now an appliance this big isn’t going to be sent UPS. There is an entire industry of shipping companies out there who do, what is called, “home delivery.” This involves not only shipping and delivering the item, but also setting up and installing. They typically deal with items like appliances and furniture…the kind of thing you really don’t want to find leaning up against your door when you get home from work.

Now Danny thinks he’s saved himself $140 in Florida sales tax by buying out of state. But what the poor guy doesn’t know is that when that “home delivery” truck enters Florida, it’s stopped at one of Florida’s fine agricultural inspection stations. They then scan the bill of lading and send it to Tallahassee. A letter is then prepared and sent to Danny which reads something like this:

Dear Danny

You recently received a television from Jimbo’s Fabulous TV’s. Our records do not show this vendor as registered to collect sales and use taxes in Florida. Enclosed is a brochure describing all citizens’ Florida use tax responsibilities. We estimate the value of your purchase to be approximately $2,000. Therefore, we will be expecting a check from you for 7% of that amount within 30 days. If the amount of your purchase was different than our estimate, please take 7% of the correct amount and send us a copy of the invoice. If taxes WERE collected by the vendor, please send a copy of the invoice with no remittance.

Thank you, and welcome to Florida.

Florida is the only state that I know of that does this. I believe they are unique for a couple of reasons:

1. They don’t have an income tax. And states that don’t have an income tax get a little nutty about their sales tax.
2. They already have the infrastructure in place. I was talking with someone from the state of Florida about this and he told me that they had very little cost to get this program going. They only had to buy scanners for the stations and hire some people in Tallahassee.
3. If you’re heading into Florida on Interstates 10, 75 or 95…where else are you going? Florida is the only state where, if you enter it, you are likely destined for the state. No other state could do this because so much of the traffic is just crossing the state. It would be impractical to scan all of the bills of lading at the entry point.

I did have one seminar participant who said, “Well, the truck could be heading for Cuba.” I sent him to the Remedial Geography class across the hall and we moved on.

Finally, I was reminded to tell this story because I just finished up a seminar series in Florida. Almost every day, someone in the class told me a story like this one.

The morals

First, if you’re shopping for a big appliance or furniture in Florida, you’re gonna pay the tax. One way, or the other.

Secondly, if you're from another state, they DO have ways of finding you. Florida's method is unique, but the states have other ways.

The Sale Tax Guy

How far can we go back for a refund?

Another question...two in one day! How exciting!: How far can we go back? We've been overpaying a vendor for many years. Is it reasonable to expect a refund for several years of overpaid taxes?

Generally, you can only go back 3 or 4 years, depending on your state's statute of limitations. And yes, almost every state expects you to get the refund from the vendor. And the vendor has to give you a refund. Expect resistance, however. Unless it's something obvious, like a resale issue, they may not understand the law and fight it.

In addition, if the amount is substantial, they may have to file for a refund with the state after giving you a refund...which means a cash flow problem. And finally, asking for a refund (or credit) will probably trigger an audit, which they don't want.

Good luck. And check with your CPA.

Sales Tax Guy
see the disclaimer

States doing more to find you

In the April 17th issue of BusinessWeek (page 34), there's an article on how the states and IRS are using data-mining techniques to find you. In non-technical terms, the states are reviewing other databases and records to look for something fishy.

Texas, for example, has collected $5 million dollars in the last 6 months by comparing federal airplane registrations with state tax records to find companies that haven't paid their use tax on the planes. Bad, bad companies.

In the past, states didn't have the expertise, staff or equipment to do some of these projects. But now things are getting cheaper, easier and they're outsourcing.

Another interesting scenario was a typical pizza parlor. The state might compare the sales tax returns with the personal returns of the owner with the returns filed by other pizza shops in the area with sales by vendors TO that pizza shop.

It's getting tougher and tougher to fly under the radar.

Here are the states the article mentioned: Texas, Iowa, Virginia and Massachusetts. But beware, your state may read BusinessWeek too!

Direct Pay Certificates

First of all, what is a "Direct Pay Certificate?" In most states, larger organizations find them helpful because these types of companies buy lots of different things, some exempt and some taxable. This is particularly true for manufacturers, contractors and utilities. It's easier for them to get a direct pay certificate from the state. This allows them to buy pretty much everything without the vendor having to charge sales tax. The direct pay permit holder then self-assesses the use tax. Now you may think this is a pretty good idea. But there are catches:

1. States don't like to hand DP certificates out like Skittles. Don't think of this as a way of avoiding/evading tax or getting to hold onto the tax money a little longer. Generally states only give these out to larger companies with a need.

2. You can pretty much count on getting audited every three years. Because the state is now relying on your company 100% to self-assess (and we know how reliable most of us are at doing that), the state is going to be much more likely to audit you. Regularly. Frequently. Set up an office just for the auditors, if you know what I mean.

3. Tied in with number 2, you're likely to get audited before they even give you the permit, just to see if you have the systems in place to self-assess properly.

4. Finally, beware of mixing up which vendors you pay sales tax and which ones you don't (by giving them the DP certicate). I've talked with taxpayers who were not consistent in using their DP certificate. This resulted in paying sales tax on purchases and then turning around and self-assessing tax on the same purchase. At lease keep very close track of who you give a DP certicate to and who you don't.

Sales Tax Guy

Question: Do I owe tax on my foreign-purchased car?

I purchased a car from someone in another country. Do I owe tax on the car in my state?

The answer is generally yes. You didn't pay your state's sales tax when you made the purchase, so you owe use tax because you're using it in your state. States will usually give you a credit for the taxes you paid in another state, but usually NOT for taxes paid in other countries (some border states DO give credit, but they're unusual).

The use tax usually gets taken care of when you title or register the vehicle. You can't get your plates until you show that you've either paid the tax to the dealer or pay the state directly.

STG

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