Don't use zip codes for sales tax rate lookups

Don't use zip codes for sales tax rate lookups.

Happily, at lease two of the rate lookup services use the actual street address. This is the best way, short of the actual GPS coordinates.  But zip codes? Alas, there are couple of sites that use zip codes for look-ups.

Here's an example.  I looked up the rate for my zip code of 60510.  The problem is that there are locations in 60510 that are NOT within the boundaries of the city of Batavia.  So the rate provided isn't accurate unless the "looker-upper" knows that the particular location is inside or outside the city limits. However, using the actual address will give you the accurate information you need.  But the zip code won't work.

As an aside, one particular site says that freight charges aren't taxable. Hmmmm (drumming fingers)...in fact, they ARE taxable in Illinois, depending on several conditions.

Remember that zip codes have no relationship to taxing districts.  The purpose of zip codes was to speed the delivery of catalogs and flyers to your house.  I forgot the name of the organization that does that...they drive little white trucks.  Dang, can't remember the name.  Anyway, zip codes were not intended, nor are they usable, as an accurate means for determining political subdivisions.  And sales taxes are all about political subdivisions.

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

See the disclaimer on the right.

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

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In which I sweep up more than just janitorial services in a discussion about online resources

See what I did there....

This inquiry was received recently.  It's a pretty frequently asked question so I thought I'd take a stab at it again. 

"Do you have any articles that deal with the taxability of janitorial services for all states?"

Nope, I don't have anything like that and wouldn't publish it anyway.  I don't typically write articles with that level of minute detail.  That's what online databases are for.  I use Thomson Reuters* as my research tool (although CCH has the information as well), and I can research janitorial services for any state in a matter of moments.  Well....maybe not "moments" if there are some interesting complications.

Even if you could find such an article somewhere on a free web site, you probably can't count on it unless you're paying for it.  Let's say you find a page where someone has put together a table about the taxation of janitorial services for every state.  

My questions would be: 

1. How often is it updated?
2. Are there citations to specific statutes, regulations and court cases?
3. Is the information in the list detailed enough to cover the possible exceptions and gotchas...like the interesting complications I mentioned above?

You're probably going to have to pay for that kind of reliability.

When we do a state-specific seminar, we re-research the state every time.  We don't just rely on the material we have from the last event.  We review our grid on what is taxable or not, change things where necessary, and review any updates to the sales and use tax laws since the last time we did a seminar for that state.  So when we do the seminar, we can feel comfortable that we're using the latest information.  That's one of the reasons why we don't provide recordings of these seminars.  We don't want people relying on information that can so easily go out of date.

On the other hand, I frequently find articles written by attorneys and accountants to be useful.  They are usually handy for covering a topic that isn't covered as well as I'd like on either the state's web page, or in the databases.  But they are detailed, dated and usually well-cited.  But I still have my salt-shaker nearby.

*By the way, I'm not endorsing Thomson Reuters.  Inertia keeps me using their service.  Although sometimes I wistfully think it might be more fun with CCH.   

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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. 

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?

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

See the disclaimer on the right.

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

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

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FAQ: "Do you have any articles that deal with the taxability of ____ for all states?"

This inquiry was received today.  It's a pretty frequently asked question so I thought I'd take a stab at it again.

"Do you have any articles that deal with the taxability of janitorial services for all states?"

Actually, I do have pretty detailed notes (my cheat sheet) on this for every state, but I wouldn't publish it.  I don't typically write articles with that level of state-specific detail.  But the databases have that info.  I use RIA as my research tool (although CCH has the information as well) and I can research and update my notes on janitorial services for any state in a matter of moments.  Frankly, if you need that kind of information for all the states on a frequent basis, you should subscribe to one of the databases. 

Even if you were to find such an article, you can't count on it unless, frankly, you're paying for it.  Let's say you find a web site where you can get the information for free - someone put together a table of janitorial services taxation for every state.  My questions would be: how is it updated, are there citations to specific statutes and regulations, and is the information in the table detailed enough to cover the possible exceptions and gotchas?  You're probably going to have to pay for that kind of reliability.

When I do a state-specific seminar, I re-research the state every time.  I don't just rely on my cheat sheet from the last time.  I review it for what is taxable or not, change things where necessary,  and review any updates to the sales and use tax laws since the last time I did a seminar for that state.  So when I do the seminar, I can feel comfortable that I'm using the latest info.  That's one of the reasons why I don't provide recordings of these seminars.  I don't want people relying on information that can so easily go out of date.  And a table or article from a free web site is likely to be not very detailed and easily out of date.

Which is why I don't typically provide that level of detail unless I've got specific warnings that the information is illustrative and is probably out of date.

So don't rely on tables or cheap information.  Use good research tools. 

Sorry, I must be off today.  No jokes.  Dang.

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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 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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Let the other guy do it!

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

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

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

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

Here's one way the dialogue might go:

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

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

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

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

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

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* an admittedly shameless plug 

** picture tie-in

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

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

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

Don't forget our upcoming seminars and webinars.
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Your taxes at work or why you shouldn't assume the auditor knows what they're talking about.

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

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

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

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

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

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

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

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

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

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

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

"Who's minding the store?"

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

Now think about this...

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

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

So there are two take-aways from this:

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

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

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

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

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

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

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Sales and Use Tax Books You Should Own - Redux

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

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

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

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

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

Here are two particularly useful items provided by the book:

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

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

I actually recommend both books if you have the budget.

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

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

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

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

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Associations as a Research Resource

An information source that I frequently suggest is your industry association. You're already paying dues to them. You should check to see if they can help you.

Most importantly, there may be an sales and use tax exemption for your industry that they lobbied for and won. States don't hand out exemptions because they're feeling generous. They pass the laws because enough suits took them out for lunch and jawboned them to death. And the people paying for the lunches and the jawboning are the various industry associations.

Want to know more about the manufacturing exemption? It's not a bad idea to contact your state's manufacturers' association. Want to know more about any exemptions for photographers? Well, maybe not.

Some associations are better at this than others. It's a function of the amount of dues that members pay, the existence of any dedicated full-time staff, and the leadership of the organization. And whether the industry is taxed or regulated enough to make it worthwhile to do some research or hire lobbyists.

I used to belong to an state association, and while, looking back on it, there were some sales tax issues that the industry faced, the organization was more about networking, having meetings and conferences, putting out a nifty newsletter, and producing publications on how to build business. Even if they did something about sales and use taxes, the members were so intent on growing their businesses (mostly entrepreneurs) that they would not have paid attention. There was at least one publication about income taxes, but there's always a publication about income taxes.

So don't have high expectations, but check with them anyway. See just what you get for all those dues you pay. Here are some ways they might be able to help:

1. They may have published a book or pamphlet about how sales and use taxes relate to your industry.
2. They may have an SUT attorney or CPA that they can refer who has a lot of experience in the industry.
3. They may have put together a link list on their web site to sales and use tax resources
4. They may even offer seminars on sales and use taxes with a focus on your industry. If they're not, they might be open to doing something like that. Ahem.
5. You might be able to network with other folks through meetings and online forums to discuss any sales tax questions.

There's another benefit. If you're in accounting (and most of you are), you probably haven't had much interaction with your association. Usually it's the operations. executives, and marketing people who go to the meetings, read the newsletters, etc. You'll receive new-found respect in your organization if you start asking about how the association can help. OK, I'm lying in that last sentence. No new-found respect for you....sorry. But you still might find it rewarding to see what your industry association has to offer.

Finally, chambers of commerce probably won't be much help. They're not industry specific, which is what you want. And most of them are more interested in networking and boosterism rather than something as crushingly boring as sales and use taxes. Although you never know. They just might be willing to sponsor a sales and use tax seminar for their membership. Again, ahem.

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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 is hosted on Flickr. If you'd like to see more, click on the photo. It's actually got nothing to do with associations, but it's got a relatively funny caption.

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Another Reason Not to Call the State

I've talked about why you want to avoid calling the state with any sales and use tax questions. I've now got another reason. I was talking with a woman in a seminar earlier this month and she told me this story that should make you even more suspicious.

She worked for a hospital and had called the state to find out about the taxability of a particular item. She started describing the situation which involved an item being shipped from Michigan to her state, and how she worked for a hospital, and how....

The state employee immediately told her it was not taxable and essentially hung up.

The woman came to the class convinced that anything shipped to her state from out of state wasn't taxable - because that was the question she had intended to ask. I spent some time deprogramming her with the message that it's the delivery state that counts, not the ship-from state. It doesn't matter that it was shipped from another state. In other words, the answer she got from the state representative was completely wrong. And for the wrong reason!

We talked more and I realized what happened. As she was explaining the situation to the person on the phone at the state, she mentioned hospital. Well, that gave the headphone wearer all the information she needed. It was a purchase by a hospital! Hospitals are exempt*. The answer is the purchase wasn't taxable. Yay!

If the state employee had listened longer and asked more, she would have found out that the hospital was buying this item for one of their for-profit subsidiaries which was taxable.

In most telephone-bank jobs, particularly the ones where they don't care about customer service, employees are evaluated on how quickly they can close a call and move on to the next one. They're not rewarded for patience or even giving the right answer. So this operator heard "hospital" and she had an answer. Done! Move on to the next call.

So when you're talking to the state on the phone, in addition to all of the other reasons why you shouldn't rely on their answer, you also have to make sure they don't prematurely give you the answer before they've even gotten all of the information.

Remember, if you have to contact the state, try to email them. At least you're not dealing with the state employee's needing to get you off the phone fast.

*Another problem is that not all hospitals are exempt. There are for-profit hospitals that would be just as taxable as anyone else. It's not super-relevant to the story, but I wanted to forestall someone pointing this out. ;-)

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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

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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Where do sales tax and use tax laws come from?

So, where do all of these sales and use tax laws come from?

1. The US Constitution

Our founding fathers did a good job. But the Constitution does present some limitations on what the states can do. The document restricts the states' ability to tax interstate commerce, First Americans, the US government and it also imposes rules regarding due process and equal protection.

The problem is that, because it is so general, the meaning of the Constitution is really found in the court cases (see item 7).

2. US Statutes

These are laws passed by Congress. There aren't many related to sales and use tax and the ones that exist are related to specific issues, such as credit unions and telecommunications. But the biggest federal law is the one that hasn't been passed. Congress could allow states to tax interstate commerce. But they have not. If they did, then Amazon. com would have to charge you tax on your book purchases, saving you the trouble of voluntarily reporting that tax to the state. You are reporting the tax, right?

3. State Constitutions

I normally don't see many references to this one in my SUT research. But these laws provide the foundations and parameters for the rest of the state rules.

4. State Statutes

This is the true basis for most of our sales and use tax laws. The state legislature passes these laws and the guv signs them. Unfortunately, politicians write these laws.

5. State Regulations

When the politicians pass the laws, there are always holes that need to be filled in. The legislature usually leaves the nuts and bolts to the state tax department who take care of the details. The regulations (the name varies from state to state) are where the rubber truly does meet the road. When I do my research, the first source that I look at is usually the regulations.

6. Bulletins

The laws and regulations don't cover everything. Sometimes a situation comes up that needs to be addressed. And regulations take too long to change. So the state will issue a bulletin (this name varies from state to state).

The problem is that these are often hard to find. Most states seem to either omit them from their web site, or list them by number with no explanations. It makes it hard to browse looking for something that will help you. And, well, have you tried the search box on the state web site? I thought so.

7. Courts

The judges look at vague or conflicting constitutions, statutes, regulations and bulletins and decide how they apply or if they apply.

However, court cases are often not easily available. There are a LOT of them, they're hard to read, and only the most important are freely available on the web. Lawyers get paid a lot of money for searching court cases.

Items 1 through 5 are usually pretty easy to find on the web. Numbers 6 and 7 are harder. If the law is in the auditor's favor, they'll the relevant bulletin or court case. But if they don't like the court case, or the bulletin gives you a break, you won't hear about them.

So you need help, because the bulletins and court cases have really important information. And they're the toughest to find. Your best resources are going to be either a good sales and use tax professional, or a subscription to an online database. Both are expensive. But both can get you to information that you might not be able to otherwise find.

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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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About Seminars

I had this email today and I thought you would all gain from the answer.

I would be interested in a seminar in the --- area. Do you currently have anything in the works?

I am looking for credible sales and use tax training. I feel like this is a huge trap for our company. I am looking at the --- coming in Jan of 2010 but saw some reviews that indicated it was going to be a huge sales presentation of their for-purchase materials. I am looking for TRAINING!!

1. Most of the general public seminar companies sell stuff at their events. However, the companies that are more focused on legal and tax seminars (like us) don't, but their prices are usually at least 50% higher.

2. When working for general public seminar companies, the leaders make a significant part of their earnings from commissions on what they sell. This means that there will be some sort of presentation about products at these seminars, and it will usually take some time.


Note - in webinars and seminars from TakeChargeSeminars.com we don't sell stuff. Period.

3. Sales tax seminars from the general public seminar companies will cover sales and use taxes from two perspectives.They'll talk about what most states do (what I call the Golden Rules). And they'll talk in depth about what is done in the state where the seminar is being held.

If you're on the fence about going to a seminar, contact the seminar company, and ask if you can communicate directly with the speaker. Or see if you can, at least, send him or her an email. Then ask about any specific topics you're hoping to see covered. This will give you more comfort that you're going to have a useful seminar experience.

Sales and use taxes are a trap for any company, as you said. But even if you're going to get "sold" at the seminar, that shouldn't prevent you from going and picking up as much as you can. GO!

If you learn anything that'll get you out of a potential hole, it's worth it.

4. Now it's time to talk about us! In my webinars and seminars (from Take Charge Seminars), we don't sell any products. We actually do talk about tools you may find helpful, but we don't take orders or quote prices. No selling. So fear no sales pitches in a seminar offered by Take Charge Seminars.

Sales Tax Guy

Here's information on our upcoming seminars and webinars And we do coaching!

And please don't forget to visit our advertisers!

Picture note: Yes, that's me in the picture doing a seminar in Arlington, Virgina.

* These are the companies you get fliers from constantly on a wide variety of topics, from "sales and use tax" to "how to be a better manager."

Coaching

It's been a busy week here at Sales Tax Guy Central. First we schedule webinars. Then we do our first one. And now we are offering coaching on sales and use taxes. Think of it as one-on-one training. We don't provide sales and use tax advice on specific tax issues - that's the job of local sales and use tax experts. But often it's helpful to have a better understanding of the problem itself so that you know how to ask better questions, or where to find the best (and cheapest) answer.

Think of this as sitting around the table in a coffee shop talking about your plans and getting ideas.

If you're interested, please visit the Coaching page for more information.

I hope to actually talk to you soon!

Sales Tax Guy

Here's information on our upcoming seminars and webinars

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Picture note: I wanted a picture of me with a whistle looking like everybody's favorite coach. But, for some reason, no whistle in the house. Plus my beard is as long as it's ever been, which means I don't look like anyone's favorite coach. But this guy looks intense, which works for me. If you'd like to see the picture on Flickr, click here.

If you insist on contacting the state...

...do it by email. As mentioned previously, don't call. But you can at least get a slightly more reliable response from them if you ask them via email. Then the response will be an email. Which means you at least have something to show the auditor that corroborates your position.

There are a couple of issues.

1. It still may be the wrong answer. And to cover themselves, it's a good bet that there will be a disclaimer at the bottom of the email saying, essentially, "We might be wrong. Don't take our word for it."

To deal with that, when you ask your question, ask for a link to where you can read more about it. Don't take the answer you are given without some support.

2. If you email them a question, they now know who you are. I mean, you gave them your email, didn't you? Set up a Yahoo or Google mail account, or use your personal email account. Use some email address that won't enable the state to track you back to your company.

"Ha," you're saying, "the state would never do that." Yes they would. I've had several people over the years who got audited suspiciously soon after they had asked a question. And the audit centered on the exact area the question was about. And I had one auditor in the class (I hate it when they show up, but they always provide interesting information) who did, in fact, cop to the fact that they audited people based on questions they asked.

3. You may be dealing with a state who has not, as of yet, heard of email. You'll be forced to use the phone. Or find some better way of getting your answers.

Sales Tax Guy

See disclaimer

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Picture note: the picture above is hosted on Flickr. If you'd like to see a larger version, click on the picture, then click on the "all sizes" button above the picture.

We're a foreign company....

I got a version of this question this week:

"We're a non-US company who has, up until now, avoided a physical presence in the US. We ship products to US customers (usually distributors and dealers) but have no reps, warehouses, plants, offices, etc. anywhere in the States. We're considering establishing warehouses in a few places and figure that will give us nexus in those states. Where do we find advice on making this decision that isn't going to be expensive?"

That last question makes this question pretty much applicable to all of you...

There really isn't a cheap solution. The best (and most expensive) one is to hire one of the giant CPA firms and have them do a study for you. It would take into consideration sales and use tax rates, complexity, audit friendliness, rules about nexus, certificate requirements, drop shipping, any possible and unusual exemptions you might be able to take, etc.

For example, there's at least one state that has an exemption for warehousing equipment, conveyors, racks, etc. That's unusual, but something that someone in your type of business may be able to use.

The big problem is a common one that I've talked about over and over again: it's amazing that even the big CPA firms often do not have anyone who really knows sales and use taxes inside and out (at least handy to where you are). For example, the resident expert may not know that there's that one state that has that warehousing exemption!

So make sure you're talking to the top sales tax expert at the firm, regardless of their physical location. And make sure they look for any industry specific exemptions.

And, much as I hate to admit it, pay attention to the other potential taxes as well:

Income taxes (both corporate and personal - you'll have staff there)
Gross receipts taxes
Business occupation taxes
Employment taxes (your list mentioned California - beware!)
Property taxes
and other too-numerous-to-be-mentioned-here taxes

And many of these are administered at the county, city or district level, so it's not just about the state.

That's the best solution.

The cheap solution...

Pick your locations purely on operational grounds. Then buy a copy of the American Bar Association's Sales and Use Tax Deskbook. It's close to $300, but is the best single source of SUT laws that I've seen. You can get a pretty good idea of what's going on by using this book. Review the chapter for the state you're considering. If it looks too messy, then move on to the next state.

Another nice thing about this book is that it gives you the chapter authors for every state. Expensive, but well qualified people who can help you.

In other words, do your own research, but use a good tool to do the research.

Unfortunately, that doesn't help with the other taxes. And they can be nasty.

I think, in the long run, you'd be safer using the expensive approach - hire some pros. But make sure they actually are experts at sales and use taxes, dang it!

Sales Tax Guy

See disclaimer

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What state are you asking about?

This should be the first question out of anyone's mouth when asked a sales and use tax question. If you call your accountant or lawyer, and they just give you an answer, without asking that Question, they have missed three of the most fundamental rules of SUT, the Golden Rules.

They may not realize that the delivery state makes the rules - that is the state that has jurisdiction. So the answer must be based on that remote state, not the ship-from state. But since your professional hasn't even asked the Question, he or she doesn't know about the remote state.

And they may not understand that every state has different rules. What's taxable in your state won't be taxable in the other state. And what's exempt there, won't be exempt where you are. There might be completely different rules in that other state, but your professional doesn't even know that there is another state involved.

So can you see that your chosen SUT professional has really messed up if he or she doesn't ask, "What state are you asking about?"

There is an exception to this. If you have a business that never ships your product out of state, you never perform services in or visit another state for business purposes, and your professional knows this from previous experience with you, then not asking the Question is OK. But does that professional really know? Either about your business, or about the golden rules of sales and use taxes?

If they don't ask the Question, be afraid. Be very afraid.

Sales Tax Guy

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Picture note: It's a picture of me. I figure it's safer to use my picture when I'm mocking. Less lawsuits that way.
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Private Letter Rulings

If you are stumped and there isn't a rule, bulletin, regulation, law, court case, or interpretation that addresses your particular question, you've looked in all the places we've talked about here, and you can't get anyone to give you an authoritative answer, there may be help.

Most states will give you a private letter ruling, opinion letter, or something similarly named. The idea is that you formally ask the revenue department about your situation and they give you a formal, take-it-to-the-bank answer. It's not a guess, it is, for you, the answer. And they have to honor it when you get audited, assuming you didn't fib when you gave them the information, and things haven't changed.

Sometimes these letters are published so that others can find some guidance if they're in similar situations to yours.

Yay! Why didn't we do this before???

Because, to do it right, it is expensive. You want to do this anonymously so that the state doesn't know who you are, and send auditors out in the night to ambush you. You want to go through an attorney or CPA. They'll ask the question, keeping your name out of the discussion. In addition, if the professional specializes in sales and use taxes, they might even be able to answer the question without having to get an opinion letter.

This ain't gonna cost you a couple of hundred bucks. This will probably cost a couple of thousand. But if you're looking at a big issue, involving lots of money and risk, this is a very good way of getting a good, reliable answer.

Sales Tax Guy

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Got any questions?

My bad. I'm starting to get more questions via email. Which is OK. Feel free to do that. But I wanted to give you a more convenient place to post something, whether it's a question or comment. Maybe other people will have an answer that's better than mine. I've got a link to this post in the left column, so you can always find it. And please note the disclaimer as well.

One request though. Please don't look at this as "Jim's Law Look-up Service." If a question gets posted along the lines of, "Is freight taxable in Georgia?" then my response will be, "Did you check Georgia's web site?"

And it doesn't have to be that good of a question.

Sales Tax Guy

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Picture note: This was shot at Cantigny, a garden and military museum in the western suburbs of Chicago. I spend a lot of time volunteering there. And improving my people skills.

There are no cheap answers

One of the most common questions I get is, “where I can find reliable, compiled information for every state on the web?” And they want it for free.

Folks, it doesn’t exist and here’s why.

First of all, the information is there. But most of it will cost you money. Therefore, not FREE.

There are a few Web pages that will compile some state related information for you. But it’s not terribly reliable. Usually people give away free information on the Web because it’s their hobby (not many people are “into” sales tax), or they’re trying to sell advertising (that would be me) or services (me again). But the problem is, if they’re not directly making money at actually providing detailed state by state compiled information (in other words, subscriptions), keeping it up to date becomes one of those things that they’ll get around to when they get around to it.

That’s why I actually try to avoid giving you that level of detail. Because people who get paid to do it are much more reliable and authoritative then me. I have done this kind of research for certain specific issues, but I’ll put a disclaimer on it that it’s only intended to show the trend, not the specific, authoritative law that applies to you.

So, that’s the answer. The only authoritative, free information at the state level will be the states’ individual web sites. Anything free that compiles that information for all states will probably be of minimal value and may go out of date by the time you read it. If you want reliable compiled multi-state information, you’re going to have to spend money.

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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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http://www.salestax-usetax.com/

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Doing business in another state?

Part of a series on essential actions you need to take

Most businesses have out-of-state business. If the extent of your sales is that you ship products, then your primary concern will be whether you have nexus in the remote state and should be charging that state's tax.

But the other problem, that can be even trickier, is when you perform services in that other state. Many states tax a wide variety of services including professional services, recruiting fees, insurance adjustment services, information services, contractors, and my favorite, the labor associated with the repair of tangible personal property. And the list goes on. And nexus isn't the issue if you're performing taxable services in a state. You must be charging sales tax on your sale of taxable services.

You must do this:

Whenever you perform services in another state, check to see if what you're doing is taxable in that state.

This infomation is not that hard to find. Most states will show, in the publications section of their web sites, what are considered taxable services. And the sales tax books that I recommend both cover the issue.

If what you do isn't specifically listed, don't assume you're safe yet. Look a little deeper at the interpretations of the taxability of the service. Check as many resources as you can before deciding. And, if necessary, punt.

For example, whenever I do a seminar in a new state, I always double check to see if speaking fees are taxable (they are in a couple of states). But the law rarely specifically mentions "professional speakers," so I look under training, consulting services, business advisory services, etc. And if there's a hint of a whiff of the potential for taxability, I'll keep looking until I'm sure.

It wouldn't do for a guy who trains on sales and use taxes to get busted by a state for not charging sales and use tax.

Sales Tax Guy
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You don't know what you don't know

Part of a series on essential actions you need to take

One of the biggest tax assessments your company will experience probably won't be from the IRS. It'll be sales and use tax. Here are some reasons:

1. Your professionals (your CPA and lawyer) know about income taxes. And they are constantly giving you, or at least anxious to give you, advice about your income tax strategy, planning, avoidance, etc. They learned about income taxes in school. And they've probably got letters after their names certifying that they're experts at income taxes.

2. Those same professionals, in all probability, learned absolutely nothing about sales and use taxes in school. It's not their fault. Very view schools even offer courses in sales and use taxes.

3. Those same professionals, when they go to continuing education conferences, rarely go to the break-out sessions on sales and use taxes. Again, it's not their fault. The conference probably didn't offer any sessions on sales and use taxes. And those professionals do need to know about income taxes.

4. Therefore, based on items 1-3, your professionals probably know nothing about sales and use taxes, other than what everyone else knows. They may be able to prepare a sales and use tax return, but that really doesn't mean they know the kinds of things that I talk about on this blog. They don't know what they don't know. Because they never got any training. It ain't their fault!

5. Therefore, you're not getting good advice, if you're even getting advice.

6. So when the auditing gods decide who will get assessed, the IRS god will not be able to surprise you. You've been getting advice. You may get nailed for some taxes, but it's likely to be something that you were kind of expecting. Your professional said, "Mary, this is kinda edgy, but I'd suggest treating the transaction this way. If the IRS catches it, and they argue that it's taxable, we can decide at that point whether to fight it or not." In other words, no surprise.

7. But when the sales tax god decides to send her minions in to make your life miserable, you won't have had that conversation with your professionals. In fact, their response will probably be something like, "Gosh, that's taxable? Huh. Learn something new every day." And privately, they're thanking the professional liability god that you never asked them any questions, and/or they didn't put any answers to you in writing.

8. The moral of the story? Your professionals don't know. And if you're hoping they're going to be providing you guidance for sales and use taxes like they've done for income taxes, you're in for a rude awakening. They don't know what they don't know because they never learned about it.

And neither do you.

I've probably managed to offend every tax lawyer and CPA in the country with this one. Please keep in mind that there ARE some professionals out there who DO go to the break-out sessions, who DO subscribe to the newsletters, tax databases, buy the books, etc. In fact there are some that actually have a practice of sales and use taxes.

Here's another fact to keep in mind. I was glancing through a paper copy of a sales and use tax newsletter about a year ago. One of the major ones. Know how many subscribers they had? 800. For the entire country! 800! That means less than 20 per state. And probably half of those newsletters went to large companies who learned that they didn't know what they didn't know.

It doesn't bode well. Ask your professional which sales tax publications and newsletters they use.

Here's another one. Know what type of company often gets hit with use tax assessments? Law firms and CPA firms. Most businesses kind of figure this one out because there's a line on the sales tax return about paying use taxes on out-of-state purchases. But since professionals don't fill out a sales tax return for their own business (they don't provide taxable services in most states) they don't 't know they have to pay that use tax.

They didn't know what they didn't know.

Your job?

Read this blog. Review my articles on tax traps. Join our events. Read some books. Go to seminars. Find a professional who knows about this stuff and get some good advice. Here's where you can find more information.

Find out what you don't know. Then you can ask some questions.

Sales Tax Guy