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!
Sunday, April 09, 2006
Monday, March 13, 2006
Hey, Texans!
As promised, the latest version of the presentation has been uploaded at the location I gave you. In addition, several people have asked about local taxing issues and I promised a link to the publication on the state's web site. Here it is.
All of my Texas links are here.
Jim
All of my Texas links are here.
Jim
Friday, March 03, 2006
Contractors charging tax?
In most states, contractors pay tax on their purchases and don't charge their contracting customers tax. The problem arises for contractors that have a retail side of their business too.
If most of what they buy is for resale, but they do some contracting too, then they'll generally buy for resale and self-assess use tax on whatever they consume for the contracting business.
But if they buy mostly for the the contracting business (their use), but sell some as well, then they should probably pay tax on all of their purchases. But they've already paid tax! Therein lies the problem. What I'll recommend is specifically sanctioned by some states, and makes logical sense everywhere else. When you sell something (and charge tax) on something you have already paid tax on, then simply adjust your use tax basis on your return for the amount that you sold. That should square everything up.
Is is legal? As I said, in many states yes. In other states, they're usually silent on the issue. It certainly is a defenseable (and logical approach to take). Just don't tell em I said so. ;-)
Sales Tax Guy
See disclaimer
If most of what they buy is for resale, but they do some contracting too, then they'll generally buy for resale and self-assess use tax on whatever they consume for the contracting business.
But if they buy mostly for the the contracting business (their use), but sell some as well, then they should probably pay tax on all of their purchases. But they've already paid tax! Therein lies the problem. What I'll recommend is specifically sanctioned by some states, and makes logical sense everywhere else. When you sell something (and charge tax) on something you have already paid tax on, then simply adjust your use tax basis on your return for the amount that you sold. That should square everything up.
Is is legal? As I said, in many states yes. In other states, they're usually silent on the issue. It certainly is a defenseable (and logical approach to take). Just don't tell em I said so. ;-)
Sales Tax Guy
See disclaimer
Tuesday, February 28, 2006
FAQ: Is postage taxable?
One of the questions I've gotten a couple of times in recent days is whether or not "postage" is taxable. I think people are getting hung up on the fact that "postage" seems protected somehow. But think of it this way. It's just a delivery charge. So the real question is whether or not delivery charges are taxable in your state.
I had a question today from a seminar participant who was being charged tax on 1099's that a printer was mailing to her vendors. He was charging tax on the postage. In her state, delivery charges are taxable. And this postage was essentially the delivery charge for shipping product produced by the vendor to the customer's accounts.
Logically, this sounds like it's taxable to me.
Remember, the issues are:
NOT that it's postage.
ARE delivery charges by the vendor taxable in the state at issue?
Sales Tax Guy
See disclaimer
I had a question today from a seminar participant who was being charged tax on 1099's that a printer was mailing to her vendors. He was charging tax on the postage. In her state, delivery charges are taxable. And this postage was essentially the delivery charge for shipping product produced by the vendor to the customer's accounts.
Logically, this sounds like it's taxable to me.
Remember, the issues are:
NOT that it's postage.
ARE delivery charges by the vendor taxable in the state at issue?
Sales Tax Guy
See disclaimer
Tuesday, February 14, 2006
Why not let my customer pay the use tax?
If my customer pays the use tax, why do I have to charge him tax. Can't I get a letter from him that says he'll take care of it?
The answer is, generally, NO! The state doesn't trust your customer (and with good reason, I might add) to pay the use taxes. You're the seller and you are primarily responsible to collect the sales (or use) taxes from the customers. Even if they "promise" they'll pay.
Most states have a "direct pay permit" which DOES get you off the hook. This is a state-sanctioned way for a customer to tell you, "we'll take care of the use tax ourselves." The customer has to apply for the permit, and they will generally go through more audits than the rest of us. That's because the state really DOESN'T TRUST anyone to pay their use taxes.
Bottom line, you have to collect the taxes from your customer.
Sales Tax Guy
The answer is, generally, NO! The state doesn't trust your customer (and with good reason, I might add) to pay the use taxes. You're the seller and you are primarily responsible to collect the sales (or use) taxes from the customers. Even if they "promise" they'll pay.
Most states have a "direct pay permit" which DOES get you off the hook. This is a state-sanctioned way for a customer to tell you, "we'll take care of the use tax ourselves." The customer has to apply for the permit, and they will generally go through more audits than the rest of us. That's because the state really DOESN'T TRUST anyone to pay their use taxes.
Bottom line, you have to collect the taxes from your customer.
Sales Tax Guy
Wednesday, January 04, 2006
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
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
Friday, December 30, 2005
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
Disclaimer
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
Disclaimer
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