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.



Wednesday, December 28, 2005

Manufacturing Issues to Consider

One of the recommendations I make in my seminars is that sales tax folks need to subscribe to a newsletter. And the one that I recommend is Sales & Use Tax Alert from CCH. It is a very worthy publication. The 12/15 article contains a very useful article about the manufacturing exemption. To summarize it:

1. Many states offer manufacturing exemptions.
2. Are you a manufacturer? It's not necessarily a dusty, noisy shop that makes you one. If you change stuff from one form to another, you may qualify depending on the state.
3. What is the "scope" of manufacturing. Depending on the state, this can include areas that you have been treating, incorrectly, as taxable
4. Look at what's exempt including raw materials, consumables and equipment. State defer, but again, you may have been taxing stuff that was not taxable.
5. Look carefully at the actual words in the laws. Issues turn on very specific phrases.

Obviously there's more in the article. Subscriptions are expensive, but well worth to for an SUT professional, particularly with multi-state exposure.

Sales Tax Guy

News: The Latest on Streamlining

For whatever reason, CNET provides some reasonably good coverage of Streamlining, probably since they have an ecommerce interest. In any case, here's a good article describing the current state of affairs.

Thursday, September 29, 2005

What constitutes "direct use?"

What constitutes "direct use?"

I get this question in EVERY seminar when we start talking about manufacturing. In most states, there are exemptions for manufacturing equipment directly used in production. The same idea, by the way, also applies to agriculture, mining, fishing, etc.

So what IS direct use?

Every state has a different definition, but here are my rules of thumb to help you, at least, understand the issues:

Space proximity: How close is the item to the actual process itself. If it is far removed from the production area, it probably isn't directly used.

Time proximity: How close, in time, is the use of the product to the actual production. If it's used at some point in time well before or after the production, then it probably isn't directly used in the process.

For example, a packaging machine used in the shipping department to wrap up a skid of product is used significantly AFTER production and away from the process. But a wrapping machine that packages the product while it's moving through the production equipment IS probably close enough in time and space to be considered to be directly used in the process.

Causal relationship: Does the item cause a change in the product. Or does it affect something else that causes a change. If it's not directly causing a change, it probably isn't directly used in production. For example, if a drill is used to drill a whole in the product, it's directly used. But if it's used to fix a piece of manufacturing equipment, it isn't used directly in the process.

Another example might be a step-down transformer. Does it act on the product? No. It acts on the electricity, which acts on the machinery, which acts on the product. So a step down transformer, under this logic, would be indirect. Note, however, that many states DO consider step-down transformers to be directly used.

Essential to the process: This ropes in a bunch of stuff that may not be previously covered, like foundations, step-down transformers, foundations, safety equipment, etc. The question may simply come down to this question: Would production SHUT DOWN immediately if this item was suddenly to disappear?

Remember, EVERY state has different rules for what they consider to be directly used in the process. So review their rules carefully. But hopefully, you'll now have a better perspective on what "direct use" means.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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Friday, September 23, 2005

Editorial: Expanding the tax base

I've been reading recently about states (Pennsylvania and California in particular, but others as well) that are considering expanding their tax base by taxing more services. Part of the deal is that the politicians will reduce other taxes, like property taxes, or reduce the general sales tax rate. There are obvious issues here with taxing services, but enough states already do this so it isn't new ground...we know that it can work, if not well.

However, what isn't mentioned enough is the more cynical perspective. Let's say a legislature expands the tax base by hitting services, but they offset this by reducing the general rate or dropping some property tax. But then, in a couple of years, when the state has another fiscal crisis (and you know they will), they simply raise the tax rate back up to where it was or reinstitute the property taxes. The ultimate result is no savings for the taxpaper - in fact it WILL be a tax increase.

Expanding the tax base is a rocket-sled to higher taxes. If not now, then later. Voters shouldn't allow politicians to expand a tax base based on a promise that other taxes will fall. They might temporarily, but they WILL go back up. We're talking about trusting politicians here. If a legislature wants to expand the tax base, they should be honest about it (yeah, sure) and not promote it with the promise of a reduction in other taxes. Because, long term, there will NOT be any reduction in other taxes.

In a previous life, I sold accounting software. During that period, I went through a couple of "commission plan restructurings." When management presented the new plans to us, they ALWAYS said that the objective was to make us more money. Because of my accounting background, I knew the real reason - to cut their commission costs. When you hear talk by a politician about "restructuring" the tax base, it means ONLY one thing, higher taxes in the long run.

Whew. Glad I got that out of my system.

Don't have to read the disclaimer on this one.


Wednesday, September 21, 2005

FAQ - Which tax applies when customer orders in my store?

FAQ - Which tax applies when customer orders in my store?

A customer comes into my store (let's say Louisiana) and orders TPP, which I then ship to his office in a neighboring state (let's say Texas). Which tax is due?

If your agreement with the customer is that you ship to his location in Texas, then Texas tax applies (along with Texas rules). That assumes this was equipment that the customer couldn't take with him - in other words, the sale wasn't consumated until he got the goods in Texas. If he could have taken it, and you shipped it "for his convenience", then the title probably transferred in your state, and therefore Louisiana tax and rules apply. This is a gray area and you need to look very carefully at your state laws.


See disclaimer

Monday, September 12, 2005

News: SSTP

Here's a good article from CNET on the Streamlined Sales Tax Project and some of the issues it's trying to resolve, as well as obstacles it faces.


Friday, September 02, 2005

FAQ: Do I have to charge tax on my shipments out of state?

FAQ: Do I have to charge tax on my shipments out of state?

It generally depends on two things:

1. What are the requirements of the state you ship from? Generally, if you HAVE to ship out of state to complete your legal responsibilities per your contract with the customer, then the ship-from state has no jurisdiction to tax, unless you know that the property will come back into the state after the transaction.

2. Do you have nexus in the destination state? If you have nexus, then you have to collect THAT state's "sellers use tax." Unless you're lucky enough to be shipping to a state with no sales tax.

What about shipments to Canada or another country?

Basically, it's the same answer. The shipment won't be taxable in the ship-from state, but I'm not an expert on Canada GST and provincial taxes - but I'm guessing they have equivalent rules about nexus.

Sates Tax Guy

See disclaimer

Thursday, August 04, 2005

FAQ: Are repair services taxable?

Are repair services taxable?

It depends on what state you're in. The default position is, in most states, that services aren't taxable.

There are two situations, however, where repair services are taxable:

1. Lumping parts and labor together. Even in states where repair labor isn't taxable, you will make the service taxable by lumping the charge for the parts (which is pretty much always taxable) with the labor. Lumping a taxable item with a non-taxable item pretty much makes the entire charge taxable. In other words, labor becomes taxable, just like the parts it's been lumped with.

This is why, in Illinois for example, they break out labor and parts separately when I have my car repaired (which is often). By doing that, the mechanic doesn't have to charge me tax on the labor. But if he lumped them together, I'd pay tax on the whole charge.

2. You're in a state where repairs services are taxable. This may be news to folks in many states (like Illinois), but in many OTHER states, the charge for repair labor is taxable. And it's taxable all the time, even if the labor is shown separately.


See disclaimer

Monday, August 01, 2005

FAQ: Multilevel marketing reps

Q: I own an multilevel or independent rep marketing business (cosmetics) and I would like to know where I can get an itemized combined sales tax list that will have what tax to charge for each amount.

First of all, I'd suggest contacting the company you represent. In most states, they may have the ultimate responsibility for making sure you charge taxes properly. Secondly, check the revenue page in your state (I've got a link list on my site). There is almost always a significant amount of useful (if hard to digest) information. Otherwise, you'll probably want to talk to your CPA.

Finally, what you may be asking for is a "bracket" table. You can download those from state web sites, if they require that you use them.

By the way, cosmetics are always taxable.


Wednesday, July 20, 2005

Hurricanes and Sales Tax

With hurricanes in the news, it's worth noting that many of the states that often have natural disasters (such as hurricanes in the south and earthquakes in the west) will have permanent rules about sales and use tax exemptions for building materials, construction work and other related goods. If you unfortunately find yourself in the terrible position of having to spending money after such a disaster, check to see if there's an exemption. If the exemption doesn't exist, the government may create one so watch for the opportunity of refunds or credits, or consider timing your purchase to when the exemption is available.

And if you're a seller of such goods and services, make sure you handle the taxation of your customers properly.

And I hope this entry is never relevent for you.


Tuesday, July 19, 2005

Barnes and Noble charges tax in NV

I've been off for a few days and was driving through Reno, NV this week and noticed that Barnes and Noble has a warehouse by the side of the US 395. So I checked their web site and they charge tax in Nevada...obviously they have nexus.

See, always working for you folks, even when I'm on vacation!


Friday, July 08, 2005

FAQ: Should I worry about nexus if all my sales into a state are "for resale?"

FAQ: Should I worry about nexus if all my sales into a state are "for resale?"

Yes. If you have nexus in a state, you should be collecting that state's seller's use tax for any shipments into the state, of have a good explanation why not. If you don't have that explanation, then you will be held liable for the taxes. Don't make the mistake of assuming you're off the hook because you're shipping from out of state.

The best course of action, obviously, will be to get exemption or resale certificates from your customers for the state where delivery occurs. That way, if the state catches you, you can wave the exemption certificates at the auditor and say "hah, hah, hah!"


See disclaimer

Thursday, July 07, 2005

FAQ: Are fuel surcharges taxable?

FAQ: Are fuel surcharges taxable?

I'm in a state where delivery charges by the vendor on a taxable sale are taxable. In other words, delivery charges are "included in the basis of the tax." What if the vendor adds on a fuel surcharge?

I'd say it's taxable. A fuel surcharge is just an additional delivery charge, broken out separately because it's temporary. But it's still part of the charge for delivery and therefore it's probably taxable.


See disclaimer

Wednesday, July 06, 2005

Pitfall - Charging the wrong tax

Pitfall - Charging the wrong tax

As yesterday's article in the Chicago Sun-Times illustrates, one of the problems that sellers have is simply making sure that they tax their products properly. For most, this isn't a big deal. But if you sell certain types of commodities, like drugs, food or clothing, it becomes a problem - depending ont the state you're in. Other vendors who seem to have problems determining the taxability of their sales are contractors, services vendors, and equipment vendors selling to manufacturers.

How do you solve this problem? Go through your offering, go through the law in the state where title transfers, and figure out the taxability of your sales. This sounds simple, but if you've never thoroughly done this, being aware of how tricky this can be, then you're probably messing this up. If you're relying on an old cheat sheet hanging on the wall in the billing department, you're in trouble.

Remember that you're screwed in two different ways:

1. If you didn't charge the tax that you should have, then the state will want their money from you. Good luck getting it back from your customer.

2. If you charged too much tax, you're doing wrong by your customer. And if they find out about it, they will be ticked off at you, which isn't a good thing. And they may want their money back. Good luck with getting it back from the state.

Of course, the other complication is making sure you are following the laws in the correct jurisdiction, usually where title transfers.


Tuesday, July 05, 2005

Recent news: Chicago Sun-Times article

It's rare to see a front page story on sales tax on the newsstand, so I had to buy a copy of the paper. The article complains about the complexity of Illinois sales tax law regarding mostly food, non-prescription drugs and equipment. They sent reporters out to buy stuff to see if the stores computed the tax correctly based on what they bought. What a surprise - the stores didn't do it correctly all the time. What's actually surprising is that they did it correctly so often.

What would be more interesting is whether or not the cashiers were making the mistake about an item's taxability, or if it was the stores' systems that were incorrectly programmed. Naturally the reporters didn't ask that question.

Anyway, for your enjoyment, here's the story.

Friday, July 01, 2005

FAQ: Picking up goods in remote states for resale

FAQ: Picking up goods in remote states for resale

What if you are a reseller in your state, and you send a truck or use your common carrier to pick up goods for resale in a remote state? The title transfer is now probably happening in that remote state. Therefore, the seller in the remote state rightly needs something from you indicating the purchase is for resale, otherwise he'll have to charge you tax.

And your resale certificate from your home state may not work. It is, after all, not from the state where the sale is taking place.

But most states have a mechanism for allowing out-of-state dealers buying for resale but picking up in the state to be able to still buy without tax. Often the state will have a special form to be completed, or an affidavit. Or they may simply specify their usual resale certificate, but with some sort of explanation as to why you're not providing the remote state's registration number. Or maybe you can use the multijurisdiction form.

This sounds like an opportunity to email the remote state's tax department. Here's a way of phrasing the question:

We are a registered reseller in (pick your state). We have determined that we do not have nexus in your state and therefore do not wish to register in your state. But we do occasionally pick up products from your state that we resell. Since title transfer is happening in your state, please tell us what documentation to provide to the seller so that he can prove his sale was for resale? Do we:

1. Provide your state's resale certificate (with our state's number and an explanation)
2. Provide a simple affidavit?

3. Use another form?

4. Use the multjurisdiction form?

5. Use our own state's form?

If possible, please provide any additional reference material that may be helpful.


Thursday, June 30, 2005

FAQ: Do I have to pay sales tax on property taxes?

In states where lease and rental payments are taxable, then the question comes up as to whether or not there's sales and use taxes on the property taxes paid by the lessee.

The answer, usually, is yes, you pay taxes.

It's not that you're paying taxes on taxes. It's because your agreement with the lessor is that you'll pay rent, plus the property taxes. Essentially the property taxes are "rent". Since the rental payment is taxable, the property taxes are taxable too. But they’re not taxable as taxes, they’re taxable as part of the rental payment. In other words, if the lessor paid the property taxes himself, there would be no sales or use tax .

It's worth taking a look at the rental agreement to make sure that the property taxes ARE part of the rent, just to make sure.

In particular, this is the rule for commercial real estate rental in Florida. The real estate taxes that the lessee pays as part of their lease agreement is considered taxable. The rest of you who aren't in Florida are supposed to be amazed that commercial real estate rental is taxable there.

Sales Tax Guy

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Wednesday, June 29, 2005

Some recent news

Just a couple of items I picked up in my reading:

Florida - sales tax holiday for clothing, school supplies, etc. with a price of less than $50 beginning 7/23/05 to 7/31/05.

Ohio - delays implementation of destination based sourcing from 7/1 to 5/1/06 and for some, 2008. This has been a big issue in Ohio and further complicates SSTP.

Massachusetts - Happy Meal toys are considered to be purchased for resale as part of the meals and therefore the restaurant doesn't have to pay tax on them. I know you're all breathing a sigh of relief on that one.

And from the "Felony Watch"

Restaurant owner in Florida charged with tax theft

Car dealer sentenced to 2 years

Car dealer OK's plea deal

It seems like it's always car dealers and restaurants that get in the serious trouble on sales tax issues.


See disclaimer

FAQ: Why are smokers getting letters demanding sales tax?

Why are smokers getting letters demanding sales tax? Moreover, how can states get smokers' names and addresses from out of state resellers who don't have nexus in the smokers' states?

This is because of a Federal law passed in 1949 called the Jenkins Act which requires out of state cigarette sellers to file monthly reports on their buyers with states to which they ship cigarettes. Most of the cheap Web-based tobacco sellers don't comply with this law, and they are starting to get subpoenas for their records. Using this information, states are going after the buyers of the cigarettes.

This is not a sale tax issue so much as a cigarette issue. As near as I can tell, it wouldn't bleed over to other types of out of state purchases short of an audit by the destination state of the seller's books.

Heres a link to the Jenkins Act. And here's one short article on the topic.


Saturday, June 25, 2005

Getting Answers - Part 1

Where do you find the answers to your questions; or proof for a customer or vendor who disagrees with your handling of a tax issue; or proof for your boss or co-workers about how to deal with a certain situation? To me, the biggest single challenge for any tax research is the abundance of sources of the law. The need is to be able to consolidate the various laws and interpret them specifically for your situation.

Here's my take on the various resources available to you.

1. Lawyer or accountant - Using a professional is probably the best single resource, particularly if you get the answer from them in writing. Those written responses, which will cost big bucks, will generally be well researched, carefully cited, and customized to your situation. When the auditor asks "Why did you do it this way?", you'll be able to show them the report from your professional. The odds are that the auditor will take a look at it, ask if he can show it to his supervisor, and you'll never hear about it again. That may be money well spent. But the best part of all is that you let the professionals do the legal research. Which if you're not into it, is a pain. I enjoy this kind of thing, but I am admittedly a little out in left field.

Of course, you can't assume that your existing lawyer or accountant is an expert. That is a big assumption. They didn't learn sales and use tax in law school or accounting school. They learned about income taxes of course, but sales and use taxes just never get covered (unless they happened to get an instructor who had lived through a sales tax audit recently). So make sure they're an expert. Here's a previous post about finding such a creature.

2. Associations - This is one of those resources that you probably didn't think about. The state chamber of commerce may have some useful information for you and be able to guide you to someone who can help. Don't bother with local chambers and associations. They're usually more oriented towards boosterism and networking than providing technical information.

Even more useful, if it exists, is a state association (or maybe a national association) for your type of business. Often sales and use tax exceptions are industry specific and your association may be intimately familiar with them since they lobbied for the exemption in the first place or have already fought a court case. They may have publications and seminars available for you as well.

The other benefits to checking out the association are that:

1. It'll save your company money. One woman told me that her association actually has lawyers available that she can consult for free. But even if they're not free, remember that if the association has already figured out the answer, you don't have to spend time and money re-inventing the proverbial wheel.

2. It'll impress your management. I can tell you from my own management days that operational executives in most organizations are frustrated by the lack of interest that the administrative staff has in the business itself. Purchasing, accounting, HR, etc. generally don't go to industry meetings, read the industry magazines, or ask to be on the industry mailing list. If you do all of these things, even if it's only to pick up the occasional SUT pointer, you'll do some serious career enhancement.

More resources in a future post


Friday, June 24, 2005

Don't trust research information in tables

One of the things that I've come to mistrust when I look things up is material presented in tabular format. My concern isn't that the format is necessarily wrong, because I myself often use tables, but they lend themselves to short-cuts which make them unreliable.

The primary problem is that they often heavily summarize the information to the point where the table can be, depending on your underlying interpretations, downright wrong. In addition, particularly in the world of sales and use tax, there are so many exceptions, exceptions to the exceptions, exceptions to the exceptions' exceptions, etc. that the tables just don't show enough detail to be useable.

For example, there's one table that I often have to deal with that summarizes absorption laws essentially by saying whether it's allowed are not. That's it - OK or NOT OK. Anyone who has reviewed those things knows that the rules are often just a tad more complicated.

On the other hand, I've seen tables with lots of text in each cell. The author really only uses the tables to present the information in a little more readable format. That, to me, carries a little more authority.

So in summary, beware of simple answers presented in a table. But if the author puts complicated answers in a table, that's better. At least if you're trying to get the right answer.

Here's a later article on the same subject

Thursday, June 23, 2005

FAQ: Where can I find industry specific seminars?

At almost every one of my general sales tax seminars, someone will ask about where they can find seminars for their industries. It's usually manufacturers and sometimes contractors. But I'll get very specific requests too. Like one person this week who was interested in a seminar for the floor covering industry.

While I'm developing my own seminar for manufacturers and contractors, doing one for floor covering folks is, unfortunately, not on my immediate agenda. The problem is one of marketing to that narrow of an audience. This applies, not only for myself, but for any seminar organization.

But there is hope. If your industry has an association, particularly at the state level, check to see if they have any training available, or are making plans. And if they do, but haven't gotten anything going yet, mention my name!


Wednesday, June 22, 2005

More wierd exemptions MN, ND, WI


“From April 1, 2002 through December 31, 2004, construction materials used or consumed in the construction of a meat-packing or meat-processing facility that replaces a facility that was destroyed by fire and costs more than $75,000,000”

I'm guessing someone knew a guy who knew a guy.

North Dakota

“Tangible personal property consisting of flight simulators or mechanical or electronic equipment for use in association with a flight simulator”

There's a big flight school in ND. Nothing to run into when you crash.


“Snowmobile trail groomers and attachments for a snowmobile club that: “(a) meets at least three times a year, (b) has at least 10 members, (c) promotes snowmobiling and (d) participates in the snowmobile program under state law”

And the folks in Michigan and Minnesota are ticked off that they don't have this one.

Monday, June 20, 2005

Wierd exemptions - IN and NY

Almost every state has wierd exemptions and I collect them (mostly since I use them as examples in my seminars). I classify these types of exemptions into a couple of categories:

Favored industries: These are exemptions meant to help out industries that the state is known for and that the state wants to help out.

Silly, but make sense: These are exemptions that are frivolous, and politicians should be embarrassed about, but still make a certain amount of sense.

Huh?: These are exemptions that just are off the wall and make no obvious sense, at least to me. And since I'm writing this, I get to decide.

Here are a couple of in the favored industries category. They're so obvious that they don't even require comment by yours truly:


"Sales of engines or chassis, or spare, replacement, or rebuilding parts or components for engines or chassis, that are leased, owned, or operated by professional racing teams are exempt."

New York

"Tangible personal property for use or consumption directly and predominantly in the production of live dramatic or musical arts performances."

More later


Sunday, June 19, 2005

Sources of SUT law

If you're trying to figure out where to find the law governing a particular issue, consider that all of these sources should be considered:

US Constitution

US Statutes

US Courts

State Constitutions

State Statutes

State Regulations

State Administrative Statements (bulletins, rulings, pronouncements, etc)
Unpublished enforcement positions (what the auditor learned about in training)

State Courts

Parish/County/District/City Laws

So the message here is that if you're just relying on a reading of state statutes and regulations off of the Web site, you're missing out on a whole bunch of important stuff.


Saturday, June 18, 2005

Litmus tests for choosing a professional

Not every CPA or lawyer knows about SUT. In fact, most of them pretty much have heard about it, but that's it. The ones that have some expertise didn't learn it in school - they learned about it on the street. They either got assigned to it at a job or lived through a few audits. From there they started reading about it, going to seminars, etc.

Here are a few litmus tests to see if YOUR auditor knows more than you do about this topic:

1. Ask them what they think of Quill. This is one of the biggest court cases involving SUT. They should have heard of it.
2. Ask them what they think the chances are of the SSTP becoming a reality.
3. Ask them what SUT newsletters they regularly read.
4. Ask them what books and online resources they use to research SUT.
5. Are they also an expert in income taxes? Good SUT experts are almost always specialists to the exclusion of Federal Income Tax. Their primary practice should be sales and use taxes, or a little more generally, state taxes.
6. Ask about the drop ship laws in your state.

Sales Tax Guy

Thursday, June 16, 2005

When do you obey the sales and use tax laws?

Justice of the PeasWhen do you obey the sales and use tax laws?  All the time, of course.

But realistically, the fundamental question is simply whether or not the issue you're dealing with is worth the effort to fix. There are going to be some things that you may be doing wrong, but are just not that big of a deal. As I often tell people in my seminars, "if that is the only problem you've got when you walk out of here, then you're in good shape."

So, here is a test to determine if something is worth addressing.  And I didn't come up with it.  I went to a payroll seminar a long time ago.  The speaker, who was the payroll manager for a very famous restaurant chain, made this statement:

"If the cost to comply with a law is greater than the potential cost of violating it, then you may wish to consider not complying."

The cost of compliance includes the taxes you'll have to start paying that you haven't been paying before, along with interest, fines and back taxes.  And it also means you'll have to develop systems, policies, procedures and training to support the new efforts to comply.

For example, you may be looking at a problem that would require so much reprogramming of your accounting system, along with the training of your people, that you'd rather take your chance on an audit.  You may wind up paying $100,000 in fines and back taxes.  But if it would have cost you $2,000,000 to fix it, well, there's your answer.

There is also the possible loss of any competitive advantage you have in not charging your customers tax. Suppose you realize that you have nexus in Maine and you haven't been collecting and remitting their tax. If you register, you might lose customers because you're now charging tax. They may decide to buy from someone who doesn't charge tax.  Your cost is the lost sales.  Your risk is Maine auditing you.  

You might decide, after weighing all of the factors, including the odds of Maine catching you, that you'd rather take your chances with Maine. You're choosing NOT to obey the law. Not that I'm recommending this, you realize. I expect all of you to obey the law all the time. OK?

There is the moral and ethical issue of not complying. You should always comply with the law regardless of whether or not you're going to get caught or how much it costs. But we ALL make this decision every day. Do you report ALL of your taxable income to the IRS? Do you always drive within the speed limit and obey all the traffic laws? Do you follow ALL of the OSHA rules, all of the time? "Hey, where are your safety glasses?" 

We are constantly making decisions about whether or not to obey laws and weighing the costs and risks. I've just analyzed it for you. But remember, I do expect absolute compliance from all of you!  No funny business!

The Sales Tax Guy

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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Wednesday, June 15, 2005

How do I find sales tax software?

This question came up twice today in a seminar...about how to pick software. I rarely get that question, so with two in one day, I figured I better use that as blog-fodder.

While I don't recommend a specific sales tax package, I can give you some pointers about choosing solutions. I used to sell software, particularly accounting systems, in a previous life, so I know the mistakes that buyers can make.

Determine your true needs. This involves research, talking to vendors, more research, more specifications, more vendor research until you get down to a refined set of objectives that you can use for your request for proposal. Do not be swayed by a good sales representative, a professional proposal, or a snazzy demo.

Remember that the sales rep is not motivated by helping you find the right solution. They'll say that, but coincidentally, their software is the right solution. Amazing, isn't it? Don't base your decisions on what the sales rep says without supporting information. They are not looking out for you. Ask them how much they'll make in commissions, spiffs, bonus rankings, etc. if they make the sale. That will give you some perspective.

Maintain control of the process by constantly working off your specifications list (which will evolve as you learn more about the available software). The side benefit here is that you'll drive the sales reps crazy. And that is worth the trouble right there.  (grin)

Need to find find software? Try typing "sales tax software" into Google or Yahoo. Here's google's directory of sales tax software as well. And there are usually ads on this blog for sales tax software. Hint. Hint.

Finally, ask for three references! And these should be references in your industry, similar in size to your organization, and with similar SUT issues. Make sure vendors know early in the process that you'll be requiring these kinds of references. That'll screen out weak vendors that you shouldn't be wasting your time with.

Visit those references. Don't call them. VISIT them. Invest a couple of dollars in travel to be able to sit down, face-to-face with the reference. Take them out to lunch, tour their operations, plan your questions, discuss your specifications, ask about problems they've had, what they'd do differently, support, quality, and anything else that springs to mind.

The benefit of visiting the reference is that you can look 'em in the eyes, spend more time with them, develop a relationship, and also build an alternate source of support when things get nutty. Plus it forces you to have a more comprehensive experience as opposed to a 5 minute conversation on the phone.

Another option is to go to the software's user conference, if you can.

Remember, it's not the cost of the software you have to worry about. It's the costs associated with the conversion, installation and training that are big and painful. By making the right software choice initially, you'll minimize your pain, get the most out of your investment, and make only ONE investment...if you catch my drift.

And, like I said. You'll drive the sales reps crazy. Which is nice.

The Sales Tax Guy

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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Tuesday, June 14, 2005

Another example of a bad information source

A seminar participant recently mentioned that her controller said he had called the state a couple of years ago and they said a particular item was taxable.

Oh, there are so many things wrong with this!

1. Controllers aren't necessary experts at sales and use tax.
2. CALLED the state? If you're going to contact them, email them so you get the answer in writing and get some supporting information.
3. It was a couple of years ago!
4. What do you think the state is GOING to say?

Sales Tax Guy

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Monday, June 13, 2005

FAQ: How do I find a sales tax professional?

This is Fyodor, your guest services representative for today.

I get a fair amount of questions from people who are in need of a sales and use tax professional, particularly one who can handle multiple states. I don't do that type of work, so I give these suggestions:

Talk to your current tax firm.  They're probably more oriented towards Federal income tax than sales and use taxes, but they can refer you.  By letting them make the referral, they can then stay in the loop.  But don't let them take on the work themselves unless you're comfortable that they ARE sales and use tax specialists.  Most SUT folks don't do much Federal income tax and vice versa.

By the way, while there are sales and use tax specialists, you'll also see consultants who are SALT experts.  SALT stands for "State and Local Taxes."  They're cool too.

Go to a BIG CPA or law firm.  They'll probably have folks on staff who are multi-state experts and can deal with your issues in most, if not all states.

Check your industry association. 

To find specialists in any given state, another source is the American Bar Association Sales and Use Tax Deskbook. Each state chapter is written by an attorney specializing in SUT in that state, so obviously we're talking about serious expertise. The authors, and their contact information, are listed in the front of the book.

Contact the state bar association or the state CPA society for a referral.

You can take potluck and do a Google search on "sales tax" and the state you're interested in and see what pops up.  Take a look at the sales tax articles they've posted on their web site.  If there are many such articles, and they seem to be in depth, the firm is probably be worth an email.

Finally, drop me a line.  I know people.   

The Sales Tax Guy

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


Sunday, June 12, 2005

Internal SUT training

At the risk of sounding self-serving, I'd like to discuss the kinds of training that most organizations need on SUT. Each department will have different needs, but each department does need some education.

All departments: Basics of sales and use tax

Accounts payable: Pretty much everything everyone else needs because they are often the go-to folks in an organization on this topic. And they need to make decisions about what is taxable on every purchase.

Purchasing: What purchases are taxable. Largely the same kind of training as AP

Billing: What sales are taxable, drop-ship rules, nexus issues

Sales and marketing: What sales are taxable, drop-ship rules, nexus issues

And what a surprise...we can do this training for you!

Sales Tax Guy

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Audit tip: Review the paperwork

A taxpayer in Indiana claimed that he paid Ohio sales tax on a purchase he made in 1995. When he showed the purchase order showing delivery to Ohio, the auditor pointed out that the PO was from 1997. Uh....

I'm guessing that the taxpayer wasn't paying particularly close attention to the paperwork that he was showing to the auditor.

Bottom line: Review every piece of paper going to an auditor to make sure it makes sense and doesn't make you look like complete idiots. And so that the information you're giving the auditor answers the question and doesn't open up another can of worms without you having some warning.

Sales Tax Guy

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Friday, June 03, 2005

FAQ: When does nexus go away?

So you have nexus in a state, perhaps because you have a sales rep visiting the state regularly. Then you fire him and decide not to pursue any additional business in that state. When can you stop filing returns?

There are generally no clear answers.

The easiest one, if not necessarily the most desirable, is if the state actually has officially said something on this. So the first places to check would be the state statutes, regs or policy statements. You may not like the answer.

There are four other suggested options that I've heard of:

1. As long as you are enjoying business from the nexus that you had, then you still have nexus. In the above scenario, as long as you are still getting business from that sales rep and the relationships he developed, you still have nexus.

2. You have nexus for the statute of limitations of the state. So if the statute of limitations in the state is 3 years, then your nexus goes away 3 years after the rep is fired.

3. One year or so.

4. The most aggressive attitude I've heard of is one full reporting period. So if you file monthly, and the rep is fired in May, then you would cease filing in July. Good luck with this one! Although, it would probably be the course I'd follow, assuming there was no other law on the books in that state.

Oh, one more thing. You may have nexus for multiple reasons. So just because one source goes away doesn't mean you don't have nexus anymore. Be very careful.

Sales Tax Guy

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Predatory Auditors - a "Harvest" Audit


This sort of thing doesn't happen all the time, and may never happen at all in your state. But this particular practice is worth noting to give you some ideas about avoiding similar trouble.

One seminar participant reported that an auditor had stayed for over 2 years (and was still there when she was at the seminar).  In that time, he had managed to get engaged to one of the AP specialists. The state wouldn't close the audit but stayed on site, not so much to find more dirt on the taxpayer under audit, but to continue to go through their files looking for other companies to audit. It was, in their words, a "harvest" audit.

Frankly, it sounded like the revenuers back at the state office building didn't want this guy to come back and were happy to have parked him someplace else.  And he was happy to stay, for the obvious reasons. 

How do you avoid this?  Don't let auditors get too comfortable. Be professional and put them in a hospitable location. But restrict access to just key audit contacts. Physically isolate them as far from others in the office as possible (particularly AP), and establish some time limits.

Here's one situation where it's OK to let the auditors be comfortable.

And for God's sake, keep them away from your AP staff!  That is, unless you feel like buying a shower present, then a wedding gift and, probably at some point in time, a baby shower gift.  Ugh.

The Sales Tax Guy

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


Tuesday, May 31, 2005

Use Local Experts

I periodically get requests from participants in my seminars and webinars for consulting services. When it comes to questions of the application of sales and use tax law to their specific situations, or dealing with local revenuers, I strongly encourage folks to use local consultants. And I can always refer them to somebody.

When I say "local," I don't necessarily mean someone located locally, but someone who is an expert in the relevant state.  Simply because of a twist of fate, a consultant in Houston may have become an expert in Hawaii tax issues.  

Here are the reasons for using "local" experts:

1. They are much more intimately familiar with state and local sales and use tax laws.

2. They are familiar with the players  They may even go to the annual Department of Revenue picnic!

3. Tied in with number 2, they know the unwritten enforcement positions, the willingness to negotiate, the customs, etc.

How do you find a "local" consultant?  The best way to start is to ask your CPA or lawyer to refer you to someone.  Or email me.  I can put you in contact with someone.

Why don't I do consulting?  Because of the above three reasons and one more...I don't want to.  It's WAY too much work.  ;-)

The Sales Tax Guy

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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