Saturday, December 22, 2007

Merry Christmas

I've been on the road and haven't had a chance to post in the past couple of weeks. But I did want to wish all of you Merry Christmas and Happy New Year.

Wednesday, November 21, 2007

Where do we put the auditor

Don't put them next to AP. One participant in a seminar several years ago said that the auditor had been there for over a year and was now engaged to one of her AP specialists. This is not a good thing.

Find someplace for them far away from other human beings. Make them comfortable and be professional, but isolate them. The objectives are that they don't get too comfortable, and that they don't have the opportunity to overhear conversations.

Don't let them near the lunchroom or the copier room. Provide them with coffee, pop and offer to get snacks for them. If they need copies made, do that for them. Anytime they venture beyond their assigned office, they should be escorted by the audit contact who is yelling, "Auditor's coming! Shut up!"

Sunday, November 18, 2007

Golden Rule: Every state does it completely differently!

Another way of saying this:

It's different there! I don't care where "there" is, it's different!

Aside from some Constitutional restrictions including due process and the commerce clause, states pretty much are free to tax what they want and exempt what they want. And they do. Some states grant most of the typical exemptions (like non-profits, manufacturing, prescription drugs) and other states tax all that stuff.

And some states scrupulously do not tax services, whereas some states tax virtually all services.

Surprisingly then, probably because lawmakers aren't that creative, there is some consistency, generally in the form of the Golden Rules and other consistent practices, like the handing of contractors, leases, taxing only TPP, etc. But there are exceptions to even these general rules.

The message is simply this. Do not assume that any state where you're performing services, shipping to or receiving from has the same laws as the next state over. Everything is up for grabs.

A "motto" that has developed out of my seminars is, "It's different there."

Sales Tax Guy

Thursday, November 15, 2007

Links: Wikipedia on Sales and Use Tax

Here are more links on

Wikipedia includes several articles on sales and use taxes including a general article on sales taxwhich is not specific to the US. Then, there's an article on sales taxes in the United States which is includes a capsule summary of each state. Don't expect much from the summaries. Some states have lots of detail, and some states have a sentence or two. There's also an article on use tax.

Sales Tax Guy

Wednesday, November 14, 2007

Are you making taxable sales without knowing it?

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

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

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

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

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

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

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

Stay tuned for more stories.

Sales Tax Guy

Sunday, November 11, 2007

Getting the State's Official Exemption Certificate

Always attempt to get the official certificate for the state where the delivery is occurring. By getting the certificate that the auditor is used to seeing, you'll avoid questions. In addition, the auditor won't need to talk to his/her boss to determine if what you've presented will be sufficient.

The less thinking the auditor has to do, and the less questions they have to ask, the better.

Sales Tax Guy

Friday, November 09, 2007

Be nice to your auditor

As Patrick Swayze says in the movie Road House, "be nice."

Do not tell your staff, "You know that room in basement, behind the furnace, where we used to keep the asbestos? Put the auditor there. And whatever you do, don't let him have any Krispy Kremes"

Be nice.

I'll talk about the geographic placement of the auditor in another article, so let's talk about some other things to do.

1. If you get notification of what the auditor is going to be looking at, familiarize yourself with that law, and any forms and publications before the audit happens. This will help when dealing with questions and issues. See below.

2. Have an audit contact. This person will be involved in every meeting and will review all paperwork going to the auditor. This way, you have one person who knows everything that is being communicated to the auditor. This person will hopefully be able to build a relationship with the auditor, and see issues coming before they get out of hand. And it's not bad to have a witness to every conversation with the auditor.

Beware, however, of making the audit contact a tool of obstructionism. You want the auditor to do their job and get out of your hair. I don't recommend obfuscating and playing games resulting in they're feeling the need to stay for years.

3. Answer their questions, but don't volunteer more than is necessary.

4. When questions or issues come up, try to research them and resolve them as quickly as possible. It helps if you've done your research early (see above). You want to avoid problems being formally noted in the auditor's work papers. When that happens, it becomes harder to brush them aside. Managers get involved, formalities kick in, etc.

5. Most auditors are not experts in sales and use tax law. They know how to audit and they can follow their audit manual, but that may be the level of their sophistication. I had a guy in my seminar once whose auditor claimed to have a college degree. Even so, he had to spend half a day with the "graduate" explaining depreciation to him. So, if an auditor says something, don't assume they are correct. Ask them, in a non-confrontational way, for citations and research it yourself. "You know, it's not that I don't believe you. But could you show me where it says that because my boss is going to want to see something on this."

6. Consider wasting their time. If the auditor is only assigned for two weeks, consider making them less efficient than they would otherwise be. Take 'em out for long alcohol-related lunches. Engage in long bull sessions.

The controller for a video game company told me how they would put auditors in the show room. Employees would constantly whisper to him,"Hey, the auditors are in the showroom playing video games!" The controller would respond, "That's just what we want them to do!"

7. Be nice. I've had more than one auditor tell me that if they are treated professionally, they will be professional as well.

Here are some other articles about what to do during an audit.

Sales Tax Guy

Wednesday, October 31, 2007

Golden Rule: There's an exception to everything

No matter what the rule is, there's a darned good chance that there's an exception to it someplace. Congress, at the Federal level, writes poor laws. What makes you think state legislatures would write sales and use tax laws that are any better? In fact, they're probably worse at writing this stuff.

So the laws are vague, incomplete, difficult to comprehend, and contradictory right from the start.

Add a quart of court decisions, both Federal and state, that render many of the laws either unconstitutional or modified in some meaningful way.

Add disorganized official bulletins and opinion letters that are hard to research.

Mix in auditors and support folks who don't have business training or even accounting degrees, and are out there giving "official" advice to taxpayers when they should probably be locked in a room someplace.

Stir in the fact that the business landscape keeps changing with new technologies and new business models and techniques. Many states still haven't figured out how to tax downloaded software!

Add a dollop of the lack of training, beyond the mechanics of filling out forms, offered by the states. Not that I'm really complaining. Their failure on this one keeps me working.

Add another dollop of the lack of education that lawyers and accountants receive on this topic, thereby creating an entire industry of income tax professionals who don't know what they don't know about sales and use tax, but still give advice. Again, not really complaining.

Sprinkle on the spice that every state does it completely differently; that what's taxable and what's not taxable varies almost completely whenever you cross a state line.

And, to complete the baking metaphor, mix it all together and you've got a messy, gooey cake. But it's tasty for sales and use tax professionals, and me, because we make money off the confusion. Hooray!

Sales Tax Guy

Monday, October 29, 2007

Sometimes, you just gotta punt

Sometimes you just have to punt. To me, this means that, after exhausting all of your resources to find the answer, you may just have to make an educated guess. The law doesn't always provide the answer. It's badly written, the regulations may be vague, or the issue may simply not have been addressed yet in official publications.

So what are you gonna do?

Here's my advice. But please keep in mind that your success will rest on things like the mind of the auditor, your treatment of the auditor, how much money is involved, the level of your documentation, etc.

If you have done your research, and you've looked in the books, on the Web, talked with your lawyer and CPA, even emailed the state, and you're still not comfortable with the information that you've been given, then punt. Do it the way you think you ought, informed by the research you've done. I'm guessing your decision will involve paying less tax. But, keep a record of your research. Print out pages off the web. Photocopy text out of the books. Get letters or emails from your professionals. And keep it all in a punt file.

In two or three years (remember, the audit won't be tomorrow), you'll need to explain the reasoning behind your decision to your friend from the department of revenue. If you've got it all together in your punt file, then it will be something that you can easily, quickly and credibly show to the auditor.

Even if you got it wrong, the auditor may respect your effort to do the right thing and give you a break on interest and penalties...maybe even the entire liability itself. But that will only happen if you've got a good explanation. Which your punt file will give you.

Sales Tax Guy
See disclaimer

Thursday, October 25, 2007


When you are doing your research, beware of the meanings of words. I had an interesting conversation this week with a seminar participant who was having a tough time finding information on the taxability of software subscriptions. Initially, I was having a tough time understanding what he was driving at. Then I realized he was talking about software maintenance contracts.

I gathered this was what his company called the product, and he assumed that everyone called it that.

So if you're having a tough time finding the answers, keep in mind that the thing you're looking for may have a different name. And if you're talking about technical jargon, the legal terminology may not have caught up. For example, you'll often see the term electronically transmitted software, when what everyone means is downloaded software.

Take a deep breath, keep an open mind, and experiment.

Sales Tax Guy

Tuesday, October 23, 2007

My Customer Won't Pay the Tax

I've had this question come up a couple of times in the last few days so I thought I'd discuss it here. The problem is customers who, after having been billed sales or use tax, refuse to pay the tax.

Generally, states require the vendor to remit the tax to the state. Whether the customer pays the tax to the vendor isn't important to the state. So, if the customer refuses to pay the tax, the vendor winds up holding the bag.

So what are your options?

1. Ask the customer for documentary evidence for why they don't owe the tax, like a certificate or a citation to a statute or regulation. Remember, you've got to be convinced, otherwise you're not accepting the certificate in good faith. And the customer may not even make the effort to provide you with documentation.

2. Is the sale taxable? Double check your facts, talk to your adviser to make certain of your position that the sale is taxable. I know it's hard to believe, but maybe, just maybe, the customer is right on this one. Don't take any draconian action until you know for sure.

3. Consider firing the customer. If they won't obey the law and they're costing you money, then don't sell to them anymore. Of course, your sales department won't appreciate this.

4. Eat it. If you've got enough margin, and the customer is worth it, just cover the tax with your margin. Perhaps, slowly raise the price you're charging your customer to cover your additional cost. Of course, the sales department should take the hit for this additional cost, since they're the ones insisting that you keep selling to this customer.

5. Document that you've billed the customer and they've refused to pay. Always bill the tax to the customer and let them refuse to pay. This way, when you get audited, you can build auditor credibility by demonstrating that you're doing the right thing in this situation. Plus, there's the revenge angle. The auditor would love to know about this customer. Remember, if they're refusing to pay you the legal tax, they're not paying tax elsewhere. They'll get a visit from the auditor and they'll pay...lots...eventually.

6. Rat 'em out. I don't recommend it but in the interests of full disclosure, I should mention this. I've tripped across a couple of states with laws where, if you report the customer to the state, they'll waive your liability for the taxes. Talk about revenge....

Sales Tax Guy

Thursday, October 18, 2007

Is your company like this?

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

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

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

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

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

Rant setting off.

Sales Tax Guy

Tuesday, October 16, 2007

Where can I Find Sales Tax Seminars

I get this question all of the time.

Of course, there's your good friends here at the Sales Tax Guy

and, to be fair, here are some firms that come up when you do an Internet search: and tax specific) This would be us. (general public seminar company) This includes National Seminars Group and Padgett-Thompson (general public seminar company) (legal and tax specific) (legal and tax specific) (legal and tax specific) (legal and tax specific)

You should also check with organizations like the state chamber of commerce or your industry association. Sometimes, these organizations will offer seminars.

Most state tax departments will do seminars as well. Unfortunately, they're usually more oriented towards mechanical issues like filling out forms, getting more taxes from you, and they're not put on by professional trainers. But they may be useful.

Sales Tax Guy

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

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Wednesday, October 10, 2007

Use A Local Consultant

I constantly tell people to use a sales and use tax expert. I mention it in the disclaimer as well as in my seminars and in these various articles.

You need an adviser familiar with local issues. You need someone who knows your state's laws really well, through a regular practice. You need someone who knows the people at high levels of the tax department; someone who goes to the annual barbecue that the state's chief counsel throws. You need someone who knows what the auditor thinks, and the unwritten customs and written procedures she follows. You need someone who knows the sales and use tax ropes.

Frankly, you need someone who knows where the bodies are buried.

And it isn't your typical attorney or CPA.

And where do you find this sales tax god?

Sales Tax Guy

Here's information on our upcoming seminars and webinars

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Monday, October 08, 2007

Avoiding tax on your RV

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

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

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

Then George drives his RV around with no permanent residence.

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

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

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

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

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

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

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

Sales Tax Guy
See disclaimer

Friday, October 05, 2007

Don't Trust Your Software

I hate to say this, because it may tick off some software vendors that might be inclined to buy advertising on this site (hint hint hint), but it's important that the buyers of software understand something important.

I had an email recently from a seminar participant who asked whether or not her company, who had to register in Louisiana, also had to register in the different Louisiana parishes as well. The answer I gave her was that yes, if you have nexus in Louisiana, then any shipments you make to any of the local jurisdictions are taxable as well. She said that their software vendor had not brought this up, so they hadn't done anything about it. She was new, so she was asking questions, poor soul.

I have this problem in the payroll and wage-hour seminars that I teach (occasionally) as well the sales tax courses. Please don't expect your software vendors to keep you compliant with the law. Their job is to provide you with software that will do what you want it to do. If you don't want to file taxes in local jurisdictions in Louisiana, they're OK with that, and will provide you with that option. The software support people you deal with probably don't understand what nexus is, let alone what the local jurisdictions expect.

And if you buy payroll software and don't mention that you need it to do the regular rate of pay calculation, they're not going to bring it up (and probably won't know about it even if you ask). This is entirely off the subject of SUT, but it illustrates the point.

I had lunch with a software company a while back and we got on the topic of Louisiana. The owner of the firm, who we'll call "Mike", knew the Louisiana law very well. Mike said that he had more than a few customers who chose not to collect the local taxes and file the local returns. The attitude was, "let them come and get me." And Mike was not going to argue with paying customers.

I don't encourage any of you to do what Mike's customers are doing. While some of the local tax collectors aren't highly sophisticated, the larger parishes ARE pretty smart, and they also hire independent auditors to do out-of-state audits. And those auditors are paid on commission. This is not a good thing.

So don't count on your software vendor to do any more for you than provide quality software to do the job that you say you need done. It's up to you to figure out what you need done.

Finally, if your computer room looks like the one above, I see a big upgrade in your future.

Sales Tax Guy

Wednesday, October 03, 2007

My customer says they'll pay the tax on their own

Just because the customer assures the seller that they'll pay the tax doesn't relieve the seller of any burden to collect the tax. But, if the buyer provides the vendor with a direct pay certificate, that'll work.

In most states, there is a recognition that some buyers have such complex purchasing situations that it would be easier to simply let them self-assess the use taxes. However, most states are also strict about who they hand direct pay permits to. Here are the usual criteria:

1. Have good policies and procedures in place to make sure the taxes are properly self-assessed
2. Meet certain volume requirements
3. Go through an initial, detailed audit
4. Go through future audits almost every year.

Once the customer is authorized, they send their vendors direct pay certificates which the seller can then treat just like a resale or other exemption certificate (there are some restrictions). But without that specific piece of paper, do not accept the customers assurances that they'll pay their own taxes, even if it comes in a letter, contract, sales agreement, or PO.

In order to be relieved of your responsibility for collecting the tax, you need a direct pay certificate.

If someone said they're buying for retail, you wouldn't take their word for it. You'd want the resale certificate. Right? Right?


Sales Tax Guy

Monday, October 01, 2007

Shipping from outside of the US

We're shipping from Canada. Do we have to worry about sales and use tax?

Sure you do. If the shipment is being delivered in a US state, you'll have to worry about use tax if you have nexus in that state. Similarly, a US company will have to worry about Canadian and provincial taxes when it does business in Canada. The only issue is whether or not you have nexus in the US state you're shipping to.

If you don't have nexus, you have nothing to worry about. The buyer will have to self-assess their use tax. But if you do have nexus in the state, you'll have to register and collect taxes.

Sales Tax Guy

See disclaimer

Friday, September 28, 2007

Nutty Rules - Flour in Candy

In many states grocery store type food is not taxable. But also, in many states, candy is taxable. But how to define candy? While this seems silly, it's not really that strange when you think about it. The Streamlined Sales Tax Project definition (which several states use) for candy essentially says that if there's flour in the item, it's not candy, it's food. Which means a Kit Kat bar is food, not candy.

Why? Think about the poor clerk at the store. He or she needs an easy way to tell a taxable item from a non-taxable item. Looking at the ingredient list to see if flour is an ingredient is pretty easy.

Personally, I'm pretty excited about Kit Kat bars being "food." I can't wait to tell my nutritionist.

Sales Tax Guy

Thursday, September 27, 2007

Summer Intern Project

Here's a fun thing to have your intern do. Or you can do it as well. It's a little tedious, but will pay off with fewer problems during an audit. And, depending on where you are, might even save you some money.

Based on this golden rule, the state that gets to tax a sale is generally the state where the delivery occurs. But here's the catch. When an out of state vendor ships you product, and they charge you tax, which tax are they charging you? If they're doing what many of them do and charging you their state's tax, that isn't correct. If you're having product shipped from Maine to your office in Florida, then the Maine tax isn't right. The only state that gets to tax will be Florida.

So you've paid the wrong tax. And when you get audited, Florida probably will not give you credit for having paid a Maine tax on a shipment to Florida. So you may wind up having to pay the tax a second time.

Here's how to avoid the problem:

1. Review your invoices for shipments from out of state. If the vendor charges tax, ask which state they are charging. If they tell you the ship-from state, then refuse to pay the tax. You'll have an argument, but just about every state has laws on the books that specify that shipments out of state are not taxable in that state. You'll have to do some research, but you can win the argument.

Note though that I said "just about." There are a couple of states where the issues are a little blurry. Watch out for HI, NM, and TN and one or two others in weird circumstances. But by setting up terms as FOB destination and having the vendor arrange the shipment, even those states will give up jurisdiction.

2. This is the intern part. Review past invoices that are shipments from out of state. Ask the vendor the same question. Repeat item one.

3. The vendor may say, or indicate on the invoice, that they're actually charging you the correct tax. If so, then demand proof that they're registered in your state. Ideally, have them fax the registration document from your state. If they don't have that handy, then get their registration number and confirm it with the state. You can usually do this by looking it up on your state's web site, or emailing the state.

4. Obviously, make sure that you report and pay your state's use tax on all of these invoices.

There is a particular type of vendor to pay particular attention to. Whenever I've heard of a company systematically screwing this up, it was a small to medium sized business that was primarily local but occasionally did business out of state. They're so used to filing just their own state's return that they don't even think of other states' taxes. They've never been to a seminar, never researched anything, their CPA and lawyer are clueless. They just cruise along filing their tax return every month, doing it the way they've always done it.

On the other hand, companies whose market is national or international will usually do this correctly since, over time, they've gotten busted.

Remember, the purpose here is to pay the right taxes and gain credibility with the auditor by showing that you've got this issue covered. There is a money savings benefit as well. If the tax rate in your state is 6% and the rate in your vendor's state is 7.75%, then you're looking at recovering 1.75%. In other words, if your state's rate is lower than where it was shipped from, you only owe the lower state's tax. And if you're in Alaska, Oregon, Montana, New Hampshire or Delaware, the savings can be huge.

Sales Tax Guy
See disclaimer

Friday, September 21, 2007

Golden Rule of Taxability

In general, all sales of tangible personal property are taxable.
In general, all sales of services are NOT taxable.

However, there are lots of exceptions. States provide a multitude of exemptions for sales of everything from food sold by a grocery store to non-profit organization purchases. And every state taxes some specific services, like rental of equipment or repairs to tangible personal property (TPP).

So, unless the law says otherwise, sales of TPP are assumed to be taxable. But sales of services are presumed to be exempt unless there is a law saying that a particular service IS taxable.

Caution though. Don't just casually peruse the law. If you find nothing in a few minutes of research, don't assume that state doesn't tax your service. Review several sources including basis information before coming to your conclusion. A lot of stuff hides in the basis rules.

There's also a corollary to this rule: All states do it completely differently. What is taxable and what is non-taxable varies 180 degrees from one state to another. Some states give an enormous amount of exemptions. Some states tax virtually all services. Do your research.

A good assumption to make is that everything is taxable unless you make sure it isn't taxable.

The Sales Tax Guy

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

Here's information on our upcoming seminars and webinars.

Thursday, September 20, 2007

A Certificate Isn't Enough!

Here's a question I recently got (I've edited it a little):

"I am selling someone a machine, and they have provided me with their tax id number. Is this enough? What else do I need and how do I report it on my return?"

Every state is different so make sure you check the local statutes and regulations. But here are the general rules:

1. You'll need a certificate from the buyer, usually signed, describing the situation, and showing their registration number with the state. Each state has their own set of forms and requirements. Check the forms section of the state Web site. Just the number itself usually will not do it. And make sure the number is the state's assigned number, not the federal employer ID number.

2. The transaction must truly be exempt from tax. If you know it's taxable, even if they give you the proper paperwork, you usually must still charge tax. For example, if your friend is a funeral director, and he's buying a cash register, it's probably not for resale. Even with a resale certificate, you'll probably need to charge tax. Again, state rules vary - I'm giving you the most conservative perspective.

3. As far as reporting it on the return, read the instructions. Most states require you to report your gross sales and deduct your exempt sales.

Sales Tax Guy

A Sneaky Nexus Problem

I stole this from a sales and use tax speaker by the name of John Morrow, so all credit to him for illuminating this for me.

Let's say your company, years ago, made one sale in Wisconsin. After a few more sales, someone asks the question, "Shouldn't we be charging tax?" You do your research, realize you do have nexus and should charge tax. But you defer action because the amount of sales really aren't big enough to make it worthwhile.

Then, as the years progress, business increases steadily in Wisconsin. Now, ten years later, Wisconsin is a BIG state for you. If someone again asks the question, "Shouldn't we be charging tax?", the answer might be, "well, we looked at that years ago and decided we didn't have a problem."

A year later Wisconsin audits you and nails you for eleven years of taxes. Not only did you have nexus, but because you never filed a return, there is no statute of limitations protection for you.

There are three morals of this story:

1. Beware of your previous decisions. Conditions may have changed or the original decision may have been extremely wrong.

2. If you decide you don't have enough business in a state to worry about nexus, at least keep track of your sales in that state and regularly and frequently review the situation. Otherwise, eleven years go by and you get a big surprise.

3. In most states, you have not statute of limitations protection if you've never filed a return.

Sales Tax Guy

Wednesday, September 19, 2007

Don't Trust Tables

I've mentioned this before but it bares repeating since the question just came up today.

Don't trust information presented in tabular form or in lists. I was chatting with a woman today, and she was clutching an old publication her company used to answer sales and use tax questions. She really relied on this publication but she recognized that it was a little out of date. She was looking for something to replace it. There were a couple of pages of text and then tables showing the various exemptions... maybe five pages for each state. As I glanced through it, I could spot quite a few situations where the one word answer was just not enough.

The problem is that we like tables because they're simpler. Answers are distilled down to a nice, neat matrix and we get some very short answers that fill in the little boxes. Unfortunately, most of the answers are NOT short and NOT simple. So when we rely on lists and tables, we're NOT getting the whole answer. In sales and use taxes, we simply need longer answers. We need paragraphs!

Tables may be OK for simple issues like rates, but beware of tables and lists for more complicated topics. Always assume it's more complicated.

The Sales Tax Guy

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

Here's information on our upcoming seminars and webinars.

Tuesday, September 18, 2007

What states DON'T have a sales tax

There are five states that have no state-wide sales and use tax:

New Hampshire

This is not terribly useful information unless you're in those states (and therefore already know that there's no tax). But the rest of you shouldn't get excited. Go to those states and buy something tax free, and you'll still owe the use tax when you return to your state.

But this is a great trivia question at parties! Beware though. I've tried it, and it seems like everyone leaves pretty soon afterwards.

The Sales Tax Guy

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

Monday, September 17, 2007

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

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

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

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

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

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

"How did you know?"

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


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

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

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

Sales Tax Guy

Friday, September 14, 2007

More on Certificates

Here are some tips on getting exemption certificates:

1. Follow the rules for the state where the delivery occurred, not where you're shipping from or where you're billing.

2. Try to get the actual certificate published by that state. While many states accept the multi jurisdictional form, they prefer their own. It's always a good idea to provide the auditor with the paperwork they're expecting. It also helps you make sure you're getting all the information they really want.

3. Make sure everything is filled out and signed.

4. Watch the numbers used. The federal employer identification number is NOT the number in the vast majority of the states. But it is the most commonly (and mistakenly) provided number.

5. Watch expiration dates. It seems like more and more states expire their certificates after a certain number of years. One way of addressing this is by refreshing one third of your collection per year.

6. Accept the certificates in good faith. This means there's nothing obvious, or something you should have known, that would tell you the sale really is taxable.

7. Even if you don't have nexus in the state you're shipping to, it's not a bad idea to still get certificates. Maybe you do have nexus and you didn't realize it. But mostly, it makes it easier from a policy perspective to collect certificates. Your staff just gets the certificate, regardless of the state.

Sales Tax Guy

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Wednesday, September 12, 2007

Get Exemption Certificates! Always!

Part of a series on essential actions you need to take

This should be the standard policy in your company:

We will always charge tax unless we have the resale or other exemption certificate, or other necessary paperwork IN HAND prior to shipment.

The benefits of doing this are:

1. You assure that the sale really is exempt from tax. You're not making any assumptions (and we all know what happens when you assume, don't we?).

2. You won't have to deal with trying to collect the money later when you get audited and find out that the sale was taxable.

3. You don't have to rely on the customer to send you one when you get audited. And depending on the state, you may have a limited amount of time to get those certificates.

4. You avoid problems with customers that vanish (go out of business), and therefore won't be able to send you a certificate two or three years later when you get audited.

If you stick to this policy, you'll have to do more "credit memos", but people who do this tell me it works well and they are happy with the results. You owe it to yourself to give this a shot.

The Sales Tax Guy

Monday, September 10, 2007

Golden Rule - The Buyer has the ultimate responsbility

Part of a series on essential actions you need to take

When I first began to develop the Golden Rules of Sales and Use Tax, this was the first rule.

If the seller doesn't charge tax, the buyer must pay use tax.

There are some important elements to this rule:

1. The seller, in most states, MUST charge tax, assuming the sale is taxable and they have nexus in the state. There are a couple of states where the buyer doesn't have to pay the use tax if the seller fails to charge tax. But the buyer usually still owes the money to the seller if the seller discovers the mistake; it must be an intrastate sale; and the seller must be registered with the state to collect tax. This is not a very common variation.

2. Sales and use taxes are complementary taxes. The means that, generally, the rates and rules are the same because use tax is essentially only supposed to kick in when the buyer hasn't paid the tax to the seller.

What this means is that, just because the seller hasn't charged the buyer tax, it doesn't mean the buyer is off the hook. The states have set it up so that the ultimate responsibility for the tax falls to the buyer.

Here's a little example of this.

The Sales Tax Guy

Friday, September 07, 2007

Florida Will Find You

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

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

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

Dear Danny

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

Thank you, and welcome to Florida.

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

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

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

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

The morals

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

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

The Sale Tax Guy

Wednesday, September 05, 2007

Hey Florida Folks!!!

Fear not! Nothing came up later in the week that needs correction here. Thanks for stopping by. Feel free to visit anytime.

Beware of Bad Advice

A seminar participant in Alabama (I’m lying – it wasn’t Alabama) called the Department of Revenue. She was told, “Your Alabama resale certificate will work in all the states.”

Well, sometimes it does and sometimes it doesn’t. For example, if you’re in Alabama, and go and pick up goods at your vendor’s dock in some other state, they’ll probably accept your Alabama resale certificate. But they will probably also require you to fill out a form making clear that you are buying the goods for resale, and you are taking them out of state without use, AND that you won’t be selling it right back into the state where you’re picking it up.

And, of course, an Alabama certificate will work when the shipment is sent to Alabama.

But it won’t work in states that have, what I call, the Nutty Drop Ship Law.

There are two morals to the story

1. Getting phone advice from the state is always risky;
2. Be VERY careful about accepting the advice of a state when it comes to the rules in other states. Frankly, many of them barely know their OWN state laws and have no business telling you what the rules are in other states.

Sales Tax Guy

Wednesday, August 29, 2007

Bad Debts - Save Money!

This is one of a series on how to handle items that affect the "basis" of tax.

I was doing a seminar a few months ago in and, near the end of the day, one of the participants said, “Jim, you just saved me $30,000.” He had just written off a $500,000 taxable sale as a bad debt. And he had just realized that he could reduce his taxable sales by that amount. Since the tax rate in his state is 6%...well, you do the math. I had been talking about bad debts and their effect on sales and use taxes.

If you sell something and charge tax, and the customer never pays you for the purchase, you’ll eventually write it off. Almost every state gives you the ability to recover the sales or use tax on that bad debt. They either allow it through a credit, refund or, most commonly, by simply deducting the bad debt from your taxable sales in the month you write it off. The method is usually clearly stated someplace in the instructions or law.

Because the people doing the sales and use tax return are usually NOT in the accounts receivable department, they probably don’t even think about bad debts, let alone their impact on the return. If you’re preparing the return, and you’re not adjusting for bad debts, then you’re throwing money away. If you’re not the one who prepares the return, then check out what YOUR company is doing. I won’t say you’ll save $30,000, but you’ll probably pay for your subscription to this blog.

Sales Tax Guy

Wednesday, August 22, 2007

Where are services taxable?

While you can usually tell what state gets to tax TPP by where the delivery occurred, the taxing of services isn't so easy.

1. Some states (and this is the default) simply tax the service if it is performed within the state.

2. Some states will tax based on where the customer receives the benefit of the services.

3. And some states will not tax if the result of the services (e.g. the item repaired) is shipped OUT of the state (related to number 2, but not precisely the same).

When these issues come up, you should assume option 1, by default, unless you can find something that says otherwise.

Sales Tax Guy

Monday, August 20, 2007

How to Read Legalese

If you're reading this, then you probably have to read legalese as part of your research into sales and use tax problems.

I don't disagree with the old joke that lawyers write legalese to keep themselves employed. But to be less cynical for just a second, there is a reason...precision. Well-crafted legal language should leave nothing vague, nothing gray. There will be no pronouns, since you can't be sure who "he" refers to.

So here are a few tips that I've picked up:

1. Be patient. This stuff isn't written for third-graders. It ain't like reading Harry Potter. You're going to have to face the fact that you may have to spend some time reading and analyzing. Take a deep breath.

2. Diagram the sentences. Remember 6th grade English class where you learned how to do this. And you whined about how you'd never have to be able to do this! While you don't have to actually diagram (although it might help), pay attention to the structure of the material. Note the conjunctions, the commas, the semi-colons, etc. Strict rules of grammar apply when you're talking about reading legalese.

3. I find that it helps to actually map out relationships and even give the parties names when I'm trying to unscramble legalese.

4. Bulletize the text if it presents you with several conditions.

Pardon me while I finish reading Harry Potter.

Sales Tax Guy

Should you tax your services?

Part of a series on essential actions you need to take

If you sell services, are they taxable? You might think they aren't, but are you sure?

I was doing a seminar in Pennsylvania a couple of months ago and participant asked me during one of the breaks, "Are headhunting fees taxable?"

I said, "Yes, as a matter of fact they are here."

"Dang!" This was not the actual word used, but I'm paraphrasing for our delicate readers.

She has been a recruiting firm in Pennsylvania for 10 years and had just gotten notified she was about to be audited, which was kinda why she was at the seminar. Since she had never filed any kind of sales tax return, thereby kicking in the statute of limitations, she might be looking at a 10 year liability on ALL of her sales for the last 10 years.

Bummer. You'd think this would have come up in one of the monthly meetings, but maybe she missed that one.

So don't assume what you do isn't taxable.

Now, here's the other problem. What about what you do in other states? Just about any service you can name is taxable someplace. Even if you provide professional services, it's taxable in a couple of states. Heck, in South Dakota, what I do is taxable!

If you actually perform the taxable service in a state, you need tax it.

What do you do?

At the very least, check the web page for the state you're working in, and see what they define as taxable services. If you want to look further, there are books on sales and use tax from RIA and the American Bar Association that I highly recommend.

I see businesses in almost every seminar that aren't taxing their services like they should. Solve the problem now by checking... in every state where you do work!

The Sales Tax Guy

Friday, August 17, 2007

Golden Rule: Nexus

Do you have nexus in a particular state? If you do, then you should be collecting sales or use tax on any taxable sales you're making in that state and filing a return. Even if you don't make taxable sales (e.g. everything is for resale) you probably still need to be registered and filing zero returns. And, of course, you should be getting those resale certificates that prove you're making non-taxable sales.

Here are three simple questions to ask:

1. Do you send people into the state (or already have people there) who are involved in the sales, marketing, delivery, installation, training, set up, or even the repair of your products and services? Are they there more than a couple of times per year? They don't have to be employees. They can be contractors or even manufacturer's reps. And they don't have to live in the state.

2. Do you have any facilities, offices, warehouses, or plants in the state? In other words, are you taking up space in the state. And you don't have to own the facilities. You can rent or even sublease the space.

3. Do you have a lot of tangible personal property in the state (e.g. inventory, property you lease to others, property used executing contracts, etc.)?

If you meet any one of these tests, then you should be worried about nexus in that state. That is the Golden Rule of Nexus.

What should you do?

1. Summarize all the states you're worried about and identify the amount and type of the sales and what conditions might give you nexus.
2. Review the state's nexus laws recognizing that they are subject to a lot of interpretation, court cases, constitutional restrictions, etc. Many nexus laws are completely invalid due to the Supreme Court decisions including Quill.
3. Still worried? Contact an sales and use tax expert who specializes in that state.
4. Don't ignore the problem. You have no statute of limitations protection in most states. Which means, if they catch you, they can go back billions of years.

I've written quite a few articles on nexus so please feel free to further explore this topic.

The Sales Tax Guy
(see disclaimer)

Saturday, August 11, 2007

Felony Watch

More people gettin' thrown in jail (or at least getting in BIG trouble):

Contractors who didn't remit their collected sales tax to Washington state

Shenagins in Minnesota
with a couple who had multiple businesses, allegedly filed false information and used fake numbers, didn't remit the taxes they collected, etc. All allegedly, of course.

This one made the news all over Ohio. A couple allegedly bought 62 vehicles from an Ohio dealer and told him they they would register them in Kentucky, therefore the dealer didn't charge Ohio tax. But the couple apparently never registered them in KY, but instead shipped them to Australia (these particular models aren't sold down under). Apparently someone at the dealer tipped off the state of Ohio that this was going on. Although you have to wonder...only after 62 cars???

And this article wouldn't be complete without at least one used car dealer who didn't remit the this case, $734,000 in taxes.

Tuesday, July 24, 2007

No Sales Tax on Clothing

This is one of those topics that surprises the heck out of my seminar participants, no matter where they are.

In states in the Northeast, and Minnesota, there is no tax on clothing. There are limitations though. Sports clothing and furs are usually taxable, but basic street clothes are generally not.

When I do seminars in that part of the country, people are often amazed that they have to pay tax in the rest of the US. And people in the rest of the country are usually stunned to find out that they won't have to pay tax on clothing when they go through the Pittsburgh airport (see photo).

Of course, when you buy those shoes in Pennsylvania, and take them back to Illinois, what should you be doing?

Yeah, paying use tax when you bring them home. Which, of course, you're doing. Right?

The Sales Tax Guy

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.

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Sometimes you just can't do in-line testing

One of my seminar participants told me about her disagreement with the auditor.

In her state, in-line quality control testing is exempt as part of the manufacturing process. But the auditor assessed her tax on her purchases of testing equipment and materials. It turns out that she manufactures explosives. She really can't DO in-line testing since she'd blow up the plant. A lot.

They must take the samples WAY off-site. But that takes the testing outside of the concept of "in-line," at least as far as the auditor is concerned.

I had to say that I agreed with the auditor. The fact that what she produces doesn't lend itself to that type of quality control really isn't the state's problem. In fact, in some states (not this one), they specifically say that destructive testing is NOT allowed as an exemption. And usually, finished goods testing is also taxable.

Just one more of those weird situations where the law doesn't work really well.

The Sales Tax Guy

Monday, July 23, 2007

Write an Accounting Manual

You need systems - policies and procedures - for several reasons.

1. They help assure you that you're doing it right. By studying the issue, and then planning and writing down the correct way to do it, you help to assure that you actually are doing it the right way, as opposed to doing it by the seat of your pants.

2. Systems facilitate training. We've all been through the situation where the replacement barely gets any training. Often it's rushed with the trainee scrambling to take detailed (and later incomprehensible) notes. And, of course, the trainer is a short-timer and doesn't really care anyway.

And that's if you're lucky enough to have training at all. Unfortunately, all too often, the new person has to decode what to do, based on the trail that the previous person has left, with some assistance from the manager, who really isn't that sure about the details of the job anyway.

For example. Does the newbie understand that they need to worry about self-assessing use tax on purchases where tax wasn't charged? And even if they understand that, do they know which purchases are not taxable and which are? I've had people in my seminar who have asked me at the break, "Let me get this mean I'm NOT supposed to be accruing tax on our purchases for resale?"

Let's just say that their training was incomplete.

If you have procedures, then the new person has a resource to show them what to do. The systems show them that they need to check that tax was paid. And if tax isn't collected by the seller, what to do about it. The procedures will show what's taxable and what's not taxable. Systems facilitate training, and allow the replacement to easily pick up the job after the previous inhabitant has gone on to newer and better adventures.

3. Systems help with audits. Auditors are looking for companies (victims) who are going to be worth their time. They don't want to waste the effort with organizations who have it together. And one of the ways they can tell if you know what you're doing is if you have a good accounting manual. If they hit you with issues and questions that are dealt with in your handbook, and they can see that the handbook is followed, then they'd rather spend their time auditing someone who doesn't have a good policy manual. Like most of you reading this.

To give you a closing example:

Pilots have checklists. In other words, they have policies and procedures that they carefully use. These systems were developed by experienced pilots and mechanics showing exactly what needs to be done. They are then followed by pilots and mechanics to make sure they do what needs to be done in the correct manner. And they assure inspectors, who watch the pilots and mechanics doing the checklists, that the operations are safe.

What kind of plane would you rather ride where the pilots are following checklists (policies and procedures) or one where they're operating off of various yellow sticky notes hanging all over the cockpit?

Go write an accounting manual!!!

The Sales Tax Guy

Thursday, June 07, 2007

Check transaction taxability

The major risk that companies have is not paying use tax on their untaxed purchases. And we discuss this problem in the seminars. BUT, it's also important to NOT pay taxes when you don't have to. For example, I had a participant from Illinois recently tell me this story.

They bought services from a company that was also in Illinois. Because the vendor didn't charge sales tax, the AP department self-assessed use tax. Apparently, nobody asked whether or not this service was taxable (in many states it is). But in Illinois this service isn't taxable. If the AP department had simply asked the vendor why they weren't charging tax, they might have avoided paying taxes they didn't need to pay.

But nobody asked. And they self assessed use tax on these purchases for years.

Finally, someone asked a question about the invoice and a purchasing agent, who had been in my seminar, happened to notice that they were self-assessing use tax. She emailed me asking whether or not I thought this invoice was taxable. I replied that I couldn't imagine how it could be. She researched it further and discovered that they had OVERPAID the state of Illinois by almost $19,000!

The morals of the story:
1. Check the taxability of every transaction, particularly large or continuing ones;
2. When you have an in-state vendor who isn't charging tax, they might know why. Before you go self-assessing, ask them.
3. One of the reasons this mistake may have been made is because the person deciding on taxability may have been most familiar with another state and just assumed Illinois would be the same. Make sure your staff knows that the state rules vary from state to state. Assume nothing is the same.

The Sales Tax Guy

Wednesday, June 06, 2007

Issue: Product Testing - Exempt?

I had a call today from a seminar participant and as we were talking, I realized her issue would be a perfect puzzle to present to you.

The company makes engines. The engines are taken out of finished goods inventory and placed in a testing area. Are the testing equipment and supplies taxable or exempt under the manufacturing equipment exemption? In most states, inline testing of manufactured products would be exempt as part of the manufacturing process. But in this state, the manufacturing process stops once the product has been put in finished goods inventory (in most states, the process stops at the last machine).

So testing the engine, after it's been placed in inventory, would be outside the scope of manufacturing and therefore taxable. But here's the fun part: if they had intercepted the engines before being placed in the warehouse, then the testing would have fallen within the scope of manufacturing and would therefore be exempt. Stupid, huh?

In my conversation with the taxpayer, I suggested she contact a local expert. While a strict reading of the laws is all I can go with, a local consultant (CPA, lawyer, etc.) will be familiar with enforcement practices in that state. I can foresee an undocumented position of, "well, yeah, we know this is really inline quality control testing; it's just getting placed in the warehouse for convenience and you haven't made the journal entry moving it to FG inventory, so we'll let this one slide." It isn't documented (as near as I can tell), but it may be the informal position the state takes.

There are three lessons here:

1. understand the rules for the exemptions that your company takes advantage of;
2. interpret the rules very strictly;
3. engage a local expert to identify any undocumented positions that will help you.

The Sales Tax Guy

Thursday, May 31, 2007

Are there any questions?

I'm actually don't bring my tank to seminars. Just so you all know.

A little sales tax humor, folks.

Sales Tax Guy

Saturday, May 26, 2007

The Marshmellow Rule

I enjoy finding interesting and strange laws as I travel the country doing sales and use tax seminars. I discovered one in New York. They consider grocery store type food to be non-taxable. But as in many states, candy is considered taxable.

So what to do about marshmellows? You and I might not think this would be a big deal, but evidently the regulators in Albany felt the need to address this burning issue.

Miniature marshmellows are exempt as food. The big ones are taxable.

But a seminar participant last week brought up a good point: what about marshmellow fluff?

UPDATE: All marshmellows are now exempt in NY.

Friday, April 27, 2007

Days numbered for tax-free Net sales (CNET article)

While they don't get some of the important concepts regarding sales and use taxes, this article illustrates an important point that I missed. With a Democratic Congress, there is a higher likelihood that Quill will be overturned to some extent and the Streamlined Sales Tax Project will become more relevent. Worth a read.

Friday, April 06, 2007

Banks Owe Sales and Use Tax

Banks often get caught for SUT in a couple of areas:

1. The first is the obvious failure to pay their use taxes. Since they often don't file SUT returns, they don't realize they have this liability. This same problem exists for other organizations, particularly professional services firms, that don't sell taxable stuff or services (or don't realize they're making taxable sales).

2. Banks often sell stuff, which is taxable. A few things that come to mind include: checks, credit card swiping machines, rental of safe deposit boxes (taxable in some states), deposit bags, software, meeting room rental (taxable in some states), numismatic items, etc.

I call this gotcha the "non-core sales" problem. Companies that don't make taxable sales in their normal activities might still be exposed in other areas.


Sales Tax Guy

Tuesday, March 27, 2007

Did an Auditor Find Something?

I had someone from one of my seminars just send me a list of about 10 things that an auditor had busted them on. They wanted me to review the list and identify the taxability of each item. Here are the problems with asking me to do this:

1. The list was long. At some point in time, free questions turn into consulting engagements. And as I've said before, you need a local person for that.

2. The issues were edited down to a couple of words. Asking me to rule on them, when the auditor may have seen more that me is not a good thing. And I don't want to get into a contest with an auditor unless I see everything they see.

3. Why should I (or you) do the work? If an auditor says something is taxable, and you're not convinced, ask them to show you the law, bulletin, statute, regulation, opinion letter, or some other citation. Don't be confrontational, just tell them that, before you pay any money, management is gonna want to see where it says it's taxable - in black and white.

4. Shouldn't your CPA have been involved by now? Granted they may not know more than you do, but how do you expect them to learn if you don't get them involved? And they can do the research for you (and therefore learn).

Sales Tax Guy

Wednesday, January 31, 2007

Absorption in Action

I was running errands and saw this sign in a furniture store in the Chicago area (I've edited out the name of the company on the sign). It's illegal in Illinois to advertise that there's no sales tax. Evidently, they got the word. Because the next day, the sign was gone.