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 straight...you 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 on...one 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