Monday, November 30, 2009

Quick Tip: Non-Profits

Hey, just because you're a non-profit doesn't mean you're exempt from sales and use taxes. Yeah, that's right, I mean you. Your purchases might be taxable. And your sales are probably taxable. Read more here.

Sales Tax Guy

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Wednesday, November 25, 2009

Documentation when you ship out of state

Once upon a time, there was a jeweler who got audited. He was questioned on a whole bunch of sales that he hadn't charged sales tax on. The jeweler claimed that he shipped those items out of state. He pointed out, to the auditor, that the ship-to addresses were in different states, and that he had charged the customer for the shipping charges.

The auditor then asked the jeweler for actual proof that he had shipped the goods, as opposed to the more likely situation where the customer was in the store and arranged to have the items "shipped" with a minor freight charge.

The jeweler came up with the Fed Ex bills of lading.

The auditor then asked to see the actual invoices from Fed Ex, or the tracking reports.

The jeweler couldn't seem to find those records.

The jeweler had to go to bed without his supper.

Remember, the delivery point defines that state that gets to make the rules and gets the taxes. If the delivery is in the store at the counter, then obviously the state where the store is located gets the taxes.

A common scam is for dealers of expensive, but cheap-to-ship consumer goods to "ship" the goods and then just hand them to the customer in order to evade the sales tax. Sharp auditors simply ask for proof that the items actually were shipped. And Fed Ex bills of lading aren't enough. There's no signature, no stamp, no evidence at all on the typical form that the goods have even been touched by Fed Ex. The scam could simply involve preparing the Fed Ex bill of lading, and attaching it to the sales paperwork. And I wouldn't be surprised if that's pretty much what happened in this case. But as we've seen, that's not enough. You need proof.

Whenever you ship taxable goods out of state, the auditor will (hopefully) realize that they don't get to tax that shipment, assuming the seller shipped it out of state. You need to maintain adequate records to prove that:
  • Invoices from the freight carrier
  • Tracking logs
  • Signed bills of lading
  • Export paperwork
The standard Fed Ex form isn't enough.

A seminar participant once incredulously asked, "you mean I have to attach all that stuff to every invoice in my files?" My answer was that, no she didn't. But she should have an audit trail to be able to get to that paperwork, if the auditor needs to see it.

Remember, the auditor needs proof. Which isn't an unreasonable request considering the amount of potential taxes to be evaded using this scam.

Note, I'm aware of a further evasion that is almost foolproof. I'm not going to mention it here, because it is pretty sneaky and hard for the state to catch. Which is why I'll pass on mentioning it. But the truly nefarious among you have probably already figured it out.

This blog will be silent for the rest of the week. Have a good Thanksgiving.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

Here's information on our upcoming seminars and webinars

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obg

Monday, November 23, 2009

Sales and Use Tax News

These are gleanings from newsletters, etc. I have not included all of the events, nor have I provided much detail. As usual, the disclaimer applies - check this kind of thing out yourself. I just want to give you a heads-up.

Medical marijuana is taxable in Colorado. It's not sold by prescription, and it doesn't meet the tests for any other exemptions. Attorney General Opinion, 09-06 , 11/16/2009

South Carolina has a gun sales tax holiday coming up this weekend. thetandd.com and South Carolina Department of Revenue, News Release, 11/02/2009. Also, temporary storage of property in the state is exempt from use tax if destined for use solely out of state . South Carolina Revenue Ruling 09-17, 11/19/2009

Check verification services are not considered taxable data processing services in New York. In the Matter of the Petition of TeleCheck Services, Inc., Division of Tax Appeals, ALJ, Dkt. No. 822275, 11/05/2009.

In Vermont, meals sold by schools, as well as the usual housing provided to students are exempt Vermont Technical Bulletin TB-48, 11/02/2009

In Maryland, receipts for sales of tickets from college games are not taxable if the receipts are used exclusively for educational purposes. Maryland Sales Use Tax Bulletin 1-10, 11/17/2009

Rate Increases

Local

New Mexico
Alabama
Illinois
New York
South Dakota

State

District of Columbia

with a rate change recap here.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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Friday, November 20, 2009

Admissions

One of the commonly taxed services is admissions. Many states don't tax these, and others do. And the ones that do have a wide variety of approaches:

Admissions to entertainment events as a spectator: movies, concerts, baseball games, culture, music festivals, etc. If you pay money to get in, and it's entertaining (or it's supposed to be entertaining) then it might be taxed.

Admissions to training activities: in other words, events that aren't supposed to be entertaining at all. This type of tax is much rarer. But it's there in a few states.This is why you'll never see TakeChargeSeminars.com doing a seminar in Connecticut. I just don't want to have to collect sales tax on the seminar fees that Connecticut imposes. Sorry CT folks.

Charges for participation: greens fees at the golf course, charges to participate in a marathon, health club fees, etc. These are not quite as commonly taxed as admissions charges for spectators, but they are taxed.

Club memberships: health club memberships, as well as country clubs and golf clubs. These types of organizations may not have fees for individual activities, but the purpose of the membership fee is to buy access and more or less unlimited activity. And country club folks are wealthier, so they're easier targets. ;-)

There are exemptions too.

Amazingly enough, most states that have had a Superbowl, or want to have a Superbowl, will also have an exemption for Superbowl admissions, assuming there was a tax in the first place.

Non-profit organizations are often off the hook for charging tax on their tickets for school plays and concerts, festivals and carnivals, etc.

Ditto for sales of admissions by government agencies, particularly schools and universities, and government owned stadiums.

And there are catches

For example, there was a case, years ago, when a music festival was selling admission tickets which included two beverages. The admission itself wasn't taxable in this particular state because it was being sold by a non-profit organization, but the state argued that the beverages included in the price should have been taxed (even when sold by a non-profit). Since the price of the beverages wasn't separately stated and taxed on the ticket, the state nicked this non-profit music festival for sales tax on the entire admission fee (this is an example of the bundling rule). The assessment was over $100, 000 in taxes, interest and penalties.

Sales Tax Guy

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Wednesday, November 18, 2009

Rate Changes

Rate changes happen all the time. I have started mentioning them in my news postings, but I can't foresee sending a lot of time on the topic. They change. Mostly they go up because your politicians can't figure out any other way to cover budget gaps, etc. I can think of some ways. You can think of some ways. They can't (scratching head). So rate increases happen.

The problem comes into play when a sale "crosses" the rate increase. It works this way:

April 1 The contract is written and signed (the rate is 6%)
April 5 Politicians pass a rate increase of 2%
April 15 The 2 % rate increase happens
May 20 The delivery is made (the new rate is 8%)

What rate does the sale get taxed at? If everyone is operating under the assumption that the rate is 6%, and then the rate turns out to be 8%, that's a problem.

Budgets get screwed up. Lawaways get confused. Arguments about who gets to pay the extra 2% happen. Purchasing decisions may have been different if the rate were the higher 8%.

This is particularly a problem in situations where the seller consumes materials to fulfill on the sale. They can't pass the rate increase on because they consumed the materials (contractors are a good example). They would have bid the project higher if they had known about the additional rate (and cost). Now they have to eat that 2% and that's not fair.

There is no one answer to this problem. But it's been my experience that every time there is a rate increase, states provide a transition rule of some sort. So the answer is to have a look at your state's laws, bulletins and regulations. Very often the procedure is right in the announcement of the rate increase. So you shouldn't have to look very deeply.

There is very likely to be something that discusses the problem and gives you some loopholes.

And thanks to Pamela for asking the question.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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Monday, November 16, 2009

Sales and Use Tax News

These are gleanings from newsletters, etc. I have not included all of the events, nor have I provided much detail. As usual, the disclaimer applies - check this kind of thing out yourself. I just want to give you a heads-up.

In New York, The sales and use tax exemption for tangible personal property purchased to maintain, service, and repair an aircraft has been extended indefinitely.
New York Technical Service Bureau Memorandum TSB-M-09(18)S, 11/05/2009

Louisiana issued rules regarding the phase in of the exclusion of manufacturing consumables from taxes over the next couple of years.
Louisiana Revenue Information Bulletin 09-050, 11/09/2009

They've also provided additional information on the provisions of the Cajun Dome excemption.
Louisiana Revenue Information Bulletin 09-051, 11/09/2009

In North Carolina, tire recappers get some exemptions
17 NCAC § 7B.1905, effective 10/01/2009

State rate changes in North Carolina related to fuels other than electricity, prefabricated buildings, commercial printers and publishers,

And broadcasting equipment, movie production equipment and mill machinery to contractors and subcontractors now exempt in North Carolina

In Texas, Full-time federal employees of the Texas National Guard traveling on official business may claim exemption from state and local hotel occupancy tax
Texas Policy Letter Ruling 200911472L, 11/06/2009

Local rate changes

Alabama
Georgia
Mississippi
Washington

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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Thursday, November 12, 2009

Illustrations and Parables: The Mystery of the Missing Texas Taxes

I was doing only my second seminar EVER on sales and use taxes. It was Manhattan and this woman comes up to me at the first break. I had talked about personal liability of officers in the previous section and she looked worried.

"Hi, I just started as the CFO for a company here in New York, and I found out that we've been selling a lot of stuff to a company in Texas for years, and charging them sales tax. But we haven't been filing Texas sales tax returns."

"Well, that's not the end of the world," I said. "Mistakes happen. I assume you have been remitting that money to the state of New York?" That's typically the way it works. Many people make the error of charging tax for deliveries in a remote state, but report those sales on their local return. Nobody's going to jail for that. Penalties and back taxes, yes. Striped pajamas? No.

"Well, actually, we haven't paid the taxes to anyone," she said. "That's how I found the problem. I was going through the general ledger and came across this account for Texas Sales Taxes Due."

"How much is in there?"

"One hundred and fifty-three thousand dollars."

My wife tells me I don't hide my emotions well. I must not have in this situation because she asked me, "Is this bad?"

"OK, let me make sure I understand this. Your employer has been shipping stuff to a company in Texas for a long time?"

"Yes, about eleven years."

"And they have been charging Texas taxes. And showing this on the invoices?

She nodded, "Yes, I looked at some of the recent invoices and they show 'sales tax' right on the invoice. It looks like the Texas rate too."

"Are they still doing this? Making sales to Texas, charging tax and letting it sit in that liability account?"

"Yes."

"Just out of curiosity, is this a small, entrepreneurial company where the owners have put pretty much everything into the business?"

"Yes."

"Hundred and fifty thousand?"

"Yep."

"And you haven't paid this money to Texas, or even New York, right?"

"Right." I really do remember this conversation like it was yesterday. It's firmly planted in my brain.

"OK. Final question. Are you really the CFO or is that just the title they gave you?" This happens, folks. They might have given her the CFO title, but not actually make her an officer of the company. I once was a "sort-of" CFO.

"Yes, in fact we just took care of the paperwork last week."

I took a deep breath. "Mary," her name was Mary, did I mention that? "You should probably leave the seminar now. You've learned enough for the day. I'd strongly recommend that you get this resolved, and you should talk to your own attorney. You're an officer of the company. Even though you weren't around when all of this happened, the longer you're on board, knowing what's still going on, the more likely you're going to be in deep trouble. You may wind up holding the bag."

The problems are:

1. The customer gets audited by Texas who discovers that they've paid all this tax to a company who wasn't registered in Texas. Texas makes the customer pay the money all over again, plus interest and taxes. The customer probably has a good case for fraud against Mary's company. They charged them tax and didn't remit it to any state. For eleven years!

2. Texas may decide to go after Mary's company, particularly if they had nexus in Texas. I didn't ask Mary about Nexus.

I've read more than a couple of stories where, in a start-up situation, the owners put their life-savings into the business, and then some. When the business fails, they've got nothing to make good on debts - like a sales tax liability in Texas.

But the CFO probably doesn't have any skin in the game. And Mary has some money. She's got a house, car, maybe a vacation home, and a 401k that carried over from another company. And she's an officer of the company. She really might be the only one left with any money when the dust settles after this company goes out of business. There have been cases...

As she left, I was really hoping she'd talk to a lawyer.

She emailed me a few days later.

Hi, Jim,

I quit the job.
I went in to my boss' office the next day and said, "we really need to talk about this Texas tax liability." He said, "Mary, it would be a really good idea if you never brought this up again. Ever." I realized that I didn't want to work there anymore. I figured if he had a problem with just one thing like that, what else was lurking? And as the CFO, I didn't want to be associated with that kind of business.

Thanks,
Mary

The moral of the story? There are two.

First of all, sales tax seminars can be more interesting than you'd think.

Secondly, if you're an officer of the company, you have some serious liability for your company's "mistakes," whether it's sales tax, payroll taxes or some other problem. Beware.

By the way, a couple of years later, I was chatting with an executive with the audit division at the Texas revenue department. I told him the story. After shaking his head, he asked hopefully, "You don't happen to know the name of either of those companies, do you?"

"Nope," I smiled. "My seminars are kind of like confession. What's said in the seminar, stays in the seminar."

And if you're wondering, the dialogue and facts are as true as I can remember. But the states, cities and Mary's name were all changed to protect the extremely guilty.


Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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

Tuesday, November 10, 2009

Personal Liability

You are in such trouble! This is going to be a relatively short article. But one that's very important. Based on what the rules are in most states, you need to worry about personal liability. What does that mean? It means you could lose your savings, your vacation house, etc. All because your company really screwed up the sales tax. So read on.

Officers of the corporation
You're liable. Period. Maybe you'll dodge a bullet if you're not involved in the management of the company. Maybe.

Spouses in sole proprietorships or partnerships
You're liable. Particularly if you filed your income taxes jointly. You signed the return. Which means you officially knew what was going on.

You're the controller
If you're an officer, see above. If you're not, but you're intentionally failing to pay the appropriate taxes, and you have authority, you might feel some pain too.

Staff accountants and other employees who complete and sign the return
First of all, don't sign the return. The officer who does have the personal liability should be signing that return. Make sure the auditor knows that you're signing the return because the big dog told you to. The auditor will then go after the big dog.

Here's an illustration of the problem.

See, short one. But very important to your future vacation plans.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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Monday, November 09, 2009

Sales and Use Tax News

These are gleanings from newsletters, etc. I have not included all of the events, nor have I provided much detail. As usual, the disclaimer applies - check this kind of thing out yourself. I just want to give you a heads-up.

Michigan

They've explained the rules for food.
Michigan Revenue Administrative Bulletin 2009-8, 10/21/2009 , replacing Michigan Revenue Administrative Bulletin 2002-20, 12/10/2002

Connecticut

The rate reduction previously announced may not happen depending on the state's deficit this year.

Missouri

No use tax for free flu shots.
Missouri Private Letter Ruling LR 5900, 09/29/2009

And Missouri opened up a can of chakras by saying that sales tax applies to participation fees in yoga classes. Some are saying it's a tax on religion. I have only one question. When I go to church, I don't pay a required fee to attend. But if I go to a yoga class, I do pay a fee. That's the difference. And no, I won't be going to any yoga classes anytime soon. My chakras are just fine, thank you. Sabrix, Google/AP and more

North Carolina

New rules for state government purchases. Most purchases exempt now.
17 NCAC § 7B.1701, effective 10/01/2009

Local rate increases

Arizona
Georgia
Missouri
Ohio
Utah
Washington

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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

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Thursday, November 05, 2009

Quick Tip: Buying Sales Tax Software

Years ago, in another life, I sold software and computer systems...mostly accounting related. In this article, I give you a few tricks for making this investment:

  • Don't assume the sales rep is looking out for you or has your best interest in mind
  • Take control of the process
  • Get references and VISIT them (this is probably the most important piece of advice)
Here's the last paragraph...

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.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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Wednesday, November 04, 2009

About Seminars

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

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

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

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

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


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

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

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

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

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

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

Sales Tax Guy

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And please don't forget to visit our advertisers!

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

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

Tuesday, November 03, 2009

Illustrations and Parables - The Story of the Fizzy Turkey

A guy in the class worked for a poultry processor. The auditor busted them on the carbon dioxide gas that they injected into the meat. The company had always assumed that this gas was exempt from sales tax because it was an ingredient. Ingredients are almost always exempt.

"Sounds good to me," I said. "But why do you inject carbon dioxide into the meat?" All I could think of was fizzy turkey.

The guy said, "I don't know, I work in accounts payable." I kid you not. Absolutely true.

This is one of my favorite stories, frankly because the AP piece is the funny part. When I told it in a different seminar, another poultry processor told me that the CO2 is a preservative. And, since it's the stuff that gives your Coke the bubbles, it's gotta be safe.

Anyway, the auditor said it didn't qualify for the exemption, and they were nicked for the sales tax. The amount was BIG - the assessment hurt. Now, the carbon dioxide IS an ingredient in the meat. They inject it into the chicken. So why was it taxable?

The auditor said that, in order for the CO2 to be considered an ingredient, it must be present in the final product when opened by the final consumer. And by the time you take your chicken home from the store, and open up the package, the carbon dioxide is gone. So, according to the auditor, it's not an ingredient - it's taxable.

But is the auditor right? I looked at the statute and the regulations after the seminar. There is no restriction, in that particular state's laws, saying the the ingredient must be present in the final product when opened by the consumer.

Some states do require that the ingredient be in the product sold at retail. To me, this means the CO2 must be there when the customer picks up the package from the cooler. And other states merely say that the ingredient must be in the final product, not specifying the point in time. Which could mean when the product is packaged and moved to the shipping department. But I've seen no state that specifies that the ingredient must be there when the customer opens the package.

Since the law, in this state, didn't even specify that the ingredient must be present when sold at retail, the taxpayer could have fought it. The assessment was big enough to make it worthwhile to hire some expensive professionals to appeal. But the taxpayer made the big mistake: he assumed the auditor was correct. He didn't even ask to see the law. He just wrote the check to the state.

So the morals of this particular parable are:

1. Know the rules for what qualifies as an ingredient in your state and adjust your procedures accordingly,
2. Have a better understanding of your processes, even if you work in accounts payable,
and most importantly,
3. Never assume that the auditor is right. Make them prove it!

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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

And please don't forget to visit our advertisers!

Picture note: the picture above is hosted on Flickr and is pretty funny. If you'd like to see more, click on the picture.

Monday, November 02, 2009

Sales and Use Tax News

These are gleanings from newsletters, etc. I have not included all of the events, nor have I provided much detail. As usual, the disclaimer applies - check this kind of thing out yourself. I just want to give you a heads-up.

Illinois has clarified rules regarding soft drinks.
Illinois Dept. of Rev. General Information Letter ST 09-0116-GIL, 09/02/2009

Florida has change several regulations regarding food, water softening services, and their forms .
Fla. Admin. Code § 12A-1.0115; 12A-1.071; 12A-1.0115; 12A-1.011; 12A-1.097

Utah has made some changes to their return reporting schedules.

Wisconsin
has made a change in the rate used for calculating use tax on demo vehicles. And they have clarified the new digital products rules.
Wisconsin Dept. Rev. Tax Bulletin 164, 10/01/2009
Digital Goods Frequently Asked Questions, Wisconsin Department of Revenue, 10/20/2009

Georgia
published a bulletin on how to apply for a refund on manufacturing equipment.
Informational Bulletin SUT 2009-10-28, 10/28/2009

Louisiana has issued a release regarding the exclusion for anthropogenic carbon dioxide.\
Louisiana Revenue Information Bulletin 09-049, 10/21/2009

Nah, I don't know either. But if you DO know, then you probably should be very careful about this.

In New York collagen implants for truly medical purposes are taxable. This kind of thing is taxable when sold for providing medical services for money.
New York Advisory Opinion TSB-A-09(48)S, 10/14/2009

North Carolina has an EDI program for returns.
Notice, NC Dept. of Revenue, 10/01/2009

Local rate changes in South Dakota and Wisconsin

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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

And please don't forget to visit our advertisers!