Wednesday, March 31, 2010

Illustrations and Parables: Garbage Cans

e080405c-raw010-01copy_01Sorry I haven't posted in a while. I was on the road last week and the week before was preparing for the road trip. And this week is, well, I'm just exhausted. But I wanted to let you know I was still alive.

Anyway, the road trip was productive, I picked up a couple of good stories for you.

One of the women in my class owned a garbage-hauling business. Now that's not a taxable service in this particular state, so don't get excited. But she did get audited, and was busted for not charging tax on the rental of her dumpsters. Apparently no one told her that rental of tangible personal property is taxable, which definitely includes those dumpsters.

By the way, the name on the dumpster pictured above was not the name of her company. It's just the only dumpster picture I had. And I always knew having a picture of a dumpster would eventually come in handy.

So the auditor assessed her $30,000 for the sales tax on the rent. Hers was a small company with only about 35 employees. So this was a pretty significant financial penalty

To add insult to injury, the auditor didn't mention to her that, since she was a lessor renting the dumpsters, she would be able to buy them tax free - for resale. Dang auditors.

What can we learn here?

1. She didn't check to see whether or not all of her sales were taxable. You need to carefully review all of your sources of cash, and see what the law says about them in the state where the service is performed, or the delivery occurs. Since the garbage hauling service wasn't taxable, she didn't even consider the fact that an ancillary service just might be taxable.

2. If you find out something is taxable, explore for other opportunities that the situation uncovers. Like being able to buy stuff for resale if you have to charge tax when you rent it to people.

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.

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

Saturday, March 13, 2010

Is that car wash taxable?


Amazing as it may seem, car washes are often taxable. In some states, self-service, coin-operated car washes are not taxable. But the kind that pulls your car through (you know where the guy who dries your car leaves streaks on the windshield) may be taxable.

If a state taxes car washes, self service vs. pull through seem to be the major variations.

Except in Florida.

I just did a Taxing Policies webinar for Florida, and as usual, I spend a few hours reviewing the laws and refreshing my memory. No matter how many sales tax seminars, I've done in a state, I often find new nuggets of weirdness. So it went for Florida.

In Florida, car washes may be taxable. But unlike other states, which sometimes make the coin-op facilities not taxable, Florida bases the test on whether or not wax or other coatings are applied and remain on the car.

And I quote:
  • The entire charge for a wash job, in which wax, silicones, or any other substance is added that forms a protective film or coating, is taxable. The purchase of materials such as wax, silicones, and the like, which form a protective film or coating, is exempt to the dealer. The dealer shall extend a resale certificate to his supplier in lieu of paying tax.
You see, in Florida, the theory is that the service of repairing and maintaining TPP is not taxable. But if there is any transfer of TPP during the service, then the whole service becomes taxable. A watch repairer who just cleans your watch doesn't have to charge you sales tax on the service. But if he adds a drop of oil, the entire amount becomes taxable.

So by adding that wax to a simple wash with soap and water, you make the whole thing taxable. If Florida is having budget problems, and they're looking for loopholes to fill, this might be one to work on. I'm just sayin'.

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, March 09, 2010

Sales tax and use tax are complementary

Use tax, as mentioned elsewhere, is a loophole plugger. It was invented for the situations where sales tax couldn't be imposed.

In more high-highfalutin language, we say that use tax is a complementary or compensating tax. In addition to plugging those loopholes, it also means that the rules are generally the same. In every state, the state sales tax rate and the use tax rate are the same. In every state there are very few significant variations between the taxing policies for sales tax and use tax. That's because use tax wasn't intended to do anything other than collect the taxes that the state couldn't collect through sales tax.

But there are two major variations:

1. In some states, the total sales tax rate and use tax rate may vary. That's because, in those states, the local component of the rate is only sales tax, not use tax. For example, in my town in Illinois, the total rate is 8%, which is made up of 6.25% for the state and 1.75% for the city. But that 1.75% is only sales tax, not use tax. So when I order something from, who won't be charging me tax, and fill out the Illinois use tax return, I only have to pay 6.25% use tax. The city won't get any of that money.

Illinois does it that way. But even in Illinois, there is weirdness. For most places and states, use tax does apply to the local component. But there are enough twists and turns so that you need to be aware of this complication. Now that you know, keep an eye out for it when you're inspecting local tax rules and rates.

2. The sales tax laws regarding occasional / casual sales vary when it comes to buying a car or other registerable items (ATV, boat, plane, etc. ) Even though the occasional sale of a car won't be taxable as far as the seller collecting sales tax, the buyer will have to pay use tax when they register it. That's a difference between the sales tax rules and the use tax rules.

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.

Monday, March 08, 2010

Recent Twittered News Links

These are the news links that I've posted on Twitter for the last couple of weeks.

Missouri sales tax proposal would affect Catholic school tuition #salestax #tax #taxes

Mo. tax plan to be debated, but passage doubtful

Virginia Senate Looking to Get Tough w/Online Travel Companies -

chicrckstr Colorado gives taxpayers until noon, Monday, March 1, to comment on repeal of sales tax exemption regulations

Star exclusive: Bills would close Missouri's yacht loopholes -

Probation ordered in sales tax case -

Possible end of sales tax exemption scaring island aviators -

How Colorado Defeated The Internet Tax -

Vermont Sales Tax Holiday Coming Up -

Interesting...taxing ALL sales and eliminate ALL exemptions - even for the Girl Scouts

Report: Rendell Budget Burdens Business, Increases Spending

Just tax the stupid people! (thanks to

Sales tax shakedown -

Auditor admits possible mistake in tax calc in trial... This is why you don't trust auditors!

Delegates Approve Gun Sales Tax Holiday -

States Raise Sales Taxes to Record Levels -

Florida Sales Tax Holiday, Film Tax Credit Plans Won't Deliver on Promises -

Tom Bakk proposes MN sales tax expansion to clothing - - Why will Wisc folks ever go to MN???

State warns of sales tax ID number scam -

Sabrix_SalesTax Amazon Reacts To Colorado Internet Sales Tax Measure By Firing Its Colorado Associates

SalesTaxBuzz #Amazon pulls out of Colorado affiliates' program @ Email sent early a.m.

Mayor Nutter's proposed sales tax on soda is high - Seems like an appropriately named mayor.

MN to have tax on clothing? -

Orange Jumpsuit time! Former restaurant owner charged with failing to turn over sales tax -

State trying to tax hotels that offer 'free' breakfasts - - Politicians are getting sneakier!

Thursday, March 04, 2010

Agricultural Exemptions

It shouldn't come as any surprise that, given the role politics plays in this, farmers get a lot of sales tax exemptions. In fact, aside from the District of Columbia, I know of no state that doesn't have pretty substantial exemptions for agriculture. DC doesn't have any of these exemptions for one simple reason...there are no farms in our nation's capital.

Here are the typical agricultural exemptions:

Harvesters, tractors, balers, cultivators, etc. are all usually exempt from sales and use tax, or they're taxed at a lower rate.

Other equipment is often exempt, such as machinery affixed to real property (eg. irrigation or milking equipment).

And generally, additions to buildings and land, like fencing, are not exempt.

Usually no exemptions exist for cars and trucks. Generally, the rule is that if it's required to be registered and plated, then there's no agricultural exemption.

Consumables such as seed, feed, fertilizers, pesticides and chemicals are usually exempt.

Now the problem begins for the people who sell to agriculture. I've known a few farmers in my citified life, and they're just like on TV. They're good, hardened, weather-beaten, independent folks. They won't take any guff from the guvmint and have no use for any paperwork. They usually are the hardest customers to get exemption certificates from. The farmer will insist that just being a farmer should be enough. It's not. Almost every state requires the seller to obtain those exemption certificates.

And they often are under the impression that everything they buy, even a mower for their front lawn is exempt. But most states have rules like this: the purchased goods must be used directly and predominantly in agriculture. That lawn mower ain't gonna do it.

Then there's the definition of agriculture. Generally, if a farmer raises produce that eventually will be eaten by humans, they're OK. Much more variable is the states' treatment of folks who raise livestock that won't be eaten (horses - I hope) and ornamental plants (nurseries and greenhouses).

There are often exemptions for horses raised for racing, and work animals.

Sales of their produce by farmers are often exempt. Even in states that have a sales tax on food, you probably won't have to pay tax at a farm stand if the farmer is selling his own produce.

Well, it's gettin' to be spring (wiping my brow with my bandanna). Time fer plantin'.

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.

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

Monday, March 01, 2010

Watch your software

We were at the bird store making our monthly investment in seed for the feeders (I really hate squirrels). While standing at the counter signing the loan paperwork, I asked Shari, the owner of the store, to add a magazine to the bill.

I noticed that she charged me sales tax not only on the seed, but also on the magazine.

Now I really don't care about the sales tax on the magazine, particularly after having to pawn the car to buy more bird feed. But, since I am in the business, and Shari is a friend of ours, I decided that I had to give her a hard time.

"Why did you charge me tax?"

"Why not?" she said, suspiciously.

"You're not supposed to charge sales tax on magazines, they're exempt."

"But the cash register software charges it automatically. Nobody has ever complained before."

"Your software is wrong. And nobody else has complained because none of your other customers are such monumentally brilliant sales tax experts."

She was all set to refund me the tax, but I told her not to worry about it. I just like to turn the rest of my life into a never-ending sales tax seminar. I really am a boring guy.

Last weekend, we stopped in again for our next purchase. Shari said, "Jim, I called the software company. They fixed it! They said they made a mistake." She was thrilled that she could tell me that I was right. I mean, we are putting her five kids through college. Did I mention I hate squirrels?

What are the morals of the story?

1. I'll bet you didn't know that magazines are exempt in Illinois. Illinois is one of the few states that has that exemption. Most states exempt magazines sold by subscription only. But in Illinois, over-the-counter magazines are not taxable. Remember that every state is completely different.

2. Don't count on your software vendor to get it right. If that company had just looked it up, they would have easily found that Illinois has the exemption. But some programmer didn't bother to look it up because everybody taxes magazines. You are responsible for getting your sales tax right. The vendor is supposed to help, but you gotta check. Luckily for the Shari, she had been over-charging taxes. If she had been under-charging taxes, do you think the software company would have stepped up and taken care of any liability she had?

I just looked out the window. Dang feeder is empty again.

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.

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