Friday, April 30, 2010

Janitorial Services

This is one taxing policy that usually comes as a surprise to participants in my seminars.

In many states, janitorial services, particularly for commercial clients, are taxable services.

Here's the problem. Many janitorial companies don't charge their customers tax, probably for two reasons:

1. They don't know they're supposed to charge tax. I'm guessing this is pretty common because, in my experience, janitorial services are often small, family run businesses who don't have an office staff and therefore aren't up to speed on the finer points of sales and use tax laws. And they don't come to my webinars.

2. They know their services are taxable and they absorb the tax. In other words, they're paying the tax to the state, but they're not showing it separately on the invoice. Absorption is very common. One of the reasons it's done is to avoid arguments with customers.

Maybe your cleaning company is Big Galaxy of the Universe Janitorial Services. They are actually paying the sales tax to the state and have folded that into what they bill you. They do this because, whenever they try to charge their average customers sales tax, the clients scream, "What the heck? What in tarnation are you doing! Why are you charging me sales tax?"

Absorption is illegal in most states, but rarely enforced. But the problem for you is that, now that you know janitorial services might be taxable, you might accrue the tax without realizing that the vendor has already taken care of it. You just don't have the invoice showing it, so you don't know for sure.

There are also fine points to be aware of with regard to this taxing policy. Some states allow you to exclude the cost of the labor, leaving just the overhead and profit as being taxable. And other states don't say that janitorial services are taxable. But they might say that cleaning of fabric is taxable. Since most offices have drapes, carpeting, furniture, etc., that says that some portion of the janitor's services are taxable.

Your job is to research the rules in states where you purchase this service and determine if it's taxable and in what way. If the vendor isn't charging you correctly, ask them why. If they've absorbed the tax, get them to give you a corrected invoice.

If they didn't know, consider this a teaching moment for them. If they still won't charge you tax, then accrue. Or find a service that will charge you tax properly.

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.

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

Friday, April 16, 2010

Security Services

In many states, security services are taxable. Items that fall under this category include:
  • Security guards
  • Private detectives
  • Polygraph experts
  • Alarm monitoring
  • Armored car services
  • Background checks
  • Drug testing
I'm trying to imaging your classic hard-boiled private detectives adding sales tax to their bills. I'm just not seeing it. So remember, if your vendors don't charge tax where it should be charged, check with them to make sure they haven't absorbed the tax. This will save you money in unnecessarily paying the use tax.

There are a couple of particular points worth noting:

1. In states where security guards are taxable, there will often be an exemption for off-duty police officers. Why? I'm guessing that it's better for all concerned if you actually have a well trained individual doing the job, particularly if you want them armed. In addition, it does encourage the use of these officers, which puts a little extra money in their college funds. And it keeps the police unions happy.

2. Some states treat the alarm wiring and equipment in the building as additions to real property and therefore the construction contracting rules apply. Other states treat this as a simple sale and installation of tangible personal property. The taxing rules are very different. If you're in that business, you need to know how it's handled in every state you do work. And if you're the buyer, you need to know too.

3. Finally, alarm monitoring is done remotely. In other words, the people watching the screens might be in Illinois, but the property being monitored is in a different state. While alarm monitoring services are not taxable in Illinois, they might be taxable in that other state.

Does the Illinois alarm company have to collect tax on the service? The answer is a definite maybe. When we look at the taxability of services, we need to consider two perspectives: where the service was performed, and where the benefit was received by the buyer. In this case, the service isn't taxable in Illinois. But it is taxable in the state where the buyer received the benefit. The alarm company might have to collect tax, depending on how the law is written there, and whether or not the alarm company has nexus in that state.

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.

Picture note: the image above, which I personally think is one of the more hilarious that I've posted, is on Flickr. If you'd like to see more, click on the photo.

Tuesday, April 13, 2010

It's spring - when thoughts turn to garage sales (and sales tax)

Do I have to worry about charging sales tax on my garage sale?

If you live in most states, and you only have one sale a year, no.

The reason is that you're making an occasional sale (aka a casual sale). These types of sales are not taxable for the simple reason that they're not taxable retail sales. You're not a retailer. As long as you're not a retailer in the eyes of the state where you're conducting the sale, then you don't have to worry about charging (and remitting) sales tax.

Why aren't you a retailer?

1. You're only doing this once a year. More than that and some states start paying attention.

2. Your signage consists of a crummy piece of poster board that your kid made and hung with duct tape on the stop sign at the corner. And you've got a couple of balloons in the yard. The balloons don't even have helium - cheapskate. No self-respecting retailer would do that.

3. Your competitors don't know about you, other than that jerk down the street who also decided to have HIS garage sale this weekend. Do the real "antique" dealers in the area care about you? No, of course not.

4. There's no real business associated with this event. You're doing it in your front yard. And we're not talking about your son's lawn mowing business.

4. You didn't buy all that junk to resell. You bought it to use. I'm not talking about whether or not you did use the stuff. You intended to use it.

So you're off the hook. In most states, you don't have to charge sales tax.

What about anything you buy at a garage sale? Do you owe use tax?

Again, generally no. There is no taxable retail sale because there is no retailer. If there is no taxable retail sale, then there's no event to charge sales tax on, and there's no event that use tax covers either. So no use tax is owed by the buyer.

Note, if you're in Colorado, forget about everything I just said. In fact, just ignore this whole article. Sorry.

And if someone is selling a car, truck, boat or snowmobile at their garage sale, the rules are different.

For the rest of you, yay! Have fun. And call me if you see anything that looks like it'll do well on Antiques Roadshow and is waaayyyy under-priced.

The Sales Tax Guy

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. The rules do vary from state to state.

Here's information on our upcoming seminars and webinars.

Thursday, April 08, 2010

Recent Twittered News Links

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

GA Sales Tax Holidays Threatened by Budget Crisis -

Orange Jumpsuit Time: Long Island car dealer stole $1.2M in sales tax: DA -

Colorado Internet Retailer Tax Backfires -

Soda Tax: Is New York Soaking the Poor? -

Orange Jumpsuit Time: Brothers-In-Law Sentenced For Filing False Tax Returns -

CT to try the Amazon tax - do these dopey politicians know what's happened in other states? -

Beware of Web Sites Selling Sales Tax Certificate -

Orange Jumpsuit Time: Bellevue hmbuildr accused of stealing $629,000 in sales-tax collections -

California Creates Green Tech Manufacturing Equipment Sales Tax Exemption -

State squeezes retailers for overdue sales taxes -

R.I. nonprofits may lose sales tax exemption -

The Sales Tax That Comes Back to Bite -

Florida sales tax holiday and other breaks -

Colorado town 1st in state to pass medical-marijuana sales tax -

The Sales Tax Guy

Here's information on our upcoming seminars and webinars.

Wednesday, April 07, 2010

A Horrible Combination of Nexus and Unknown Taxable Sales!


The seller, in Indiana, sells complex machinery that often needs to be repaired and maintained.

Their customer in Wisconsin, calls with a problem - repair is needed.

Rather than maintain their own network of repair technicians, the seller contracts with local repair services to go and work on the equipment. So they call the Repair Service in Wisconsin who goes and repairs the machine in Wisconsin.

Repair Service has fixed the machine and sends the invoice shown below with sales tax on both the parts and labor to the seller in Indiana. Repair labor is taxable in Wisconsin.


Seller HQ will send this invoice to Customer Location. Note that they've added some margin and have NOT billed any sales tax.


To summarize:

1. Customer Location calls Seller HQ to get machine fixed.
2. Seller HQ calls Repair Service and assigns them the job.
3. Repair Service fixes the machine, making a taxable sale.
4. Repair Service bills Seller HQ charging sales tax.
5. Seller HQ bills Customer Location and does not charge sales tax.


I asked Seller HQ why they weren't charging Customer Location tax. She said that they didn't have nexus in Wisconsin and they had already paid tax to Repair Service.

"Ah, but you DO have nexus. Repair Service is acting for you and contracting for you to make repairs. Now if they were billing the customer directly, it might not be a problem. But they're billing you and then you're billing the customer. As far as the customer is concerned, Seller HQ is the seller of the repair service. It's a no-brainer. You have nexus in Wisconsin."

"Oh. But since Repair Service already charged me tax, I'm OK, right?"

"Nope. What you should have done is given them a resale certificate and then billed Customer Location the tax. You see, while Wisconsin got the sales tax revenue from Repair Service, they have not gotten the sales tax on the full sale to Customer Location, including your mark up."

"Are you sure?"

"Nope, I'm never sure. But there's another problem. When Customer Location gets audited by Wisconsin, the only invoice they're going to have is the one from you showing no tax was collected. Wisconsin will then make Customer Location pay the use tax, if they haven't already. Which means you've shafted your customer because you've already paid the tax.

"OK, so I'm supposed to give Repair Service a resale certificate and then bill Customer Location for the sales tax on my bill to them?"

"Yep. And that also means you're going to have to register as a seller in Wisconsin so that you have a resale certificate to give to Repair Service and so you can pay the taxes to Wisconsin."

"Uh, is this pretty much the way it works all over the country?"

"Yes. All of the 46 states that have a sales tax will want the tax, at least on the parts. And about half of them will also want the tax on the labor component too."

"Oh dear."


"We do this all over the US. That means we have to start doing this in 45 more states."

"Oops. You might want to call a sales tax consultant."

About once a week, when I do seminars, I come across a person who has nexus in every state. And they didn't know they were making taxable sales in any of those states.

The things to learn here:

1. If you sell all over the country, then you may have nexus all over the country if you have people representing you and acting for you. They don't have to be sales reps or employees. They could be independent contractors repairing your equipment for you. And if they're billing you and you're billing the customer, it's even worse.

2. You need to determine the taxability of what you sell in any state where you have nexus. If you have nexus in 20 states, you need to check 20 states. If you've got nexus all over the country, you should hire an assistant because your work load just increased.

3. It's usually helpful to look at the transaction from the customer's perspective. What is their AP department going to do with the invoice that they get from you? And what is the auditor going to do when they see the invoice? In this situation, Seller HQ would have immediately spotted the problem if they'd ask themselves those two questions.

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.