FAQ: Do I have to pay sales tax on property taxes?

In states where lease and rental payments are taxable, then the question comes up as to whether or not there's sales and use taxes on the property taxes paid by the lessee.

The answer, usually, is yes, you pay taxes.

It's not that you're paying taxes on taxes. It's because your agreement with the lessor is that you'll pay rent, plus the property taxes. Essentially the property taxes are "rent". Since the rental payment is taxable, the property taxes are taxable too. But they’re not taxable as taxes, they’re taxable as part of the rental payment. In other words, if the lessor paid the property taxes himself, there would be no sales or use tax .

It's worth taking a look at the rental agreement to make sure that the property taxes ARE part of the rent, just to make sure.

In particular, this is the rule for commercial real estate rental in Florida. The real estate taxes that the lessee pays as part of their lease agreement is considered taxable. The rest of you who aren't in Florida are supposed to be amazed that commercial real estate rental is taxable there.

Sales Tax Guy

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Some recent news

Just a couple of items I picked up in my reading:

Florida - sales tax holiday for clothing, school supplies, etc. with a price of less than $50 beginning 7/23/05 to 7/31/05.

Ohio - delays implementation of destination based sourcing from 7/1 to 5/1/06 and for some, 2008. This has been a big issue in Ohio and further complicates SSTP.

Massachusetts - Happy Meal toys are considered to be purchased for resale as part of the meals and therefore the restaurant doesn't have to pay tax on them. I know you're all breathing a sigh of relief on that one.

And from the "Felony Watch"

Restaurant owner in Florida charged with tax theft

Car dealer sentenced to 2 years

Car dealer OK's plea deal

It seems like it's always car dealers and restaurants that get in the serious trouble on sales tax issues.

STG

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FAQ: Why are smokers getting letters demanding sales tax?

Why are smokers getting letters demanding sales tax? Moreover, how can states get smokers' names and addresses from out of state resellers who don't have nexus in the smokers' states?

This is because of a Federal law passed in 1949 called the Jenkins Act which requires out of state cigarette sellers to file monthly reports on their buyers with states to which they ship cigarettes. Most of the cheap Web-based tobacco sellers don't comply with this law, and they are starting to get subpoenas for their records. Using this information, states are going after the buyers of the cigarettes.

This is not a sale tax issue so much as a cigarette issue. As near as I can tell, it wouldn't bleed over to other types of out of state purchases short of an audit by the destination state of the seller's books.

Heres a link to the Jenkins Act. And here's one short article on the topic.

STG

Sales and Use Tax Decision Factors

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Getting Answers - Part 1

Where do you find the answers to your questions; or proof for a customer or vendor who disagrees with your handling of a tax issue; or proof for your boss or co-workers about how to deal with a certain situation? To me, the biggest single challenge for any tax research is the abundance of sources of the law. The need is to be able to consolidate the various laws and interpret them specifically for your situation.

Here's my take on the various resources available to you.

1. Lawyer or accountant - Using a professional is probably the best single resource, particularly if you get the answer from them in writing. Those written responses, which will cost big bucks, will generally be well researched, carefully cited, and customized to your situation. When the auditor asks "Why did you do it this way?", you'll be able to show them the report from your professional. The odds are that the auditor will take a look at it, ask if he can show it to his supervisor, and you'll never hear about it again. That may be money well spent. But the best part of all is that you let the professionals do the legal research. Which if you're not into it, is a pain. I enjoy this kind of thing, but I am admittedly a little out in left field.

Of course, you can't assume that your existing lawyer or accountant is an expert. That is a big assumption. They didn't learn sales and use tax in law school or accounting school. They learned about income taxes of course, but sales and use taxes just never get covered (unless they happened to get an instructor who had lived through a sales tax audit recently). So make sure they're an expert. Here's a previous post about finding such a creature.

2. Associations - This is one of those resources that you probably didn't think about. The state chamber of commerce may have some useful information for you and be able to guide you to someone who can help. Don't bother with local chambers and associations. They're usually more oriented towards boosterism and networking than providing technical information.

Even more useful, if it exists, is a state association (or maybe a national association) for your type of business. Often sales and use tax exceptions are industry specific and your association may be intimately familiar with them since they lobbied for the exemption in the first place or have already fought a court case. They may have publications and seminars available for you as well.

The other benefits to checking out the association are that:

1. It'll save your company money. One woman told me that her association actually has lawyers available that she can consult for free. But even if they're not free, remember that if the association has already figured out the answer, you don't have to spend time and money re-inventing the proverbial wheel.

2. It'll impress your management. I can tell you from my own management days that operational executives in most organizations are frustrated by the lack of interest that the administrative staff has in the business itself. Purchasing, accounting, HR, etc. generally don't go to industry meetings, read the industry magazines, or ask to be on the industry mailing list. If you do all of these things, even if it's only to pick up the occasional SUT pointer, you'll do some serious career enhancement.

More resources in a future post

STG

Don't trust research information in tables

One of the things that I've come to mistrust when I look things up is material presented in tabular format. My concern isn't that the format is necessarily wrong, because I myself often use tables, but they lend themselves to short-cuts which make them unreliable.

The primary problem is that they often heavily summarize the information to the point where the table can be, depending on your underlying interpretations, downright wrong. In addition, particularly in the world of sales and use tax, there are so many exceptions, exceptions to the exceptions, exceptions to the exceptions' exceptions, etc. that the tables just don't show enough detail to be useable.

For example, there's one table that I often have to deal with that summarizes absorption laws essentially by saying whether it's allowed are not. That's it - OK or NOT OK. Anyone who has reviewed those things knows that the rules are often just a tad more complicated.

On the other hand, I've seen tables with lots of text in each cell. The author really only uses the tables to present the information in a little more readable format. That, to me, carries a little more authority.

So in summary, beware of simple answers presented in a table. But if the author puts complicated answers in a table, that's better. At least if you're trying to get the right answer.

Here's a later article on the same subject
 

FAQ: Where can I find industry specific seminars?

At almost every one of my general sales tax seminars, someone will ask about where they can find seminars for their industries. It's usually manufacturers and sometimes contractors. But I'll get very specific requests too. Like one person this week who was interested in a seminar for the floor covering industry.

While I'm developing my own seminar for manufacturers and contractors, doing one for floor covering folks is, unfortunately, not on my immediate agenda. The problem is one of marketing to that narrow of an audience. This applies, not only for myself, but for any seminar organization.

But there is hope. If your industry has an association, particularly at the state level, check to see if they have any training available, or are making plans. And if they do, but haven't gotten anything going yet, mention my name!

STG