Sales and Use Tax News Links

The big sales tax news in Chicago is that the sales tax hike might get rolled back. For the rest of you, who cares? But what's interesting is the politics behind it. DailyHerald.com and others

A North Carolina spends $250,000 in fees to fight (and win) an assessment of $600,000. If you're in the graphic design business, you may want to look at this. And, if this is true, shame on the NC tax department. Bizjournals.com

Boeing gets a tax break in South Carolina. This is an example of states writing laws that don't mention a particular business by name, but write the rules in such a way that only one possible company could be involved. AP and others

Flu shots get taxed in Illinois Sabrix

Interesting way for an electric car manufacturer to avoid $320 million in sales taxes sfgate

Sales Tax Guy

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Is food really exempt?

I've seen this now a few times. So I thought it would be worthwhile whispering in your ears.

Grocery store food is exempt from tax in many states, and taxed at a lower rate in even more. The official wording is usually something like "food sold for off-premises consumption." But you and I know that basically means the kind of food you buy off the shelves at the Safeway.

I've now seen a couple of states that restrict the food exemption to individuals or for home consumption. In other words, if a business buys food, say for a company picnic or for the company lunchroom, the food was NOT exempt.

Obviously the grocery store isn't going to differentiate. Food's exempt as far as they're concerned. But your business may get nicked for use taxes on that food. So, if you're in a state that exempts food to some extent, make certain that there isn't an extra sentence that excludes businesses from the benefit of the exemption.

Otherwise, you'll get a surprise during the audit.

Sales Tax Guy

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Are You a Manufacturer?

In most states, if you take something that has one form and name, and turn it into something with another form and name, you're a manufacturer. For example, there was a court case where a quarry was able to qualify as a manufacturer, at least as far as their rock crusher was concerned. That machine took boulders and turned them into gravel. Different forms and different names. Viola! They're a manufacturer. Which is a good thing.

If you qualify as a manufacturer, then congratulations! There are all kinds of wonderful and delightful exemptions that you can enjoy.

But if you're not...well, sorry. If you read the rest of this article, don't blame me if you get ticked off. Because you're not a manufacturer.

What I want to cover for you are the laws that make life grand for manufacturers, at least as far as sales and use taxes are concerned. You need to check these opportunities for your state, and see which ones apply. Because there's a chance you're giving the state money they don't deserve.

1. Machinery. In most states, manufacturing machinery is either exempt from tax or taxed at a lower rate. There are restrictions, but this is a pretty common and money-saving exemption. Common restrictions (which vary enormously) include:

• The machine must be used to directly change the product from one form to the other
• The machine must be used predominantly in the manufacturing process
• The manufacturing process usually doesn't include the finished goods or raw materials inventory. It typically begins at the first machine and ends at the last machine on the line.
  
• The machine often must be depreciable or have a minimum purchase price.
• A few states require that the machinery expand production
  

For example, lift trucks are usually exempt if they are used in the manufacturing process to move WIP (work in process) from one machine to another. But if that truck is usually found in the warehouse moving raw materials, then it wouldn't be predominantly used in the manufacturing process. And therefore the lift truck would be taxable.

2. Repairs. In most states, repair labor and parts for exempt machinery aren't taxable.

3. Tools. In some states, smaller equipment, like hand tools, safety equipment, etc. are exempt.

4. Consumables. Generally, the ingredients that become part of the product are exempt. This really is just the resale exemption. But some states also grant an exemption for consumables (eg. like lubricants, drill bits, sand paper, catalysts, etc.) that are used during the process, but don't become an ingredient of the product.

5. Utilities. In some states, electricity, natural gas, propane, and other energy sources are exempt or taxed at a lower rate.

These are the big categories. And there are lots of complications and exceptions with each state being completely different. And these exemptions only apply to manufacturers. But if you are one, you owe it to yourself to get very familiar with the exemptions in your state so that you save every last dollar.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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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.

Washington

Since manufacturers are starting to offer money-back guarantees, it's worth while taking a careful look at what the rules are. In WA, unless ALL of the purchase price is refunded, including the sales taxes, retailers can't get that money back from the state. Apparently this isn't always the case if the sale included dealer add-ons like undercoating, etc. While WA has clarified the rule, this is probably going to become more of an issue in other states pretty quickly. Be ahead of the curve here.

Ilinois

They have a "gasoline retailers' voluntary compliance program" which sounds a lot like a tax amnesty. It runs through 11/16.

DC

They're not going to have a sales tax holiday in November.

Louisiana

They have some new exemptions and rule changes including stricter requirements placed on ag dealers - they just can't take the farmer's word for it.

New Orleans has a tax amnesty running through 12/4/09

Oklahoma

Rate changes

Maine

They will be requiring efiling in 2010

Sales Tax Guy

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Some Recordkeeping Tips

1. Determine the state that has jurisdiction over the transaction. This will control the statute of limitations, which controls how long you should keep records. For most states, it's three or four years. You'll need to prove where control was transferred, so you're going to want to hang on to sales paperwork, purchase orders, shipping records, bills of lading, etc.

Remember, there is NO statute of limitations protection if you've never filed a return in a given state.

2. If you didn't charge tax on a sale, you need to substantiate the reason.

• Make sure you have a well organized and complete file of exemption certificates. And have a procedure to demonstrate how you get them.
  
• If you didn't charge tax because the sale was shipped out of the state, do you have the necessary paperwork (see above)?
  
• If the sale wasn't taxable, do you have sufficient backup if you are questioned. Keep a file of your research so that, when the auditor challenges you, you can whup it out. We used to call this a CYA file. If you don't know what that acronym means, email me.

3. If you didn't pay tax on a purchase, you need to substantiate the reason.

• If you've determined that the purchase wasn't taxable, show the reason on the invoice. This is likely to be because of how you will use the purchase (resale, manufacturing, agriculture, research, etc.) You're going to have to prove that exemption. Can you?
• Do you have sufficient documentation for your decision about taxability. You know, the CYA file?
• And if you've paid the use tax, you need to document this as well. Hopefully, you've coded the invoice so that the fact that you've accrued the tax is obvious to the auditor, and all they have to do is trace the invoice back through your system to the return.
  
• See this article for an idea to help with the above bullet points.
• On a practical side, remember that, if you're stapling paperwork to an invoice, this stuff tends to fall off - particularly the bottom items. The invoice is a good place for transaction specific backup, but be careful.
  

A couple of more general items...

4. If you've gone through a system conversion, keep your old software and data if the newer system doesn't support the old one. You need to be able to provide the auditor with the information, even it presents a technical challenge. And make sure you keep sufficient hardware and documentation to be able to get at the data when you need it (this is a very common mistake).

5. If you acquire a company, make sure that the technology and skills remain intact to get at the records that come with the acquired company. People leave and their knowledge departs with them.

6. Finally, remember the fundamental concept. The audit won't be tomorrow. It'll be two or three years from now. You're never going to remember.

Nutty Rules

In SC, rental of portable toilets is considered the rental of TPP and therefore taxable. Included in the taxable amount are any other charges for service. But fear not! SC also provides an exemption for 70% of the total charges for rental of portable toilets. That's a relief.

In IA, automobile racetrack owners can get a rebate of the sales tax they paid on purchases ofTPP.

In TX, data processing services are taxable. That means that spam filtering services are taxable too.

In WI, there's an exemption for snowmobile trail groomers and attachments for snowmobile clubs. I've never seen this one anywhere else. So the rest of you in other snow states have every right to feel jealous.

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. If you'd like to see more, click on the picture.

Sales and Use Tax News Links

I love this one. California vet beats Sacramento. Yay! latimes.com

Felony watch! Cape Girardeau restaurant allegedly collected sales tax for 14 months but didn't pay it to the state. semissourian.com

Sales Tax Guy

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