Sales Tax Links

A Holiday from Fiscal Responsibility - The case against sales tax holidays - Reason.com
This is a great overview of sales tax holidays, why politicians love them, and why they're a waste of money. Not a long article, but full of great content.

An email from the vendor isn't enough!
This is why I constantly tell people that you need the details on the invoice. This article from Vertex explains why, at least in one case.

Independent Contractors Creating Nexus for Your Company?
A good quick article on situations where using an contractor in another state may give you nexus. State and Local Tax 360˚

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The Sales Tax Guy
http://salestaxguy.blogspot.com

See the disclaimer

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First Americans

Sales and use taxes for Native Americans (the laws usually use the term "Indians" and I prefer "First Americans") are another of those highly variable taxing policies. This is also an issue that doesn't exist in all states. If the state has no tribal reservations, then there probably won't be any laws.

There are four overriding factors that lawmakers have to watch for in states with reservations: politics, the US Constitution, Federal treaties with the tribes, and tribal sovereignty.

The rules break down into a few different components, which I'll generalize here.

Sales to the tribal organization itself
These are generally exempt. Sometimes it's only if the delivery point is actually on the reservation; and other times the delivery point is irrelevant. For example, if a tribal organization calls up an electronics store and has them deliver a computer to the reservation, and the store bills the tribal organization directly, then that sale would be exempt pretty much everywhere.

But if someone went to Best Buy and picked it up, even though it was billed to the organization, then it would be taxable unless the state gave a more general exemption to the tribe.

Sales to individual First Americans
Generally, the exemptions are most common for transactions involving the tribal organization itself, not to individual members. Their purchases are taxable, particularly when they are off of the reservation. However, usually sales from a store on the reservation to a member of the tribe who will use it on the reservation are exempt.

Sales on reservations to people who are not First Americans
These are usually taxable. There have been some court cases involving cigarette sales, so this can get messy.

Some states make a deal with the tribes
Since the tribal organizations need a way of collecting taxes too, a few states will actually form agreements where sales and use taxes will get collected, even on the reservation, and they'll come up with some sort of revenue sharing formula.

Finally, in doing the research for this, I noticed that, as the rules get more complex, loopholes become a problem. There was a case where a tribe was determined to be, essentially, "selling" sales tax exemptions. Everybody lost when the court got hold of this one. If you think you've found a cool little loophole, talk to an an expert who can guide you. The state already knows about most of these; and just because you think you've discovered a neat trick doesn't mean it will work (it probably won't).

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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 more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

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Drugs, Medical Supplies and Durable Medical Equipment

One of the most universal sales and use tax exemptions is for prescription drugs. Every state grants either a full exemption, or taxes these items at a reduced rate. From then on it gets complicated.

Factors that affect the prescription drugs exemption include:

-whether or not a prescription was actually written, or if it is just a drug that must be sold by prescription (think complimentary drugs given by doctors or samples to doctors from drug manufacturers)

-most states require the drug be for human use (as opposed to Fido).

Some states (not many) grant an exemption for pretty much all drugs and medications, whether prescribed or not. This would include aspirin, cold medications, etc. But the exemption may not extend to food supplements and vitamins.

Some states grant an exemption for medical supplies, like bandages. Sometimes these are only exempt when sold to medical practitioners, and other times the exemption is open to everyone. Most states grant exemptions for specific things like blood, and diabetes and colostomy materials.

And then there's durable medical equipment which includes everything from artificial limbs to wheel chairs. States get really specific on these particular items, but they frequently grant broad exemptions if the equipment is for home use and/or it's sold by prescription.

Remember, every state is different. But at least with this exemption, the details are comparatively easy to find. Since this is an exemption that affects voters, you'll often see easier-to-read publications on the state's web site that go into the details of the exemption, with lists and explanations. If that publication isn't available, there will probably be a particular regulation which should be comparatively easy to find. Or a bulletin for that matter.

See this article on why this exemption exists.

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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 more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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Another Reason Not to Call the State

I've talked about why you want to avoid calling the state with any sales and use tax questions. I've now got another reason. I was talking with a woman in a seminar earlier this month and she told me this story that should make you even more suspicious.

She worked for a hospital and had called the state to find out about the taxability of a particular item. She started describing the situation which involved an item being shipped from Michigan to her state, and how she worked for a hospital, and how....

The state employee immediately told her it was not taxable and essentially hung up.

The woman came to the class convinced that anything shipped to her state from out of state wasn't taxable - because that was the question she had intended to ask. I spent some time deprogramming her with the message that it's the delivery state that counts, not the ship-from state. It doesn't matter that it was shipped from another state. In other words, the answer she got from the state representative was completely wrong. And for the wrong reason!

We talked more and I realized what happened. As she was explaining the situation to the person on the phone at the state, she mentioned hospital. Well, that gave the headphone wearer all the information she needed. It was a purchase by a hospital! Hospitals are exempt*. The answer is the purchase wasn't taxable. Yay!

If the state employee had listened longer and asked more, she would have found out that the hospital was buying this item for one of their for-profit subsidiaries which was taxable.

In most telephone-bank jobs, particularly the ones where they don't care about customer service, employees are evaluated on how quickly they can close a call and move on to the next one. They're not rewarded for patience or even giving the right answer. So this operator heard "hospital" and she had an answer. Done! Move on to the next call.

So when you're talking to the state on the phone, in addition to all of the other reasons why you shouldn't rely on their answer, you also have to make sure they don't prematurely give you the answer before they've even gotten all of the information.

Remember, if you have to contact the state, try to email them. At least you're not dealing with the state employee's needing to get you off the phone fast.

*Another problem is that not all hospitals are exempt. There are for-profit hospitals that would be just as taxable as anyone else. It's not super-relevant to the story, but I wanted to forestall someone pointing this out. ;-)

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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 more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

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You need to look this stuff up folks!

I've got this disclaimer on the left side of the blog:

Please keep in mind that our purpose is to provide general information to familiarize you with certain issues. The information we provide may not apply to your particular situation or to the applicable state, may oversimplify an issue, or may omit a point that is relevant to you. In addition, exceptions, unwritten rules, and different interpretations abound. Therefore you should not rely on the information provided for your specific needs.


After reading any of our material or participating in training or coaching, you should always consult with an attorney, CPA or tax adviser who is a local expert in sales and use taxes for the applicable state, and/or do your own research in authoritative publications before applying the principles or suggestions mentioned.

I had a comment on one of my posts recently from someone who was looking for information on a particular issue. He didn't specify the state, and I read the question as being somewhat general in nature. He was miffed by my non-specific response. He apparently wanted a definitive answer. I pointed out that, if he had read my blog, he'd know that I don't specialize in definitive answers.

My job is to help you understand the way the law works. Your job is to find the answer, hopefully with a push in the right direction from me. In other words, and using a very old and tired metaphor, my job is not to feed you, my job is to teach you how to fish.

For folks who have taken one of my seminars (online or in-person), or for whom I'm doing coaching, I will do some research. If these folks have a detailed question about how to handle a situation in a particular state, I ask them to see if they can find the answer on their own. If they can't, I will look it up in the sales tax database that I use and send them the article that discusses the question. They can then make a decision based on the same data that I would see.

And here's where you should do your research.

Finally, please understand that there are, with the exception of the state web site, no free answers

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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 more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

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Avoiding a Regressive Tax

While I was writing the food article a few days ago, I got to thinking about a common complaint about sales and use taxes. The problem is that these kinds of taxes tend to be regressive. The burden of the tax seems to fall more on the poor than on the rich. The idea springs from the fact that certain things are bought by everyone, rich and poor and therefore the poor spend more on these items as a percentage of their income than the rich. Therefore, sales and use taxes take up a larger percentage of their income than that of rich folks.

You could argue this issue, but I'd rather not because it'll get in the way of the point I'm trying to make.

In order to minimize the regressiveness of sales and use taxes, states implement various exemptions on things that are pretty much basic necessities. So you'll see tax exemptions for the following items:

Prescription drugs (almost universally exempt)

Food (offered in many states)

Residential utilities (gas and electricity for homes - available in most states)

Clothing (in a few states, mostly in the Northeast, plus sales tax holidays in other states)

Repair labor on motor vehicles (I've only seen this in one state, but it's not a bad idea)

And a service that is rarely taxed is hair care. You almost never see the services of a barber or hair stylist listed as taxable.

In addition, the perusal of just about any state's mix of exemptions and taxable services will find that the taxes are imposed much more often on businesses than individuals. A cynical person might think that this is merely a way of making voters happy. A more idealistic person would probably believe that this is another effort at making the state's taxes less regressive.

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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.

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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

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Food

Food is a very common sales and use tax exemption. Most states have either a full or partial exemption for "grocery store food."

First of all, what do I mean by "grocery store food?" States generally differentiate between food purchased in a restaurant, and food that will be taken home and prepared (usually bought at a grocery store). Unfortunately that leaves a big gray area involving deli's, donuts, the microwave at 7-11, vending machines, and other situations involving food that doesn't meet the clean definitions of restaurant food and grocery store food.

States deal with this mess by having detailed and highly variable rules that always need to be reviewed for the state you're concerned with.

My rule of thumb? If you're a caterer or a restaurant, just about everything you sell will be taxable. If you sell food that has been recently prepared, it's probably taxable. Anything else will vary by state, but is what I would typically call grocery store food. Things like food supplements, candy, juice drinks, alcohol, and pop (or soda if you're from that part of the world) are often taxed, just because of their non-nutritive nature.

Another problem is that restaurants often give employees meals when they're on duty. Remember that the restaurant bought the food for resale and now they're giving it away. That means they may owe use tax on those meals. State laws vary depending on when the meal is given, if it's part of the employees' compensation, and valuation.

If you like to buy "green" and frequent the local farmers' market, fear not. Many states have specific exemptions for farmers who sell their own produce. Not all, but quite a few.

And then there's Ohio. Fifty years ago, if you went to a restaurant, it was for on-premises consumption. So it was taxable. If you went to the grocery store, it was for off-premises consumption and it wasn't taxable. Simple. And Ohio kept that very simple rule.

But consider this statistic that I picked up someplace. 40% of the US population eats at McDonald's at least once a week. And it's probably mostly drive-through, so it's obviously for off-premises consumption. So today, if you walk into a Panera at a service area on the Ohio Turnpike, and order it "to go," they won't charge you tax because you're purchasing for "off-premises consumption." Of course, I then took my tuna salad sandwich (hmmmmm) and ate it in the seating area. Hah! I'm a rebel!

Ohio could have gotten into step with the rest of the states and come up with the more complicated rules. But they kept it easy. Which of course means that they are foregoing tax revenue that the other states are getting. But it sure is great to eat out in Ohio!

So remember this little loophole when you're visiting Ohio. The locals know the game. The only people who order it "to stay" are the tourists.

See the other articles on "food."

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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.

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

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