You're missing some tax breaks

I was chatting with a woman who bragged about finding a really big sales and use tax break for the company she worked for. What stunned her was that it was just a matter of reading the rules for her industry...the exemption was clear. She had to do a little digging - but it was right there! And her company had been handing over money for years without realizing that they didn't have to.

Not only that, but other folks in the same industry didn't know about the exemption either.

The fact that no one was using the exemption made her nervous. She contacted a sales and use tax lawyer who basically said, "Yeah, it's right there. So what's the problem?"

The moral is that you should very carefully comb the sales tax and/or use tax laws and exemptions in your states. Look for rules that could apply to you. They may be relevant to your industry. Or they might just be something that only tangentially is relevant. And they might be a little hard to tease out. But if there is a law that you can use to save money, why aren't you?

Remember, the auditor will be carefully checking that you've paid all your taxes. But she won't be telling you about the exemptions that will save you taxes. You have to do that yourself. Go crack the books and do some research.

Look! Research! Use it!

Sales Tax Guy

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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.

Illinois court rules freight charges were taxable. Illinois has a pretty confusing rule regarding the taxability of freight charges. The law says the shipping charge must be "separately contracted." But I've read different and conflicting illustrations.

A test that the court applied is whether or not the customer bought the item and the shipping charge in one transaction. If they did, the shipping is taxable.

Another is whether they can avoid the shipping charge in some way, either by picking it up at the store or buying it online and then separately contracting for shipping. If they can, it's an indication that the freight isn't taxable.

For example, when you buy from your average dot com, do you have any option to avoid shipping? If you don't, then, in Illinois, the shipping is taxable.

Kean v. Wal-Mart Stores, Ill. S. Ct., Dkt. No. 107771, 11/19/2009

And in Chicago, the continuing sales tax saga - the rate goes down by half a point. Suntimes.com and others

There are lots of articles floating around focusing on the loss of taxes to the states from people buying online and not paying their sales tax and/or use tax. LOTS. Here's just one of them And about 1400 more.

College privilege tax in Pittsburgh? salestaxbuzz.com

Local rate changes

Utah
Washington

Sales Tax Guy

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Installation Charges

This is one of a series on how to handle items that affect the "basis" of tax.

Installation charges are often included in the basis of the tax calculation...in other words, they're often taxable. Installation charges include pretty much any on-site charges related to setting up a product.

They typically don't include charges that happen at the seller's facility. Those would typically be include in the normal selling price and therefore taxable in all cases. But installation charges might be taxable or might not, depending on the state.

Short and joke-free topic today. I swear I tried. But, I mean, installation charges?

Sales Tax Guy

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Quick Tip: Non-Profits

Hey, just because you're a non-profit doesn't mean you're exempt from sales and use taxes. Yeah, that's right, I mean you. Your purchases might be taxable. And your sales are probably taxable. Read more here.

Sales Tax Guy

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Documentation when you ship out of state

Once upon a time, there was a jeweler who got audited. He was questioned on a whole bunch of sales that he hadn't charged sales tax on. The jeweler claimed that he shipped those items out of state. He pointed out, to the auditor, that the ship-to addresses were in different states, and that he had charged the customer for the shipping charges.

The auditor then asked the jeweler for actual proof that he had shipped the goods, as opposed to the more likely situation where the customer was in the store and arranged to have the items "shipped" with a minor freight charge.

The jeweler came up with the Fed Ex bills of lading.

The auditor then asked to see the actual invoices from Fed Ex, or the tracking reports.

The jeweler couldn't seem to find those records.

The jeweler had to go to bed without his supper.

Remember, the delivery point defines that state that gets to make the rules and gets the taxes. If the delivery is in the store at the counter, then obviously the state where the store is located gets the taxes.

A common scam is for dealers of expensive, but cheap-to-ship consumer goods to "ship" the goods and then just hand them to the customer in order to evade the sales tax. Sharp auditors simply ask for proof that the items actually were shipped. And Fed Ex bills of lading aren't enough. There's no signature, no stamp, no evidence at all on the typical form that the goods have even been touched by Fed Ex. The scam could simply involve preparing the Fed Ex bill of lading, and attaching it to the sales paperwork. And I wouldn't be surprised if that's pretty much what happened in this case. But as we've seen, that's not enough. You need proof.

Whenever you ship taxable goods out of state, the auditor will (hopefully) realize that they don't get to tax that shipment, assuming the seller shipped it out of state. You need to maintain adequate records to prove that:

• Invoices from the freight carrier
• Tracking logs
  
• Signed bills of lading
• Export paperwork

The standard Fed Ex form isn't enough.

A seminar participant once incredulously asked, "you mean I have to attach all that stuff to every invoice in my files?" My answer was that, no she didn't. But she should have an audit trail to be able to get to that paperwork, if the auditor needs to see it.

Remember, the auditor needs proof. Which isn't an unreasonable request considering the amount of potential taxes to be evaded using this scam.

Note, I'm aware of a further evasion that is almost foolproof. I'm not going to mention it here, because it is pretty sneaky and hard for the state to catch. Which is why I'll pass on mentioning it. But the truly nefarious among you have probably already figured it out.

This blog will be silent for the rest of the week. Have a good Thanksgiving.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

Here's information on our upcoming seminars and webinars

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

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.

Medical marijuana is taxable in Colorado. It's not sold by prescription, and it doesn't meet the tests for any other exemptions. Attorney General Opinion, 09-06 , 11/16/2009

South Carolina has a gun sales tax holiday coming up this weekend. thetandd.com and South Carolina Department of Revenue, News Release, 11/02/2009. Also, temporary storage of property in the state is exempt from use tax if destined for use solely out of state . South Carolina Revenue Ruling 09-17, 11/19/2009

Check verification services are not considered taxable data processing services in New York. In the Matter of the Petition of TeleCheck Services, Inc., Division of Tax Appeals, ALJ, Dkt. No. 822275, 11/05/2009.

In Vermont, meals sold by schools, as well as the usual housing provided to students are exempt Vermont Technical Bulletin TB-48, 11/02/2009

In Maryland, receipts for sales of tickets from college games are not taxable if the receipts are used exclusively for educational purposes. Maryland Sales Use Tax Bulletin 1-10, 11/17/2009

Rate Increases

Local

New Mexico
Alabama
Illinois
New York
South Dakota

State

District of Columbia

with a rate change recap here.

Sales Tax Guy

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Admissions

One of the commonly taxed services is admissions. Many states don't tax these, and others do. And the ones that do have a wide variety of approaches:

Admissions to entertainment events as a spectator: movies, concerts, baseball games, culture, music festivals, etc. If you pay money to get in, and it's entertaining (or it's supposed to be entertaining) then it might be taxed.

Admissions to training activities: in other words, events that aren't supposed to be entertaining at all. This type of tax is much rarer. But it's there in a few states.This is why you'll never see TakeChargeSeminars.com doing a seminar in Connecticut. I just don't want to have to collect sales tax on the seminar fees that Connecticut imposes. Sorry CT folks.

Charges for participation: greens fees at the golf course, charges to participate in a marathon, health club fees, etc. These are not quite as commonly taxed as admissions charges for spectators, but they are taxed.

Club memberships: health club memberships, as well as country clubs and golf clubs. These types of organizations may not have fees for individual activities, but the purpose of the membership fee is to buy access and more or less unlimited activity. And country club folks are wealthier, so they're easier targets. ;-)

There are exemptions too.

Amazingly enough, most states that have had a Superbowl, or want to have a Superbowl, will also have an exemption for Superbowl admissions, assuming there was a tax in the first place.

Non-profit organizations are often off the hook for charging tax on their tickets for school plays and concerts, festivals and carnivals, etc.

Ditto for sales of admissions by government agencies, particularly schools and universities, and government owned stadiums.

And there are catches

For example, there was a case, years ago, when a music festival was selling admission tickets which included two beverages. The admission itself wasn't taxable in this particular state because it was being sold by a non-profit organization, but the state argued that the beverages included in the price should have been taxed (even when sold by a non-profit). Since the price of the beverages wasn't separately stated and taxed on the ticket, the state nicked this non-profit music festival for sales tax on the entire admission fee (this is an example of the bundling rule). The assessment was over $100, 000 in taxes, interest and penalties.

Sales Tax Guy

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