Sales Tax FAQs from Multistate Businesses

Below are some of the common questions that companies ask Interstate Tax Strategies. If you have any questions please call Ned Lenhart, CPA at 770-985-9573 or email us atinfo@salestaxstrategies.com

Question: Our business does not have an office outside of our home state. Do we have any sales tax compliance obligations in any other state?
Answer: The requirement to register for sales tax in a state can be created in many ways other than by having an office in that state. Sending employees into a state to solicit sales, sending agents in a state to solicit sales or to perform services, having inventory or other property in a state, or performing services in the state can create nexus for companies in the states where these activities occur.

Question: Are states uniform in their taxation of products and services?
Answer: States are generally free to determine the sales tax rules for transactions occurring within their border. States generally tax all sales of tangible personal property, but the range of exemptions to this general rule is extensive and varies by state. Services are also taxed differently by the states. In short, don’t assume the rules of one state apply to a sale occurring in another state. Get the right answers before you start doing business.

Question: Is it true that services are not subject to sales tax?
Answer: Not True! A wide range of services are taxable when consumed in particular states. Repair and installation services, staffing services, data processing services, security guard services, debt collection services, and fabrication labor are just a few examples of the types of taxable services.Answer: States are generally free to determine the sales tax rules for transactions occurring within their border. States generally tax all sales of tangible personal property, but the range of exemptions to this general rule is extensive and varies by state. Services are also taxed differently by the states. In short, don’t assume the rules of one state apply to a sale occurring in another state. Get the right answers before you start doing business.

Question: If our company has sales tax nexus in other states, how many years in the past can these states audit our company to identify any unpaid sales tax?
Answer: This answer varies by state. Some states will go back to the first date of your doing business in the state. Others limit the time from four to eight years. There is no consistency on this issue. Being proactive in working with the states is a great way to limit this liability.Answer: States are generally free to determine the sales tax rules for transactions occurring within their border. States generally tax all sales of tangible personal property, but the range of exemptions to this general rule is extensive and varies by state. Services are also taxed differently by the states. In short, don’t assume the rules of one state apply to a sale occurring in another state. Get the right answers before you start doing business.

Question: Our company recently acquired the assets of another company. Are there any sales tax concerns with this event?
Answer: Most states consider the purchaser of either stock or assets of a business to be the “successor” of the former business. This causes your company to be liable for any of the sales tax owed by the acquired business. Following the state rules can help avoid this problem.

Question: As a wholesaler, what obligation does our company have for collecting exemption certificates from customers?
Answer: Missing exemption certificates for untaxed sales is one of the most expensive sales tax mistakes a company can make. Companies often believe that missing certificates can be obtained during an audit. If customers are out of business or won’t cooperate, then this is not possible. Each untaxed sale not supported with a valid exemption certificate is considered taxable on audit.

Interstate Tax Issues

Interstate sales tax rules and issues vary widely by industry and by state. The sales tax issues confronted by high-technology companies are dramatically different than those faced by contractors. Over the years, we have tracked the sales tax issues that seem to be the most troublesome for our clients based on their industry classification.

Following is a listing of the sales and use tax issues that most commonly challenge companies in these selected industries. The sales tax issues, if not properly addressed, can create significant tax liabilities for the company. Each company’s sales tax responsibility is unique and must be analyzed on its own facts. If you have any questions about how these issues may impact your business, please call us for a free 30 minute consultation or send us an email at info@salestaxstrategies.com.

Technology

  • Nexus determination and containment
  • Product and service taxability
  • Invoice preparation to minimize tax consequences
  • Data processing, ASP, and SaaS tax rule conformity
  • Planning issues to minimize tax

Manufacturing

  • Exemption certificate management
  • Tax exempt purchase maximization
  • Drop shipment rules and exemption certificate management
  • Aggressive audit management
  • Use tax accrual process improvement

E-Commerce and Retailing

  • Nexus determination and affiliate nexus issues
  • Accurate product and service tax matrix
  • Accurate tax reporting
  • Analysis of bundled transaction tax rules
  • Resale exemption certificate management

Healthcare

  • Sales tax exemption maximization
  • Use tax accrual processes
  • Identifying taxable product sales and taxable services

Construction and Repair Services

  • Nexus determination and nexus containment
  • Contractor or retailer determination
  • Taxation of repair and installation services
  • Use tax management
  • Government contractor rules and tax determination

Professional and Personal Services

  • Nexus determination and nexus containment
  • Inaccurate invoice preparation
  • Use tax management on consumables
  • Taxation of services and bundled transactions

Wholesale and Distribution

  • Third-party drop shipment rules and certificate management
  • Resale exemption certificate management
  • Exemptions for equipment use in distribution centers
  • Nexus determination and nexus containment

Let Us Help You

Our mission is to help your business understand and navigate the increasingly complicated interstate sales tax landscape. Regardless of your industry, if you operate in more than one state, you are an interstate business and you must evaluate the sales tax rules in each state where you conduct business. Even if you are only in one state, don’t assume your sales tax processes and procedures are correct. Each year, states collect millions of dollars in taxes, interest, and penalties on audit from businesses who thought they were handling their sales tax properly.

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