Posted by admin on February 24, 2012 under Uncategorized | 
Now that the Sate of Georgia has become a full member of the SSTP, there is a need to update many of its sales tax regulations to come into compliance with the program. Two proposed drafts have been issued by the Georgia Department of Revenue. The links to these regulations are below.
One regulation deals with grocery and prepared food items and the other regulation deals with drugs, prosthetic devices, and durable medical equipment. Both regulations, in my humble opinion, are flawed in some respects. The current food exemption provides an exemption based on the “point of consumption” and not on the “prepared vs non-prepared” food distinction. The current practice is easy to administer and works fairly well. The proposed regulation makes the sales tax determination on food much more difficult to deal with.
The same for the drug regulation. There is an improvement in how the exemption for prescription drugs is administered which is good. However, the exemption for prosthetics, DME, and mobility enhancement equipment is cumbersome and adds some new requirements that are not in statute. I am not sure if the Georgia DOR is attempting to increase revenue by changing these regulations or is just unaware of how radical their proposed changes really are. Neither is very comforting.
Ned Lenhart
President
Food Regulation
https://etax.dor.ga.gov/inctax/proposed_regs/1-30-12%20%20Sales%20Tax%20-%20revised%20order.pdf
Drug Regulation
https://etax.dor.ga.gov/inctax/proposed_regs/2-8-12_Promulgation%20Package_for_Proposed_SUT%20Regulation–560-12-2-30.pdf
Posted by admin on January 6, 2012 under Contractor/Repair Services, Retail |
Lately I’ve been working with companies that provide materials and installation services to customers throughout the U.S. In some cases, the materials are sold to customers and then separate installation services are arranged. In other cases, the materials are provided by my clients and installed with line-item invoicing done for billing. In some cases the materials sold remain personal property and in other cases the property is incorporated to real property. It’s a real mixed bag of situatios. In most cases, the labor to install, hook up, or affix the property is separately stated. In the vast majority of states, these separated stated labor costs are not taxable even if the property remains personalty after installation.
In about a 15 states, however, the rules on the taxation of these separately stated labor costs is far more complex. Much more so than I had first suspected. In some states, the separate stated labor is taxable as a matter or law. It makes no differenc wether the properyt is personal or real after installation. In other states, the labor is taxable unless the installation is related to a “capital improvement” of the building. In these cases the term “capital improvement’ is defined. If the requisite improvements don’t occur, the the labor is taxable as repair labor even if it relates to real property. And finally, there are states that tax installation of personal property even when separatly stated and even if the property remains personal property after installation.
Just because your state does not tax separately stated installation labor, don’t assume that other states will follow suite. Where invoices separatly state materials and labor, its quite possible the materials will be taxable since the invoice looks like a retail sales invoice and not a contractor invoice. These rules become even more complex when subcontractors perform the work on your behalf but your company “marks up” their labor and material charges and then bills the final customer. Be alert to the complexity of these rules. Get the help you may need to understand how the states tax services. States like Washington, Texas, New Jersey, and New York have very specific rules on when real property and personal property services are taxable.
Ned Lenhart
President
Interstate Tax Strategies
Posted by admin on October 28, 2011 under Tax Audit, Technology |
I don’t often find really good articles about the sales tax implications of SaaS transactions, but the following link takes you to an excellent article in CFO.com. This article outlines the real and significant sales tax issues and risks associated with providing SaaS or other “Cloud Computing” services. I am working with many companies on similar issues and plan on using this article to help solidify the need for these services.
http://www.cfo.com/article.cfm/14605332?f=search
Please contact me if you have any consulting needs in this area
Ned Lenhart, CPA
Interstate Tax Strategies, P.C.
Posted by admin on October 26, 2011 under Uncategorized |
On May 11 and again on June 20 the Virginia Department of Revenue issued rulings indicating that the burden of proof is on the seller of software to prove that it was electronically delivered. In a 2005 Ruling, the Tax Commissioner stated that invoices for the sale of electronically delivered software must contain language that “certifies” that the software was delivered electronically. If this language is not on the invoice, then the taxpayers face an uphill challenge to conclusively prove that the software was delivered electronically.
This is the most aggressive stance I’ve seen on this issue. Given the shortage of revenue in most states I’d expect to see more of this positon being taken. In working with software companies over the years, there has always been a challenge in providing conclusive proof that the software was delivered electronically.
If you sell software electronically and have Virginia customers be sure your invoice language is in accordance with the Virginia standard or that you can conclusively prove that the software was delivered. If not, your clients and you could be in for a surprise on your next sales tax audit.
Ned Lenhart
Interstate Tax Strategies, P.C.
Nlenhart@salestaxstrategies.com
Posted by admin on September 19, 2011 under Retail, Tax Audit |
Met with a client this morning to prepare for an upcoming audit. General AP looked good. However, when we got to the corporate AMEX and VISA cards, there were significant use tax issues. Because of the nature of their business, the IT folks would just purchase some of the smaller items they needed from online vendors. There were also a number of Amazon transactions that showed up. There were also entries for subscriptions and some other fees. The volume of taxable transactions was surprising and no use tax had been paid. Since the audit is starting next Monday, there is not a lot to do with these now other than manage the audit process.
Just a reminder that credit card statements are common documents for review by auditors and that use tax is due on items purchased over the Internet. If the item would have been taxable if you purchased it locally, then it will be taxable if you purchase it online.
If you have questions about the taxation of items purchased or would like assistance setting up a use tax accrual system, please contact me and we can discuss your options. nlenhart@salestaxstrategies.com
Ned Lenhart, CPA
President
Posted by admin on September 14, 2011 under Uncategorized |
I recently received a phone call from client who had heard about using a “No Nexus” letter as a way to stop suppliers from requesting resale exemption certificates in states where drop-shipments were being made. This issue surfaces every 5 years or so, so it took me a minute to understand what they were wanting to accomplish.
In a 3rd party drop-shipment the supplier asks their distributor to ship property to supplier’s customer in some remote state. This happens all the time. In this situation, the transaction between the supplier and their distributor is a purchase for resale transaction. As such, distributor needs to obtain a valid exemption certificate in the state where the sale is made (customer’s state). The distributor’s request for a resale certificate will be based largely on where they have nexus and where they are registered. If the distributor has nexus in the state where supplier’s customer is located, then distributor will require that supplier provide them a resale certificate valid in that sate.
Again, depending on the rules of the state, the ship-to state may allow the supplier to give the distributor a certificate from the suppliers “home” state, or it may accept the “home state number” on the ship-to state form, or it may require supplier to provide a certificate with the “ship to” state registration number. In either case, the requirement for giving the distributor an exemption certificate is driven by distributor’s nexus and not the supplier’s nexus.
If the supplier does not have nexus in the ship-to state and the ship-to state will not accept any type of “home state” number, there is a problem. If distributor has nexus in the ship-to state it has 2 easy options: 1) require an exemption certificate or 2) charge tax. I’ll discuss option 3 later. This is where the concept of the “No Nexus” letter comes into play. Some suppliers erroneously believe that if they simply give the distributor some letter that says “we don’t have nexus and don’t need to register to get the proper exemption certificate” that the distributor will take this and move along. Think again. With the exception of a very narrow provision in one or two states, the use of the “No Nexus” letter to avoid registration is unlikely to be accepted by the state. As a seller, this puts you at risk for making a “sale for resale” without a valid resale certificate.
As a supplier, if you don’t want your distributor to charge you tax in the ship-to state then you have two options 1) register in the ship-to state even if you don’t have nexus. (that’s what the states want anyway) or 2) have the distributor ship the goods to another state where you do have an exemption certificate and then pay the fee to ship the goods yourself to the customer. That’s it. Any use of a ”no nexus” letter must be specifically authorized by the state.
Ned Lenhart
President
Interestate Tax Strategies
770-985-9573
nlenhart@salestaxstrategies.com
Posted by admin on September 12, 2011 under Legislative, Retail, Tax Audit |
On June 28th, 2011, California Governor Jerry Brown signed into law a budget bill that expands the state’s nexus creating activities to out-of-state retailers based on the presence of in-state Internet affiliates and (in some situations) certain commonly owned companies. There is no surprise that this bill was aimed squarely at Amazon.com. The state is not subtle at all in its attempt to force Amazon to collect California sales tax on shipments made to California residence. Under this bill, the goal is to create an agency relationship between the California based retail associates and Amazon.
The Bill adds a provision that changes the definition of the term “retailer” to include anyone who pays a commission to a California based “person” for any-type of referral of potential purchasers through the use of an Internet Link or an Internet Web site. There are some de minimis provisions that would exclude small out-of-state businesses. However, unlike some other states, the new nexus standard does not apply unless (1) the fee for the advertising is a commission or otherwise based on sales and (2) the in-state person also “directly or indirectly solicits potential customers in Californai through use of flyers, newsletters, telephone calls, e-mail, blogs, microblogs, etc.” As such, in Internet affiliate in California that merely advertising for an out-of-state retailer does not create nexus, even if the payment for the advertising is commission based.
Given this unique 2 prong test, I wonder how much additional revenue California expects to get from Amazon (or anyone else). From my understanding, all of the advertising between the out-of-state retailers and the in-state is done via the Internet and does not involve any of the other types of promotional efforts outlined in the Bill.
Ned Lenhart
President
Interstate Tax Strategies
California nexus standards
Posted by admin on under Uncategorized |
In a Special Session, the Missouri House passed HB 2 which would provide an opportunity for taxpayers to pay the past due taxes without interest or penalty. The Bill was sent to the Senate where it is expected to pass. The amnesty program would run from January 1, 2012 until February 29, 2012. Once registered, the taxpayers would need to comply with state tax laws for the next 8 years. Under HB2, the amnesty applies only to tax liabilities unpaid as of December 31, 2010. As such, no 2011 liability will be covered by this plan.
Although this may be an attractive opportunity, companies need to carefully assess the overall difference between pursuing an amnesty and a Voluntary Disclosure Agreement. As with other amnesty programs, all of the past due tax must be paid and the state will waive the interest and penalty. If you don’t owe taxes for many years and interest savings is more than the tax payment, it might make sense to pursue the amnesty.
However, if you owe taxes for a number of years (including 2011) and want to limit the look back, the Voluntary Disclosure Agreement (VDA) program may be a better approach. Under this approach, you would generally get a shorter look back on the taxes paid (3 years) as well as the penalty abatement. You would still have to pay interest.
This becomes a numbers game as to what will provide you with the best tax answer. Don’t just assume the amnesty program is the best deal. Once you do the math, there may be better options. Plus, under the VDA program, there is no mandatory filing length of time after you register.
If you have questions about what might be right for you in Missouri or any other state where you have a historical liability, please contact me at nlenhart@salestaxstrategies.com
Ned Lenhart
President
Interstate Tax Strategies
Posted by admin on August 10, 2011 under Legislative |
On August 1, 2011, Sen. Dick Durbin of Illinois introduced Senate Bill 1452 “Main Street Fairness Act”. This Bill is identical to a Bill introduced in the previous Congress that essentially adopts the Streamlined Sales Tax Program (“SSTP”) and allows states that are Members of this association to require out-of-state remote sellers to collect sales tax on sales made to customers in their state even if they do not have nexus. The SSTP has been floating around for over a decade with about 20 states signing up. For the most part, this movement has been primarily involved with establishing uniform definitions and processes and has not done much about determining the actual uniform taxation of goods and services. SB 1452 does have an exemption for “small sellers” but the criteria for this have not been set.
This Bill is simply the latest in a long line of legislation that has been introduced for over 20 years in an attempt to allow states to force companies that do not have nexus to collect sales tax. There is no dispute that uncollected use tax is a serious issue for the states to deal with. Use tax continues to be one of the most widely assessed tax on audits. In the past these Bills have died in committee. The Direct Marketing Association (DMA) is a powerful lobby and has been successful in arguing defending or modifying this legislation. In the past, however, the state revenue situation has not been as bleak as it is now and a Bill like this might just pass this time.
In addition, I would not be surprised to see some type of attempt to impose a small federal sales tax on remote commerce as way to increase federal tax revenue. Who knows how creative these folks may get?
Ned Lenhart, CPA
President
Interstate Tax Strategies
Taxation of Internet Sales
Posted by admin on August 1, 2011 under Retail, Tax Audit |
On Sunday, July 31, 2011, the Atlanta-Journal Constitution (AJC) reported on page 1 of the Business Section that the Georgia Department of Revenue had recently hired 90 new auditors and 40 additional collection staff. I’ve noted this increase in previous entries. The article stresses that these auditors are not targeting specific industries, but we all know this not a fully honest statement. There is a concerted effort to audit contractors, restaurants, bars, hotels, and other service oriented businesses where the state knows they will likely have a collection. For the most part, manufacturers are not being audited since there is so little tax to be collected from them now that Georgia law exempt most of the manufacturing related items they purchase.
One of the items noted in this article is that restaurants are being assessed tax on mandatory gratuities. Yes, these are taxable in Georgia and most other states. The fact that they are separately stated does not matter since these servcies are integral with the sale and delivery of the meal. Also, these fees are paid to the restaurant and are not given direclty to the server. Optional or voluntayr gratuities are not subject to sales tax.
If you are a restaurant or have restaurant clients, make sure you have this area covered.
As simple as this sounds, many restaurants are not taxing these items. This is creating a liability for tax, interest, and penalty. It’s amazing how many companies are missing some of these basic issues which create liabilities for the company. Given the increased number of auditors the odds of your company being audited or one of your clients being audited has increased dramatically. Don’t wait to check to see if you are doing things correctly. By the time the auditor contacts you, it’s too late.
Ned Lenhart
President
Interstate Tax Strategies, P.C.
