All Posts by Andrew Johnson

If You (or Your Clients) Have Customers in New York, Listen Up

Sales Tax in the Empire State Just Got Worse

New York just (January 15, 2019) posted a notice on their website that they’ve had an economic nexus law all along. And, guess what? It’s been effective ever since the Wayfair decision was announced.

Here’s what they said on their website: On June 21, 2018, the United States Supreme Court ruling in South Dakota v. Wayfair (138 S.Ct. 2080 [2018]) eliminated the prohibition on a state imposing sales tax collection responsibilities on businesses that have no physical presence in that state. Due to this ruling, certain existing provisions in the New York State Tax Law that define a sales tax vendor immediately became effective. Businesses that fall within this definition and make taxable sales in New York State are required to collect and remit New York State and local sales tax.

What’s a Vendor?

The term vendor includes a person who regularly or systematically solicits business in New York State by any means and by reason thereof makes taxable sales of tangible personal property to persons in the state. A person is presumed to be regularly or systematically soliciting business in the state if, for the immediately preceding four sales tax quarters:

  • the cumulative total of the person’s gross receipts from sales of tangible personal property delivered into the state exceeded $300,000, and
  • such person made more than 100 sales of tangible personal property delivered in the state.

Notice the NY test is NOT and Either/Or test like it is in most other states. In NY , your client must have more than $300K in sales AND more than 100 transactions. That’s one slightly good thing about NY compared to other states.

Here’s what NY says businesses should do next:

Therefore, a business that has no physical presence in New York State but meets the requirements outlined above must register as a New York State vendor. Such business is required to register as a vendor immediately if it has not already done so…

https://www.tax.ny.gov/pubs_and_bulls/publications/sales/nexus.htm

That’s It! No Grace Period…

Most states allowed some grace period when they announced their policies vis-a-vis Wayfair. After all, this is a big change and businesses need some time to get their tax collection systems up and running. But not New York. But it gets even worse…

Should Your Client Register Immediately? Maybe Not…

This is where things get a little dicey, as I see it. I know they said that businesses who meet the definition of a “Vendor” as defined above should register immediately, but what about the periods between now and June 21, 2018.

Did You Notice When They Said the Law Became Effective?

Go back up to the first paragraph and notice this: “Due to this ruling (Wayfair), certain existing provisions in the New York State Tax Law that define a sales tax vendor immediately became effective. Wait, the Wayfair decision was effective June 21, 2018, so that means the ‘dormant’ NY statutes would also have become effective as soon as it was constitutionally allowable. And don’t look now, but the Supreme Court does not make prospective-only decisions. As was mentioned in the oral arguments, once the Supreme Court says the commerce clause means X, then it always means X, not just in the future. Statutes can be implemented on a go-forward basis, but interpretations like in the Wayfair case are not time bound. So NY may be looking to impose its economic presence standards back to June 2018, and might not be barred from going back even further.

Would New York Do Such a Thing to Business?

History shows that they will. Absolutely. Look at what they did very publicly to Sprint, My Pillow, and others. And it might not be the sales tax auditors that initiate the actions. It could very well be done by “whistleblowers” anxious to cash in on the 25% bounties offered by the state. They would get the ball rolling and then involve the state’s Attorney General. This could be a nightmare in the making.

For More on This, Check out Our Podcast on the New York Sales Tax Breaking News

Get the link to New York’s site to report fraud HERE

Learn how much a whistleblower can earn HERE..

Find the link for the story on My Pillow HERE.

Find Andy’s article on My Pillow HERE.

Find the story on Sprint HERE.

Find Andy’s story on Sprint HERE.

To get with us for a FREE Strategy Call go 
HERE.

Voluntarily Disclosing Your Sales Tax: Is that a good idea?

Woman suffering from headache because of sales taxes

Voluntary disclosure agreements (VDAs) are a useful way to mitigate past liabilities while becoming compliant for sales tax purposes. Nearly every state offers a VDA program for sales tax, and if you qualify and take advantage, it could save quite the headache. One of the challenges is that VDA programs vary widely by state, and keeping up with the changes and variations between the states is a handful.

In the state of Texas for example, a VDA will waive all penalties and interest associated with any back taxes you may owe, and they will limit themselves to a four-year look-back period.  Hawaii, however, will waive penalties but will require a 10-year look-back period and no interest waiver.

Oklahoma offers a VDA program with a three-year look-back, and the department will also grant a full penalty waiver and will reduce the interest by half. Compare that with the state of Iowa, whose look-back period is dependent on the amount of time your business has been operating in the state and can be up to five years, while offering a penalty waiver with no interest waiver.

In addition to what they offer, states vary in their requirements to qualify for a VDA. The state of California for example, will only enter into a VDA with a taxpayer if they have not been contacted by the state or any of its offices, and the taxpayer cannot be under audit.

Contrast this position with Maine’s VDA, where taxpayers who have been contacted by the state are not automatically disqualified from the program unless they are under a criminal investigation.

Because of the variations between states, tracking down this information would be incredibly time consuming. To save you from the hassle we have composed a chart detailing the differences between the state VDA programs. This is not meant to be exhaustive, but it can give you some helpful information on how best to proceed in your situation. If you would like a copy of the chart, just let click here.

How Far Back Can States Go When They Audit You For Sales Tax? (or, What is the Statute of Limitations for Sales Tax Audits?)

The Answer May Surprise You

States can go back pretty far on you when they audit you for sales tax…

A state’s sales and use tax statute of limitations applies as a limit to how far back a state can go when they audit you — that is assuming your company has been registered and filing sales tax returns in that state. Some states have different limitations for audit assessments than they do for refunds. Most states piggyback off the federal statute of limitations rules meaning that a three-year statute of limitations applies for those filing returns, which can be extended to six for liability understatements that exceed 25 percent. If a taxpayer fails to file a return, the statute of limitations in most states never runs.

Check out this chart from CCH that shows all the states and how far they can go back. Keep in mind that Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose sales and use tax, so they are not listed in this chart.

About Peisner Johnson and Company

We Have a Chart for That — You might call it a Taxability Matrix or a Taxability Chart, the name is not important. We have various tax matrices already put together based on survey questions made to the states each year. This particular matrix addresses this question of how the states tax federally-exempt companies. If you’d like to receive one of these charts, please go to the link and download it. But remember, this chart is the result of a survey performed by the states and is research provided to us by CCH. The charts are fantastic resources, but cannot substitute for professional advice based on your specific facts and circumstances. By all means, have a look at the charts we can provide but then do your own research and consult an expert.

What’s the Best Way to Get Answers to Your State Tax Questions?

CALL THE STATE? — This may not be the best thing to do. Clients frequently remark that when the call the state for guidance, they often get hazy and even conflicting answers. We usually say that it’s not that people at the state don’t know what they’re talking about. In fact, if you get a hold of the right people with expertise in your industry, and they understand your question correctly, then you can almost always trust the answer you get from them. Just try to get the answer in writing, so you’re protected in the event of a future audit.

But you have to get the right people and you have to phrase the question appropriately using correct terminology so that misunderstandings are avoided. Certain words carry meaning in the sales tax world that might not be immediately apparent to a non sales tax person. Sales tax is much more a “form over substance” type of tax than income tax and how things are worded in a contract or invoice can be crucial to the taxability. How a question is worded can also make a big difference. Don’t get me wrong, I’m not saying there’s some sort of trick or code language that you must conform to or else, I’m just saying that you want to understand all the implications of the words you choose in asking for guidance so that you get the most accurate answer.

Plus, how do you know if you got the whole answer on your situation? You may have described your facts and circumstances accurately but left out something that you did not think was important. The answer you get would be dependent on the facts you presented. But in reality, the answer you get may not be appropriate when you consider all the relevant facts.

GOOGLE IT? — With so much information available on the Internet these days, you can Google your question and chances are, you’ll find something that seems to match your situation. The problem here, of course, is, does this answer really apply to your situation? Is there another contradicting ruling or law on this matter? Has this item you found been superseded?

GET A RULING? — What if there is no law, regulation, court case or state ruling that addresses your exact situation? Yes, this does happen and quite frequently. State revenue departments have not produced answers to every possible question. This is in stark contrast to the IRS, where it seems that no matter what situation you face, there is a regulation or revenue ruling or court case that addresses it on point — it’s just a matter of finding it. At the state level, we frequently run into situations where there is simply no documented answer to your question. In this case, we usually recommend obtaining private letter rulings from the revenue departments. Each state has their own procedure. We usually recommend only seeking a letter ruling where you have already discussed the question with a subject matter expert at the state, and gotten a pretty good idea of what you’re going to get in the ruling. It’s not always possible to do, but you don’t want bad precedent, if you can help it.

ASK THE EXPERTS? — Have you tried calling the state or just searching the Internet and came away wondering if you got the right answer? Have you considered asking an expert? You probably have, but hesitated, considering the cost. Well, this is what we do — We Solve State Tax Problems.

And, we don’t always charge for this service. How can that be, you ask? We subscribe to just about every service available and can find just about any law, regulation or court case that would bear on your facts and circumstances. And more than that, we use our many years of experience to evaluate your facts to form the correct questions. With that experience we can draw conclusions you can rely on. And we maintain contacts with key state personnel that we can confirm how the state will treat certain transactions that fall in gray areas.

Sometimes we just flat know the answer to a question you have. We always tell our clients: “If you have a question, just call us or email us. If we can answer you off the top of our heads, we’re not going to charge you. If we need to do some research, we’ll tell you before we do the work and seek your approval before we do it.” You can expect no surprise invoices from us.

So What Questions Do You Have?

Like we said earlier, we can deal with any state tax question you can think of. Of course, the answer to many questions we get is, “it depends!” And that may sound like a cop out, but it really does depend. The answer depends on which state we’re talking about number one and then on other possible variances in the facts. One of the helpful resources we subscribe to is provided by CCH. And one of the resources they give us access to are certain charts or tax matrices.

CAUTION ON CHARTS –A big word of caution is in order when it comes to charts. A chart is just a starting place when you want to do some research, and not the final answer by any means, but it’s still interesting and insightful. One particular chart they provide is unique in that it is based entirely on surveys of actual state tax departments and as such it is a good representation of state tax policy. But it is just state policy and this survey is not binding on them. Sometimes, a state’s own policy is at variance with the law, so take this with a grain of salt. But, it still makes for good state tax conversation. We’re here to help, give us a call.

Is Your New Year’s Resolution to Collect Sales Taxes in 2019?

It’s 2019, and maybe it’s time to collect sales taxes?

Want to Start Collecting Sales Tax at the First of the Year? You Can Do It! Here are the 5 Steps You Need to Take Now.

Sales taxes can seem like an overwhelming and confusing task to take on yourself. At Peisner Johnson we’ve been doing this for the last 25 years and have seen first hand just how complicated it has become.  Now with the recent decision by the Supreme Court (Wayfair) it, it appears that many companies are deciding to just bite the bullet and start collecting taxes. And it seems like they all want to make it effective January 1, 2019. In our podcastthis week, we discussed what businesses should do right away if you want to start collecting taxes on January 1. You can check out the podcast here.

Here’s an executive summary of the 5 Steps along with a list of some of the questions we answered during the podcast:

Step #1: Start With Nexus And Taxability. Figure out where you have nexus first and consider if what you sell is even taxable.

  • How do I determine my nexus footprint?
  • Do I need to get registered everywhere?
  • At what point can states force you to register?
  • Can I register for sales tax myself?
  • What can give me nexus?
  • What if I have been doing business in a state for a long time without having a sales tax license?
  • How do I know if my product is taxable?
  • What should I do if I have significant sales tax exposure in a state?

Step #2: Evaluate Your Taxing System (POS, Website, Amazon, Walmart.com, etc)

  • What do I do to make sure my shopping cart software is set up for sales tax?
  • How to make sure my Amazon seller’s account is set up correctly for sales tax?
  • Do I need to get some developers involved at this stage?

Step #3: Get Registered. States require you to register and/or obtain a license from them before you can collect tax on their behalf.

Step #4: Turn On The Tax. You need to go into your settings in all of your sales channels and turn the tax collection function on to automatically start assessing tax on your sales invoices.

  • How do I start collecting the sales tax?
  • How do I avoid getting in trouble with sales tax in all the states?
  • Can I start collecting the sales tax even if I haven’t gotten my sales tax registration yet?

Step #5: File the Returns. Once you figured out where to collect the tax and you’ve collected the money, then the time will come when you actually fill out the returns and remit the funds. It may be annually, quarterly, or monthly.

  • How often do I need to file sales tax returns?
  • Can I file my own sales tax returns?

How do States Tax Cloud Computing including Application Service Providers (ASPs) and Software as a Service (SaaS)?

Sales tax on software and SaaS is complicated.

SaaS and ASP (AKA “Cloud Computing,”) are now a very, and perhaps the most, common model for software delivery. Cloud Computing means that customers access specific software applications over the internet through third-party providers rather than through a single purchase loaded on a single computer.

The sales and use tax implications of Cloud Computing are far reaching and prompt many questions including:

  • Does the ASP or SaaS provider have nexus in the jurisdiction in which it is providing its product or services? Quick answer: “probably, yes, especially in light of Wayfair.”
  • Is the ASP or SaaS involved in the sale or license of software or the performance of a service?
  • Is Cloud Computing considered the sale of a service, and if so, are those services taxable?
  • Is Cloud Computing considered the sale of software, and if so, is it canned or custom software?
  • If Cloud Computing considered the sale of software, is an exemption available?

The basic problem in taxing cloud computing is that it’s not clear what is being sold. Is it considered tangible personal property or a service? It is not always clear whether anything has been delivered, or where it has been delivered, or whether the concept of delivery even applies.

Adding to the confusion, the distinctions between software, digital goods, and SaaS have become blurred. As a consequence, some states, like Colorado, that do not tax software delivered electronically will tax digital goods. Other states, such as New Jersey, taxes personal use software delivered electronically and digital goods, but does not tax SaaS.

Not surprisingly, the answers states have taken varying and inconsistent positions on these questions. In some states, Cloud Computing may not be taxable because they do not tax the sale of software delivered electronically or because there is no sale of tangible personal property (such as California).

Other states may not tax Cloud Computing because they consider it to be a nontaxable service. Still other states tax Cloud Computing as an information or data processing service (like Texas).

Check out this chart from CCH that summarizes the taxation of Cloud Computing across the US.

About Peisner Johnson and Company

We Have a Chart for That — You might call it a Taxability Matrix or a Taxability Chart, the name is not important. We have various tax matrices already put together based on survey questions made to the states each year. But remember, this chart is the result of a survey performed by the states and is research provided to us by CCH. The charts are fantastic resources, but cannot substitute for professional advice based on your specific facts and circumstances. By all means, have a look at the charts we can provide but then do your own research and consult an expert.

What’s the Best Way to Get Answers to Your State Tax Questions?

CALL THE STATE? — This may not be the best thing to do. Clients frequently remark that when the call the state for guidance, they often get hazy and even conflicting answers. We usually say that it’s not that people at the state don’t know what they’re talking about. In fact, if you get a hold of the right people with expertise in your industry, and they understand your question correctly, then you can almost always trust the answer you get from them. Just try to get the answer in writing, so you’re protected in the event of a future audit.

But you have to get the right people and you have to phrase the question appropriately using correct terminology so that misunderstandings are avoided. Certain words carry meaning in the sales tax world that might not be immediately apparent to a non sales tax person. Sales tax is much more a “form over substance” type of tax than income tax and how things are worded in a contract or invoice can be crucial to the taxability. How a question is worded can also make a big difference. Don’t get me wrong, I’m not saying there’s some sort of trick or code language that you must conform to or else, I’m just saying that you want to understand all the implications of the words you choose in asking for guidance so that you get the most accurate answer.

Plus, how do you know if you got the whole answer on your situation? You may have described your facts and circumstances accurately but left out something that you did not think was important. The answer you get would be dependent on the facts you presented. But in reality, the answer you get may not be appropriate when you consider all the relevant facts.

GOOGLE IT? — With so much information available on the Internet these days, you can Google your question and chances are, you’ll find something that seems to match your situation. The problem here, of course, is, does this answer really apply to your situation? Is there another contradicting ruling or law on this matter? Has this item you found been superseded?

GET A RULING? — What if there is no law, regulation, court case or state ruling that addresses your exact situation? Yes, this does happen and quite frequently. State revenue departments have not produced answers to every possible question. This is in stark contrast to the IRS, where it seems that no matter what situation you face, there is a regulation or revenue ruling or court case that addresses it on point — it’s just a matter of finding it. At the state level, we frequently run into situations where there is simply no documented answer to your question. In this case, we usually recommend obtaining private letter rulings from the revenue departments. Each state has their own procedure. We usually recommend only seeking a letter ruling where you have already discussed the question with a subject matter expert at the state, and gotten a pretty good idea of what you’re going to get in the ruling. It’s not always possible to do, but you don’t want bad precedent, if you can help it.

ASK THE EXPERTS? — Have you tried calling the state or just searching the Internet and came away wondering if you got the right answer? Have you considered asking an expert? You probably have, but hesitated, considering the cost. Well, this is what we do — We Solve State Tax Problems.

And, we don’t always charge for this service. How can that be, you ask? We subscribe to just about every service available and can find just about any law, regulation or court case that would bear on your facts and circumstances. And more than that, we use our many years of experience to evaluate your facts to form the correct questions. With that experience we can draw conclusions you can rely on. And we maintain contacts with key state personnel that we can confirm how the state will treat certain transactions that fall in gray areas.

Sometimes we just flat know the answer to a question you have. We always tell our clients: “If you have a question, just call us or email us. If we can answer you off the top of our heads, we’re not going to charge you. If we need to do some research, we’ll tell you before we do the work and seek your approval before we do it.” You can expect no surprise invoices from us.

So What Questions Do You Have?

Like we said earlier, we can deal with any state tax question you can think of. Of course, the answer to many questions we get is, “it depends!” And that may sound like a cop out, but it really does depend. The answer depends on which state we’re talking about number one and then on other possible variances in the facts. One of the helpful resources we subscribe to is provided by CCH. And one of the resources they give us access to are certain charts or tax matrices.

CAUTION ON CHARTS –A big word of caution is in order when it comes to charts. A chart is just a starting place when you want to do some research, and not the final answer by any means, but it’s still interesting and insightful. One particular chart they provide is unique in that it is based entirely on surveys of actual state tax departments and as such it is a good representation of state tax policy. But it is just state policy and this survey is not binding on them. Sometimes, a state’s own policy is at variance with the law, so take this with a grain of salt. But, it still makes for good state tax conversation. We’re here to help, give us a call.

What Methods do States Allow for Obtaining Sale Tax Refunds and Credits?

The steps for claiming a sales tax refund or credit vary greatly by state, but the most common procedures include:

  • Adjusting the sales reported or tax due (or taking a credit) on a following return
  • Amending the original return(s)
  • Filing a separate refund claim either by letter or specific form

The easiest and quickest way to get a “refund” of taxes overpaid is by taking a credit on the return you’ll be filing next month. But, be careful here, just because a state allows this method as one mechanism does not mean that it’s allowed in all situations. For example, do not assume you can take a credit on next month’s tax return for tax you paid to a vendor in error. If a state allows you to do this, it’s usually only in the case where you paid tax in error on inventory for resale.

Check out this chart from CCH that summarizes the alternatives that each state has indicated that it will accept (keep in mind that other options may be also be available).

About Peisner Johnson and Company

We Have a Chart for That — You might call it a Taxability Matrix or a Taxability Chart, the name is not important. We have various tax matrices already put together based on survey questions made to the states each year. This particular matrix addresses this question of what methods the states allow for refunds. If you’d like to receive one of these charts, please go to this link and download it. But remember, this chart is the result of a survey performed by the states and is research provided to us by CCH. The charts are fantastic resources, but cannot substitute for professional advice based on your specific facts and circumstances. By all means, have a look at the charts we can provide but then do your own research and consult an expert.

What’s the Best Way to Get Answers to Your State Tax Questions?

CALL THE STATE? — This may not be the best thing to do. Clients frequently remark that when the call the state for guidance, they often get hazy and even conflicting answers. We usually say that it’s not that people at the state don’t know what they’re talking about. In fact, if you get a hold of the right people with expertise in your industry, and they understand your question correctly, then you can almost always trust the answer you get from them. Just try to get the answer in writing, so you’re protected in the event of a future audit.

But you have to get the right people and you have to phrase the question appropriately using correct terminology so that misunderstandings are avoided. Certain words carry meaning in the sales tax world that might not be immediately apparent to a non sales tax person. Sales tax is much more a “form over substance” type of tax than income tax and how things are worded in a contract or invoice can be crucial to the taxability. How a question is worded can also make a big difference. Don’t get me wrong, I’m not saying there’s some sort of trick or code language that you must conform to or else, I’m just saying that you want to understand all the implications of the words you choose in asking for guidance so that you get the most accurate answer.

Plus, how do you know if you got the whole answer on your situation? You may have described your facts and circumstances accurately but left out something that you did not think was important. The answer you get would be dependent on the facts you presented. But in reality, the answer you get may not be appropriate when you consider all the relevant facts.

GOOGLE IT? — With so much information available on the Internet these days, you can Google your question and chances are, you’ll find something that seems to match your situation. The problem here, of course, is, does this answer really apply to your situation? Is there another contradicting ruling or law on this matter? Has this item you found been superseded?

GET A RULING? — What if there is no law, regulation, court case or state ruling that addresses your exact situation? Yes, this does happen and quite frequently. State revenue departments have not produced answers to every possible question. This is in stark contrast to the IRS, where it seems that no matter what situation you face, there is a regulation or revenue ruling or court case that addresses it on point — it’s just a matter of finding it. At the state level, we frequently run into situations where there is simply no documented answer to your question. In this case, we usually recommend obtaining private letter rulings from the revenue departments. Each state has their own procedure. We usually recommend only seeking a letter ruling where you have already discussed the question with a subject matter expert at the state, and gotten a pretty good idea of what you’re going to get in the ruling. It’s not always possible to do, but you don’t want bad precedent, if you can help it.

ASK THE EXPERTS? — Have you tried calling the state or just searching the Internet and came away wondering if you got the right answer? Have you considered asking an expert? You probably have, but hesitated, considering the cost. Well, this is what we do — We Solve State Tax Problems.

And, we don’t always charge for this service. How can that be, you ask? We subscribe to just about every service available and can find just about any law, regulation or court case that would bear on your facts and circumstances. And more than that, we use our many years of experience to evaluate your facts to form the correct questions. With that experience we can draw conclusions you can rely on. And we maintain contacts with key state personnel that we can confirm how the state will treat certain transactions that fall in gray areas.

Sometimes we just flat know the answer to a question you have. We always tell our clients: “If you have a question, just call us or email us. If we can answer you off the top of our heads, we’re not going to charge you. If we need to do some research, we’ll tell you before we do the work and seek your approval before we do it.” You can expect no surprise invoices from us.

So What Questions Do You Have?

Like we said earlier, we can deal with any state tax question you can think of. Of course, the answer to many questions we get is, “it depends!” And that may sound like a cop out, but it really does depend. The answer depends on which state we’re talking about number one and then on other possible variances in the facts. One of the helpful resources we subscribe to is provided by CCH. And one of the resources they give us access to are certain charts or tax matrices.
CAUTION ON CHARTS –A big word of caution is in order when it comes to charts. A chart is just a starting place when you want to do some research, and not the final answer by any means, but it’s still interesting and insightful. One particular chart they provide is unique in that it is based entirely on surveys of actual state tax departments and as such it is a good representation of state tax policy. But it is just state policy and this survey is not binding on them. Sometimes, a state’s own policy is at variance with the law, so take this with a grain of salt. But, it still makes for good state tax conversation. We’re here to help, give us a call.

How do States Tax Construction Contractors?

Sales tax and construction is complicated.

In most states, if a contractor is performing work on real property, the contractor is deemed to be the final consumer, or the end user of the tangible personal property used to build the real property and, accordingly, must pay sales tax upon those purchases. Accordingly, in most states, as a purchaser of construction services, you would not owe any sales/use tax on the contract price.

In the beginning days of sales tax, states applied the tax to tangible personal property (because real property was already taxed with property taxes). Services were not taxed in the early days. Therefore, construction historically has generally not been taxed because it was deemed a service. However, for construction and other service providers, they still owe sales or use tax on the tangible personal property used in performing those services.

This seems rather clear on its surface. A contractor is the end user of the tangible personal property because when the contractor finishes the job, the tangible personal property (the nails, sheet rock, lumber, cement, iron, etc.) has transformed into real property.

Unfortunately though, just paying sales tax on purchases does not begin to cover all the multitude of activities performed by contractors. In addition to contract jobs on real property, contractors sometimes act as retailers of fixtures or other tangible personal property such as furnaces, water heaters, cabinets, and air conditioners. Construction contractors will usually have questions over the different sales tax treatment depending on the types of contracts, such as cost-plus, fixed-price, time and materials. There are further complexities regarding contract work with federal and state governments, churches, and not-for-profit organizations. And then the distinction between real property and tangible personal property contracts is not always clear.

Construction contractors face some of the most complicated sales tax questions of any industry especially if they do business in different states. A contractor must always consider the impact of sales tax on its purchases when making a bid. They can be caught between a rock and a hard place because they face constant competition and the bid price is a major criteria for who gets the contract. But they also have to be very careful to accurately estimate the tax cost of the materials incorporated in the job so they don’t end up losing money on a job. For sure they need to be careful to bill the sales tax on the overall job, if state law requires it.

Gross receipts taxes and contractors

While the guidelines just provided are applicable to the majority of states, it is important to remember that there are always exceptions. Arizona is one of those exceptions. Arizona has a gross receipts tax called the Transaction Privilege Tax. In many ways, it operates like a sales tax in that it is billed separately. But technically speaking it is a tax on the seller, not the buyer. The differences become very apparent when it comes to construction. In Arizona “Prime Contractors,” who modify real property, which includes construction, improvement, removal, wreckage, or demolition activities, purchase their construction materials free of tax. Why? Because the Prime Contractor must pay a “Transaction Privilege Tax” (TPT) on 65% of the gross receipts on their contracts, a tax that is passed on to the building owner in much the same way a sales tax is passed on to a purchaser.

At first glance, the TPT on contractors may seem simple enough, but if a contractor performs maintenance, repair, replacement, or alterations (MRRA) work for the owner of real property, or the owners of improvements to real property, that contractor becomes a service contractor, not a prime contractor. As a consequence, instead of buying their building supplies free of tax like a prime contractor and paying tax on 65% of their gross receipts, a service contractor pays tax on the building materials when they buy them.

You can quickly see how this could be confusing. First, a contractor has to know what is included in MRRA and what is still modifications that are prime contracting. Second, contractors could be a prime contractor, or subcontractor to a prime, on one job and a service contractor on another job. In these cases, the prime contractor inventory and service contractor inventory must be accounted for separately.

Other states imposing special taxes upon contractors in addition to a general sales tax include Mississippi and South Dakota.

Check out this chart from CCH that indicates whether a contractor’s purchases of materials or equipment are subject to tax when used in performing a construction contract that is billed on a lump sum basis. Special rules may apply when construction is performed for government or not-for-profit entities. .

About Peisner Johnson and Company

We Have a Chart for That — You might call it a Taxability Matrix or a Taxability Chart, the name is not important. We have various tax matrices already put together based on survey questions made to the states each year. But remember, this chart is the result of a survey performed by the states and is research provided to us by CCH. The charts are fantastic resources, but cannot substitute for professional advice based on your specific facts and circumstances. By all means, have a look at the charts we can provide but then do your own research and consult an expert.

What’s the Best Way to Get Answers to Your State Tax Questions?

CALL THE STATE? — This may not be the best thing to do. Clients frequently remark that when the call the state for guidance, they often get hazy and even conflicting answers. We usually say that it’s not that people at the state don’t know what they’re talking about. In fact, if you get a hold of the right people with expertise in your industry, and they understand your question correctly, then you can almost always trust the answer you get from them. Just try to get the answer in writing, so you’re protected in the event of a future audit.

But you have to get the right people and you have to phrase the question appropriately using correct terminology so that misunderstandings are avoided. Certain words carry meaning in the sales tax world that might not be immediately apparent to a non sales tax person. Sales tax is much more a “form over substance” type of tax than income tax and how things are worded in a contract or invoice can be crucial to the taxability. How a question is worded can also make a big difference. Don’t get me wrong, I’m not saying there’s some sort of trick or code language that you must conform to or else, I’m just saying that you want to understand all the implications of the words you choose in asking for guidance so that you get the most accurate answer.

Plus, how do you know if you got the whole answer on your situation? You may have described your facts and circumstances accurately but left out something that you did not think was important. The answer you get would be dependent on the facts you presented. But in reality, the answer you get may not be appropriate when you consider all the relevant facts.

GOOGLE IT? — With so much information available on the Internet these days, you can Google your question and chances are, you’ll find something that seems to match your situation. The problem here, of course, is, does this answer really apply to your situation? Is there another contradicting ruling or law on this matter? Has this item you found been superseded?

GET A RULING? — What if there is no law, regulation, court case or state ruling that addresses your exact situation? Yes, this does happen and quite frequently. State revenue departments have not produced answers to every possible question. This is in stark contrast to the IRS, where it seems that no matter what situation you face, there is a regulation or revenue ruling or court case that addresses it on point — it’s just a matter of finding it. At the state level, we frequently run into situations where there is simply no documented answer to your question. In this case, we usually recommend obtaining private letter rulings from the revenue departments. Each state has their own procedure. We usually recommend only seeking a letter ruling where you have already discussed the question with a subject matter expert at the state, and gotten a pretty good idea of what you’re going to get in the ruling. It’s not always possible to do, but you don’t want bad precedent, if you can help it.

ASK THE EXPERTS? — Have you tried calling the state or just searching the Internet and came away wondering if you got the right answer? Have you considered asking an expert? You probably have, but hesitated, considering the cost. Well, this is what we do — We Solve State Tax Problems.

And, we don’t always charge for this service. How can that be, you ask? We subscribe to just about every service available and can find just about any law, regulation or court case that would bear on your facts and circumstances. And more than that, we use our many years of experience to evaluate your facts to form the correct questions. With that experience we can draw conclusions you can rely on. And we maintain contacts with key state personnel that we can confirm how the state will treat certain transactions that fall in gray areas.

Sometimes we just flat know the answer to a question you have. We always tell our clients: “If you have a question, just call us or email us. If we can answer you off the top of our heads, we’re not going to charge you. If we need to do some research, we’ll tell you before we do the work and seek your approval before we do it.” You can expect no surprise invoices from us.

So What Questions Do You Have?

Like we said earlier, we can deal with any state tax question you can think of. Of course, the answer to many questions we get is, “it depends!” And that may sound like a cop out, but it really does depend. The answer depends on which state we’re talking about number one and then on other possible variances in the facts. One of the helpful resources we subscribe to is provided by CCH. And one of the resources they give us access to are certain charts or tax matrices.

CAUTION ON CHARTS –A big word of caution is in order when it comes to charts. A chart is just a starting place when you want to do some research, and not the final answer by any means, but it’s still interesting and insightful. One particular chart they provide is unique in that it is based entirely on surveys of actual state tax departments and as such it is a good representation of state tax policy. But it is just state policy and this survey is not binding on them. Sometimes, a state’s own policy is at variance with the law, so take this with a grain of salt. But, it still makes for good state tax conversation. We’re here to help, give us a call.

How do States Tax Manufacturing Equipment?

Manufacturers are usually entitled to sales tax exemptions.

The first thing you need to think about in determining if certain manufacturing equipment can be purchased tax free is what is manufacturing? I’m sure that it comes as no surprise that the definition of the term “manufacturing” varies from state to state. For example, all manufacturing probably includes some processing and/or fabrication, but not all fabrication or processing is manufacturing. Similar questions arise over refining, assembly, and construction. This is where the confusion arises: trying to distinguish between what is fabrication, processing, refining, assembly, etc.

Not only are there disputes over the definition of manufacturing,there is also usually a question of when the “manufacturing process” begins or ends. Machinery used either before or after the manufacturing process begins or ends usually does not qualify for a state’s sales tax exemption for machinery used in manufacturing.  In general, the manufacturing process begins when the raw materials are removed from their first point of storage and ends when the completed product is taken off the line and placed in storage. Some of the more typical areas not qualifying for the manufacturing exemption include receiving, inspection, shipping, intraplant transportation, and finished goods warehousing equipment. The key is usually whether the activity or equipment contributes to a change in the product being produced or is an essential step in the manufacturing process.

Then comes the question of whether a state’s manufacturing exemption applies strictly to “manufacturers” as that term is defined by the state (usually by reference to an SIC code) or if the exemption is for equipment used in “manufacturing”. Equipment that is only exempt if it is used by a “manufacturer” in the “manufacturing process” is less broad than if the exemption is for equipment that is simply used in the “manufacturing process”.

Check out this chart from CCH that summarizes the taxation of manufacturing machinery across the US.

About Peisner Johnson and Company, LLP

We Have a Chart for That — You might call it a Taxability Matrix or a Taxability Chart, the name is not important. We have various tax matrices already put together based on survey questions made to the states each year. But remember, this chart is the result of a survey performed by the states and is research provided to us by CCH. The charts are fantastic resources, but cannot substitute for professional advice based on your specific facts and circumstances. By all means, have a look at the charts we can provide but then do your own research and consult an expert.

What’s the Best Way to Get Answers to Your State Tax Questions?

CALL THE STATE? — This may not be the best thing to do. Clients frequently remark that when the call the state for guidance, they often get hazy and even conflicting answers. We usually say that it’s not that people at the state don’t know what they’re talking about. In fact, if you get a hold of the right people with expertise in your industry, and they understand your question correctly, then you can almost always trust the answer you get from them. Just try to get the answer in writing, so you’re protected in the event of a future audit.

But you have to get the right people and you have to phrase the question appropriately using correct terminology so that misunderstandings are avoided. Certain words carry meaning in the sales tax world that might not be immediately apparent to a non sales tax person. Sales tax is much more a “form over substance” type of tax than income tax and how things are worded in a contract or invoice can be crucial to the taxability. How a question is worded can also make a big difference. Don’t get me wrong, I’m not saying there’s some sort of trick or code language that you must conform to or else, I’m just saying that you want to understand all the implications of the words you choose in asking for guidance so that you get the most accurate answer.

Plus, how do you know if you got the whole answer on your situation? You may have described your facts and circumstances accurately but left out something that you did not think was important. The answer you get would be dependent on the facts you presented. But in reality, the answer you get may not be appropriate when you consider all the relevant facts.

GOOGLE IT? — With so much information available on the Internet these days, you can Google your question and chances are, you’ll find something that seems to match your situation. The problem here, of course, is, does this answer really apply to your situation? Is there another contradicting ruling or law on this matter? Has this item you found been superseded?

GET A RULING? — What if there is no law, regulation, court case or state ruling that addresses your exact situation? Yes, this does happen and quite frequently. State revenue departments have not produced answers to every possible question. This is in stark contrast to the IRS, where it seems that no matter what situation you face, there is a regulation or revenue ruling or court case that addresses it on point — it’s just a matter of finding it. At the state level, we frequently run into situations where there is simply no documented answer to your question. In this case, we usually recommend obtaining private letter rulings from the revenue departments. Each state has their own procedure. We usually recommend only seeking a letter ruling where you have already discussed the question with a subject matter expert at the state, and gotten a pretty good idea of what you’re going to get in the ruling. It’s not always possible to do, but you don’t want bad precedent, if you can help it.

ASK THE EXPERTS? — Have you tried calling the state or just searching the Internet and came away wondering if you got the right answer? Have you considered asking an expert? You probably have, but hesitated, considering the cost. Well, this is what we do — We Solve State Tax Problems.

And, we don’t always charge for this service. How can that be, you ask? We subscribe to just about every service available and can find just about any law, regulation or court case that would bear on your facts and circumstances. And more than that, we use our many years of experience to evaluate your facts to form the correct questions. With that experience we can draw conclusions you can rely on. And we maintain contacts with key state personnel that we can confirm how the state will treat certain transactions that fall in gray areas.

Sometimes we just flat know the answer to a question you have. We always tell our clients: “If you have a question, just call us or email us. If we can answer you off the top of our heads, we’re not going to charge you. If we need to do some research, we’ll tell you before we do the work and seek your approval before we do it.” You can expect no surprise invoices from us.

So What Questions Do You Have?

Like we said earlier, we can deal with any state tax question you can think of. Of course, the answer to many questions we get is, “it depends!” And that may sound like a cop out, but it really does depend. The answer depends on which state we’re talking about number one and then on other possible variances in the facts. One of the helpful resources we subscribe to is provided by CCH. And one of the resources they give us access to are certain charts or tax matrices.

CAUTION ON CHARTS –A big word of caution is in order when it comes to charts. A chart is just a starting place when you want to do some research, and not the final answer by any means, but it’s still interesting and insightful. One particular chart they provide is unique in that it is based entirely on surveys of actual state tax departments and as such it is a good representation of state tax policy. But it is just state policy and this survey is not binding on them. Sometimes, a state’s own policy is at variance with the law, so take this with a grain of salt. But, it still makes for good state tax conversation. We’re here to help, give us a call.

How Far Back Can You Go Back In Seeking a Refund of Sales Taxes? (or, What is the Statute of Limitations for Sales Tax Refunds?)

The Answer May Surprise You

You can’t go as far back for sales tax refunds as the state can to assess you…

A state’s sales and use tax statute of limitations applies as a limit to how far back a state can go when they audit you — that is assuming your company has been registered and filing sales tax returns in that state. Some states have different limitations for audit assessments than they do for refunds.

Check out this chart from CCH that shows all the states and how far you can go back with a refund claim. Keep in mind that Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose sales and use tax, so they are not listed in this chart.

About Peisner Johnson and Company

We Have a Chart for That — You might call it a Taxability Matrix or a Taxability Chart, the name is not important. We have various tax matrices already put together based on survey questions made to the states each year. This particular matrix addresses this question of the statute of limitations. If you’d like to receive one of these charts, please go to this link and download it. But remember, this chart is the result of a survey performed by the states and is research provided to us by CCH. The charts are fantastic resources, but cannot substitute for professional advice based on your specific facts and circumstances. By all means, have a look at the charts we can provide but then do your own research and consult an expert.

What’s the Best Way to Get Answers to Your State Tax Questions?

CALL THE STATE? — This may not be the best thing to do. Clients frequently remark that when the call the state for guidance, they often get hazy and even conflicting answers. We usually say that it’s not that people at the state don’t know what they’re talking about. In fact, if you get a hold of the right people with expertise in your industry, and they understand your question correctly, then you can almost always trust the answer you get from them. Just try to get the answer in writing, so you’re protected in the event of a future audit.

But you have to get the right people and you have to phrase the question appropriately using correct terminology so that misunderstandings are avoided. Certain words carry meaning in the sales tax world that might not be immediately apparent to a non sales tax person. Sales tax is much more a “form over substance” type of tax than income tax and how things are worded in a contract or invoice can be crucial to the taxability. How a question is worded can also make a big difference. Don’t get me wrong, I’m not saying there’s some sort of trick or code language that you must conform to or else, I’m just saying that you want to understand all the implications of the words you choose in asking for guidance so that you get the most accurate answer.

Plus, how do you know if you got the whole answer on your situation? You may have described your facts and circumstances accurately but left out something that you did not think was important. The answer you get would be dependent on the facts you presented. But in reality, the answer you get may not be appropriate when you consider all the relevant facts.

GOOGLE IT? — With so much information available on the Internet these days, you can Google your question and chances are, you’ll find something that seems to match your situation. The problem here, of course, is, does this answer really apply to your situation? Is there another contradicting ruling or law on this matter? Has this item you found been superseded?

GET A RULING? — What if there is no law, regulation, court case or state ruling that addresses your exact situation? Yes, this does happen and quite frequently. State revenue departments have not produced answers to every possible question. This is in stark contrast to the IRS, where it seems that no matter what situation you face, there is a regulation or revenue ruling or court case that addresses it on point — it’s just a matter of finding it. At the state level, we frequently run into situations where there is simply no documented answer to your question. In this case, we usually recommend obtaining private letter rulings from the revenue departments. Each state has their own procedure. We usually recommend only seeking a letter ruling where you have already discussed the question with a subject matter expert at the state, and gotten a pretty good idea of what you’re going to get in the ruling. It’s not always possible to do, but you don’t want bad precedent, if you can help it.

ASK THE EXPERTS? — Have you tried calling the state or just searching the Internet and came away wondering if you got the right answer? Have you considered asking an expert? You probably have, but hesitated, considering the cost. Well, this is what we do — We Solve State Tax Problems.

And, we don’t always charge for this service. How can that be, you ask? We subscribe to just about every service available and can find just about any law, regulation or court case that would bear on your facts and circumstances. And more than that, we use our many years of experience to evaluate your facts to form the correct questions. With that experience we can draw conclusions you can rely on. And we maintain contacts with key state personnel that we can confirm how the state will treat certain transactions that fall in gray areas.

Sometimes we just flat know the answer to a question you have. We always tell our clients: “If you have a question, just call us or email us. If we can answer you off the top of our heads, we’re not going to charge you. If we need to do some research, we’ll tell you before we do the work and seek your approval before we do it.” You can expect no surprise invoices from us.

So What Questions Do You Have?

Like we said earlier, we can deal with any state tax question you can think of. Of course, the answer to many questions we get is, “it depends!” And that may sound like a cop out, but it really does depend. The answer depends on which state we’re talking about number one and then on other possible variances in the facts. One of the helpful resources we subscribe to is provided by CCH. And one of the resources they give us access to are certain charts or tax matrices.

CAUTION ON CHARTS –A big word of caution is in order when it comes to charts. A chart is just a starting place when you want to do some research, and not the final answer by any means, but it’s still interesting and insightful. One particular chart they provide is unique in that it is based entirely on surveys of actual state tax departments and as such it is a good representation of state tax policy. But it is just state policy and this survey is not binding on them. Sometimes, a state’s own policy is at variance with the law, so take this with a grain of salt. But, it still makes for good state tax conversation. We’re here to help, give us a call.

What (NOT) To Expect From a Sales Tax Audit

First, don’t be shocked that you’re being audited! You should expect a sales tax audit if you sell to customers in other states. You may even be audited by another state before you get audited by your own. In fact, the odds of getting audited by more than one state are pretty good. This is because of the expansion of “nexus”, especially in light of the Wayfair decision by the US Supreme Court in June, 2018. States are setting up audit offices all over the U.S. to conduct audits on companies that now have nexus in their state.

Data from the Texas Comptroller also supports this claim, as one-third of their audits are conducted on businesses located outside of Texas. Research also shows that Texas has a total of 595 auditors with 78 of those permanently based out of state.

Second, if/when you are audited, don’t be surprised… 

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