Monthly Archives

September 2011

Sep 19
0

Don’t overlook credit card statements for use tax obligations

By | 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

Sep 14
0

Using a “No Nexus Letter”–Not always going to work.

By | Sales Tax, 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
404-403-6540
nlenhart@salestaxstrategies.com

 

Sep 12
0

California’s new nexus rule for Internet marketers–does it really close any loophole?

By | 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 

 

 

 

Sep 12
0

Missouri Tax Amnesty–Is it a good deal for you?

By | Sales Tax, 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