January 2013

During the process of closing a registration for a client in the state of Washington I found the attached document dor.wa.gov/Docs/Pubs/SpecialNotices/2010/SN_10_TrailingNexus.pdf that outlines the states view on companies that wish to close their account.

This is one of the few published policies on the “trailing nexus” theory that I’ve mentioned before.  Under this policy, the state of Washington requires out of state retailers who stop having nexus with the state must continue to file returns for 4 years under this trailing nexus theory.  This theory holds that the nexus created by your business has a lingering affect in terms of generating sales and creating revenue for your company.  As such, the state of Washington wants sales tax to be collected on any taxable transaction even though you don’t have direct nexus.

Many states take this position but this is one of the few I have seen that actually has a published policy on the matter.

Ned Lenhart
President

On December 28, 2012 the Tennessee DOR issued Ruling 12-110 attempting to clarify its rule on the taxation of gold and silver bullion.  I’m not sure that it hit the mark, though.

TN, like most states, does not tax currency transactions when they are completed based on the explicit value of the coin or currency.  When the exchange or the price is based on the intrinsic value of the item then it is a taxable sales of personal property.  The most compelling evidence that an item is being sold based on “intrinsic” value is when the price varies according to weight and not its value established by the government.  As I read this opinion, then, a $20 gold coin sold for $1800 because of its weight would be considered a taxable transaction subject to 9.25% TN Sales tax.  http://www.tn.gov/attorneygeneral/op/2012/op12-110.pdf

Other states, like Georgia, address this in a rule that excludes gold and silver transactions unless they are in the form of jewelry or art or other “objects”.  However, given this ruling it may open the door for other states to reexamine their historical practices on the taxation of these types of transactions.  I think most of these rules were written when the price of gold and silver was much lower and maybe closer in price to the face value of the coin being exchanged.

https://www.salestaxstrategies.com/firm-overview.html

Last week it was reported that the Governors of Nebraska and Louisiana would start movements to eliminate their state’s individual and corporate income taxes and adopted a broader based sales tax.  I’ve been writing about this for the past several years.  These states would join other Southern states such as TN, FL, and TX that rely heavily on sales tax as their primary source of revenue.  TN, FL, and TX do have corporate level income taxes but no individual income tax.

Making such a transition could be tough to achieve given the tax credits and other incentives that are built into the income tax codes.  Both Governors talked about eliminating sales tax exemptions as a way to broaden the base to make up for the lost income tax revenue.  There are certainly some exemptions that could be eliminated, but others serve a very real economic development purposes and would likely be retained.

I suspect that these two states will not be the first during 2013 to make these types of announcements.  When states do this, it puts a lot more pressure on the sales tax collections of these states.  That means more audits and tougher enforcement rules.  https://www.salestaxstrategies.com/white-papers/whitepaper-Effective-State-Sales-Tax-System.pdf

Ned Lenhart, CPA