Ned Lenhart

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

The Georgia Department of Revenue has published revisions to Rule 560-12-2-.64 to explain interpretation of the new statute that exempts energy used by manufacturers.

In this rule, the DOR explains that the energy exemption applies energy use “for any purpose at a manufacturing plant” including:

1. machinery operations
2. create conditions necessary for the manufacture of property
3. Perform an actual part of the manufacture for personal property
4. administrative or other ancillary activities that are located at the manufacturing plant
5. Is related to operations that convey, transport, handle or store raw materials or finished goods
6. for heating, cooling, ventilation, illumination, fire safety, and other comfort and convenience purposes.

This includes electricity, water, natural gas, propane, heating oil, wood, and others forms of fuel

This exemption is phased in over a 4 year period of time beginning January 1, 2013.

https://www.salestaxstrategies.com/index.html

Ned Lenhart,CPA
President

On August 28th, the PA Department of Revenue ruled that the presence of an instate affiliates will not create nexus for the out-of-state seller unless there is a commission paid by the out-of-state seller for the services performed by the in-state affiliate.  This is especially true where the commission is based as a percentage of sales.   While the state is trying to tie this “commission based” nexus rule to the recently passed Amazon laws in other states, the truth of the matter is that any commission based agent will create nexus for the out of state principal.  

There may be a lot of internet sellers who are only monitoring the development of the “Amazon” legislation and are not really paying attention to the traditional nexus rules.  These would include the presence of property in a state.  In many situations, the out-of-state e-tailers use Amazon and other “fulfillment” centers for delivery of goods that are ordered.  In these cases, the e-tailer may actually ship property to the fulfillment center and then pay a fee for fulfillment.  The presence of this property in the state will, in most cases, create nexus in most state and create a sales tax collection responsibility for all the sales shipped to that state by the e-tailer regardless where they were shipped from.

Ned Lenhart, CPA
President

In the September edition of the Journal of Accountancy, the section entitled “From the Tax Adviser” ventures into the world of sales tax and the concept of successor liability for income and franchise tax.  I’ll confess that this was new to me.

In his article, the Editor notes that Illinois and Pennsylvania have provisions that the buyer of assets can succeed to the income tax liabilities of the seller when a “major part” of the business is purchased.  To avoid this liability, the buyer must notify the state that the bulk-sale is occurring. 

These provisions sound similar to the sales tax bulk-sale notifications which are mostly ignored in every M&A deal I’ve ever been involved with.  Rather than go through the pain of getting tax clearances from the states, most sellers and buyers just work out a hold-back or escrow of the taxes due.  Speaking of sales tax, the purchase of assets will make the buyer the successor to the seller’s known and unknown sales tax liability.  If due diligence is not conducted, these issues can be significant.

Ned Lenhart, CPA
President

Be alert to the state sales tax rules where out-of-state customers come into your home state to take delivery of products for delivery back to their home state. 

If the products being sold are for “resale”, make sure you get the appropriate resale certificate.  This might require that your customer first register with your state to obtain a valid number.  The failure to obtain a valid resale certificate will make these sales taxable in your state.  It’s tough to get tax collected after the sale has been completed.

If the property sold is taxable in your state, then your obligation is to charge sales tax.  It is irrelevant that the property purchased may be exempt in the state where it will be used.   This often happens with manufacturing machinery and equipment.  The out-of-state purchaser comes to your state to take delivery of machinery which will be exempt in their “home state”.  However, the state where the buyer takes possession of the equipment does not have an exemption for machinery or only allows the exemption for machinery which is used in that state.   

In most cases, the “export” sales tax exemption only appies to items place on common carriers for their delivery or are delivered outside the state by the seller’s vehicle.  There are some specific exemptions for aircraft and other common carrier vehicles.

Ned Lenhart, CPA
President