Category

Retail

Dec 26
0

Amazon Fulfillment Services-Creating Nexus for E-tailers

By | Retail

During 2012 I’ve learned a lot about how small and large e-commerce companies are using the fulfillment services of Amazon to accomplish their retail objectives.  This service occurs in two different ways.

1. the e-tailer owns goods that are located in one of Amazon’s many warehouses and they use Amazon’s website to solicit sales.  When a sale is placed via the Amazon website, the inventory is shipped the the customer and the e-tailer is charged a fee for processing the order and for managing the inventory

2.  Amazon houses the inventory of the e-tailer but the e-tailer manages its own e-commerce site and shopping cart.  When an order is placed, the order is sent to the Amazon fulfillment center and is shipped out.  Again, Amazon is paid a fee for processing the order and for other administrative services.  https://www.salestaxstrategies.com/tax-consulting-services.html#salesTaxNexu

In both of these situations, the e-tailer owns property in the Amazon warehouse.  In virtually every state with a sales tax, the presence of inventory or other property in a state creates “nexus” for sales tax purposes.  While it is true that the e-tailer does not solicit sales in any way other than through the internet, that may be the least of the worries these companies may have when it comes to their multistate sales tax compliance obligation.  The presence of property in the state and the payment of an agent to help fulfill the sales made to customers int that state may be all that is needed for your company to have nexus in the state where the inventory is located.

If you are a company that uses the wide array of fulfillment services provided by Amazon, then you should take a serious and objective look at what states your inventory is located and in which of the many Amazon fulfillment centers your property may reside.  In those states, you may want to seriously re-evaluate your previous nexus considerations and evaluate whether there is exposure for uncollected sales tax and what impact this nexus may have for future compliance.

If you have any questions please call me for a no cost discussion.

Ned Lenhart, CPA
President

 

 

 

Jan 06
0

Taxation of Labor Charges-Be alert to unique rules

By | 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 

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 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 

 

 

 

Aug 01
0

Georgia Increases Audit Staff- (7-31-11 AJC Article)

By | 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.

 

Jun 17
0

Beware of Home Rule Jurisdictions

By | Retail

For local sales tax purposes, most cities and counties that have their own tax administration must follow the substantive tax rules outlined by state sales tax law.  This is not the case, however, with “home rule” cities.  These are mostly found in Arizona, Colorado, and Louisiana.  In a small way, you may see some issues in Alabama also.

The difference between state and local tax rules became very evident for a client recently who assumed the tax base in Phoenix, AZ was the same as the tax base for the state of Arizona.  The difference was brought to his attention by a city auditor.  The “Model tax Code” used by most of the home rule cities in Colorado broadly defines the term “gross income” to include many of the services that are excluded by state law.  Primarily separately stated postage and delivery charges.

A similar issue exists with another client who sells machinery to customers located in Denver, Colorado.  For state purposes these sales are exempt under the manufacturing equipment exemption.   For Denver purposes, they are taxable because Denver does not exempt machinery used in manufacturing.

Be alert if you do business in Arizona, Colorado, and Louisiana.  Do not just assume the tax rules are the same for state and local tax purposes.

Ned Lenhart

Interstate Tax Strategies
Home Rule

Apr 25
0

Beware of Rate Changes

By | Retail

Over the weekend I was catching up on some old emails, and saw that there were 111 sales tax rate changes so far during the month of April.  Most of these were local tax rate changes.  It should be no surprise that 107 of these 111 changes were rate increases.  Only 4 rate decreases.

I’m sure this trend will continue for quite some time.

Ned Lenhart

Apr 20
0

Sales Tax Issues with Groupon and Similar Services

By | Retail, Technology

My wife recently started using Groupon to get some good deals at restaurants and for some other services.  I started to explore this site a bit more and saw some very interesting and attractive deals.  As a sales tax consultant, I tend to look at these situations with a curious eye on what type of sales tax consequence could be involved.

As I understand Groupon, they are an electronic marketing co-op that offers discount coupons and discounted prices for good and services.  Groupon charges the merchant a commission or placement fee and then sends the retailer the difference.   For example, a local restaurant recently was selling $20.00 coupons for $10.00.  This was a great deal since we go there all the time.  For sales tax purposes, this coupon was treated as some type of gift card.  When we used the card our bill was $35.00 plus 6% sales tax for a total of $37.10.  We used the $20.00 Groupon and paid the cashier $17.10.  In this case, the retailer handled all the sales tax on the transaction.

In other Groupon situations, the services offered are not coupons but are the direct purchase of the item.   For example, we recently bought a carpet cleaning service for $50.00.  That’s all we pay.  This is not a coupon but is just a discounted purchase of a product.  There are also haircuts for discounted price, moving services, inflatable toy rentals, bed & breakfast rentals, and hotel stays.   These are not just coupons, but are the payment for the service.  My question is how sales tax is or should be handled?

We have yet to purchase a taxable service on Groupon.  In the list above, hotel rentals are clearly taxable in Georgia.  As I looked at the site, I didn’t see any mention of sales tax.  Because this is not a coupon, I think a strong argument could be made that Groupon is acting as a retailer of hotel rooms and should be collecting sales tax and lodging tax on these transactions.  I know nothing about Groupon’s nexus footprint, so it’s impossible for me to say that they have the obligation.  However, I’m curious how the hotel is handling these situations.  Are they paying sales tax only on what Groupon sends them as their portion of the sale or are they remitting tax on the full sales price of the transaction?  Hard to tell.

I’d love your comments on this topic.  I can see that this model is going to be building quickly.  As such, the sales tax folks can’t be far behind.

Comments please

Ned Lenhart

Groupon Sales Tax

Mar 01
0

Fellow CPAs-Stop telling clients that servcies are not taxable

By | Retail, Tax Audit

During the past month I’ve been amazed at how many people I’ve talked with who have been advised by their CPA that “services are not taxable” so don’t worry about charging tax.  This statement has been provided without any research or thought as to what the company may be doing.  Especially when we are dealing with multistate services.  True, Georgia does not tax a lot of services that other states do, but they certainly tax a wide variety of transportation, amusement, and entertainment services that could include what your clients do.

Each state taxes different services.  Texas, for example, taxes a wide variety of real property services including certain remodeling services.  I’m trying to help unwind a mess that a company has because their Georgia CPA made a blanket statement that services were not taxable and there was nothing for them to worry about.  They later stated that they really never looked at the Texas rules, they just assumed that everyone was like Georgia.

If you are a CPA please take some time to carefully evaluate what your client’s do before you jump to the conclusion that the services they provide are not taxable.  Many states tax lots of services–New York, New Jersey, Florida, Texas, Pennsylvania, Washington DC, Washington, Ohio, Connecticut, and many more.

Ned Lenhart
President
Taxation of Services

Jan 16
0

Why Wholesalers Need to be Registered for Sales Tax

By | Retail, Tax Audit

Over the past 20 years my position on the need for wholesalers to be registered has changed. My original position was based on the assumption (which I know is now false) that wholesalers have valid exemption certificates for all the sales they make.  Over the past several years, I have been shocked by the failure of multistate wholesalers to have the exemption certificates they need to have. Over the years, this failure has cost these businesses a huge amount of sales tax, interest, and penalties that was paid on audit. As states continue to be short of revenue, they are looking for the easiest source of audit assessments.  They have zeroed in on wholesalers who they know are missing exemption certificates for the sales they make.  Why?

One of the pillars of the state sales tax system is the presumption that all sales of tangible personal property are taxable until the seller has documented proof that the sale is exempt.  One of the largest exemptions is the “sale for resale” exemption.  When wholesalers sell to retailers, the transaction is not taxable as long as the retailer provides the wholesaler the proper exemption certificate.  How hard could this be?  Apparently it is much harder than I had originally believed.  Wholesalers, in their effort to make the sale, are quick let their customer promise to give them an exemption certificate after the fact.  This often times never occurs which leaves the wholesaler fully exposed for any tax that was not charged.  In the eyes of an auditor, it may make no difference that the retailer sold the merchandise and collected tax on the final retail sales.  The point is, that the wholesale transaction was not properly documented which makes it a potentially taxable transaction.

So how does this align with the need to be registered.  In short, “statute of limitations”.  Many wholesalers have been operating for years in states without being registered for sales tax.  No tax was ever due on their sales and they didn’t feel any obligation to register just so they could file “Zero Returns”.  The states have wised up to this strategy and are now auditing these wholesalers.  If nexus can be established, the states are going back 5 to 10 years and asking for exemption certificates for the untaxed sales.  In many cases, the wholesalers cannot provide them and are assessed back tax, penalty, and interest.

I’m encouraging wholesalers to get registered and to file returns just so they can limit the audit look back to 3 or 4 years.  This is also forcing them to collect and maintain exemption certificates.  I’m also encouraging wholesalers to consider a voluntary disclosure even when no tax is due.  A VDA could limit the look back for potential liability to just a few years.  This could be a huge saving for the company.

If you are a multistate wholesaler and have nexus in several states, make sure you have all the resale exemption certificates you need to support your non-taxed sales.  If you don’t and your customers are out of business, you may want to evaluate ways to come into compliance.

Ned Lenhart
President

Wholesaler sales tax registration