Navigating the complexities of sales and use taxes is crucial for any business selling goods or services. Sales and use tax laws can be confusing, with regulations varying widely by state and industry. Proper compliance can save businesses from hefty penalties, audit risks, and unexpected expenses. Below is a breakdown of key concepts, including sales tax, use tax, nexus, and tax-exempt purchases, to help business owners understand their obligations and stay compliant.

What Are Sales and Use Taxes?

Sales tax is a state-imposed tax on the retail sale of goods and certain services collected by the seller at the point of sale and remitted to the state. Use tax, by contrast, applies when goods are purchased out of state for use within a state without sales tax being paid at the time of purchase. For example, if a business buys equipment from another state and no sales tax is charged, the business is typically required to pay use tax to the state where the equipment is used.

Understanding the distinction between sales and use taxes is essential for maintaining compliance and avoiding potential penalties.

Understanding Nexus and Sales Tax Obligations

One of the most important concepts for businesses to understand is sales tax nexus. Nexus refers to the level of connection a business has with a state, determining whether it must collect and remit sales tax there. Traditionally, nexus was established through physical presence, such as a storefront, office, or warehouse. However, the landmark 2018 South Dakota v. Wayfair, Inc. decision expanded the definition to include economic nexus. Now, many states require businesses to collect sales tax if they exceed a certain sales threshold or transaction volume within the state, even without a physical presence.

Taxable vs. Non-Taxable Items and Services

Understanding which items and services are taxable is essential for compliance. While most physical goods are subject to sales tax, certain services like repairs, shipping, and installation may or may not be taxed depending on the state. This variation can make it challenging for businesses operating in multiple states to calculate and remit taxes accurately. Staying up to date on state-specific sales tax laws is critical, as tax rules can change frequently.

The Importance of Sales Tax Compliance

For businesses, sales tax compliance involves accurately collecting, reporting, and remitting sales and use taxes to the appropriate state authorities. Proper compliance not only avoids costly penalties and audits but also safeguards a business’s reputation. 

Exemptions and Resale Certificates

Many states offer exemptions for specific products or types of customers, such as nonprofits or government agencies. Businesses can also make tax-exempt purchases using resale certificates if the items are intended for resale rather than end-use. Misusing these certificates can lead to severe penalties, so it’s essential to understand the conditions and limits of any exemptions your business may qualify for.

Preparing for Sales and Use Tax Audits

Businesses that fail to comply with sales and use tax regulations may be subject to audits, where state authorities review records to ensure the correct amount of tax has been collected and remitted. To prepare for an audit, businesses should maintain detailed records of all sales, purchases, and tax-exempt transactions. Being proactive about compliance and keeping organized records can help businesses avoid the stress of an audit and minimize potential fines.

Why Sales and Use Tax Knowledge is Essential for Business Growth

As businesses expand, understanding and correctly managing sales and use tax obligations becomes increasingly vital. Complying with these tax laws not only helps avoid legal issues but also builds customer trust by ensuring fair and transparent transactions. In today’s highly regulated environment, investing in tax compliance can be a competitive advantage, positioning a business for sustainable growth.

Contact Thompson Tax Today

Sales and use taxes are complex but critical for every business to manage. Understanding key elements such as nexus, taxable items, exemptions, and compliance requirements is essential for navigating these obligations effectively. For businesses with multi-state operations, investing in tax automation and staying informed about state tax changes can simplify the process significantly. With the right strategies and tools, managing sales and use taxes can become a seamless part of your operations.

At Thompson Tax, we specialize in proactive sales and use tax management. Let us help your business stay compliant and free from unexpected liabilities so you can focus on growth. Contact us today to ensure your tax responsibilities are in expert hands.

The Texas Comptroller of Public Accounts has recently revised its publication on contesting disagreed audits, examinations, and refund denials related to sales and use tax. The updated guidelines offer taxpayers a clearer understanding of their rights and the procedures to follow when they disagree with the Comptroller’s audit findings or tax assessments. If you’re a Texas taxpayer facing such issues, understanding your options can help ensure that you’re not at a disadvantage when contesting these decisions.

Let’s Break Down The Key Elements of This Revised Publication

1. Pre-Audit or Pre-Examination Disagreements

Before an official audit or examination notification is received, taxpayers have several options to address potential issues:

• Reconciliation Conference: This is an informal meeting between the taxpayer and the Comptroller’s office where both parties can attempt to resolve issues without proceeding to a formal audit.
• Requesting Taxability Guidance: If the taxpayer is unsure about the taxability of certain transactions, they can request guidance from the Comptroller’s office. This guidance can help avoid future disagreements and streamline the process.
• Independent Audit Review Conference: Taxpayers may request an independent review of their records by an experienced tax examiner who can provide a second opinion, potentially resolving discrepancies before the formal audit begins.

2. After Receiving Audit or Examination Results

Once a notification of audit or examination results is issued, taxpayers have a more structured set of options available to contest findings:

• Request for a Conference: If a taxpayer disagrees with the audit findings, they can request a conference to discuss the results in more detail. This provides an opportunity to present additional evidence or clarify any misunderstandings.
• Statement of Grounds for Administrative Hearing Requests: If a resolution is not achieved through a conference, taxpayers can formally request an administrative hearing. This involves submitting a statement outlining the specific grounds for contesting the audit results.
• Notice of Intent to Bypass the Hearing: In some cases, taxpayers may choose to bypass the formal hearing process if they believe a resolution can be reached through other means, such as direct negotiation with the Comptroller’s office.

3. Penalties, Interest, and Waivers

Understanding the financial implications of contested audits is crucial:

• Penalty and Interest: If the audit results in additional taxes owed, the taxpayer may also be required to pay penalties and interest. The revised publication discusses how penalties are assessed, the rates of interest, and how taxpayers can calculate the amount owed.
• Credit Interest: If the audit results in a refund, taxpayers may be eligible to receive credit interest, which compensates for the time between the overpayment and the refund.
• Waivers: There are specific conditions under which penalties may be waived. Taxpayers can request these waivers if they meet the necessary criteria, such as a reasonable cause for non-compliance.

4. The Comptroller’s Authority to Collect Past-Due Taxes

The Texas Comptroller has significant authority to collect past-due taxes, and taxpayers should understand the various mechanisms the Comptroller can use, including:

• Liens and Levies: If taxes remain unpaid after the audit, the Comptroller may place liens on assets or even levy bank accounts to collect the outstanding balance.
• Enforcement Actions: If a taxpayer does not address past-due taxes or contest audit findings, the Comptroller may take further legal actions to ensure payment.

5. Taxpayer Bill of Rights

The revised publication reaffirms the Taxpayer Bill of Rights, which protects taxpayers throughout the process. This includes ensuring that taxpayers are treated fairly, have access to information, and have the right to contest decisions. Understanding this document is key to ensuring that taxpayers are fully aware of their legal protections.

Thompson Tax Is Here to Help

Whether you’re facing an audit or need to challenge a refund denial, there are options available to you, ranging from informal conferences to formal administrative hearings, that help ensure your side of the story is heard. Make sure to review the Taxpayer Bill of Rights and understand the potential financial implications, such as penalties and interest, so you can better navigate any disagreements with the Comptroller’s office. By knowing your rights and the available procedures, you can protect your interests and ensure compliance with Texas tax law.

For further information, reach out to Thompson Tax today. We are your Trusted Tax Advisors.

Michigan recently revised its Sales and Use Tax guidance for lease transactions, introducing key updates that impact tax obligations for lessors and lessees.

1. 1. Use Tax on Rental Receipts:
      • Lessors opting to pay use tax on rental receipts instead of purchase costs must pay tax on the total rental receipts.
   2. Exclusion of Delivery and Installation Charges:
      • Delivery and installation charges are excluded from the taxable base if they are separately stated in the lease agreement or invoice.
   3. School Bus Exemption Expansion:
      • The sale or lease of a school bus, as well as transportation-related services and adaptive equipment, are exempt from tax when the school bus is primarily used under a contract with a public school or academy representative.
   4. Definition of “Lease” for School Bus Exemptions:
      • The provision of an operator along with the school bus no longer disqualifies the transaction from being considered a lease for tax exemption purposes.
   5. To make a Lessor Election (From Michigan Revenue Administrative Bulletin 2024-18)  
      • In order to properly make a lessor election, a purchaser may complete form 3372, Michigan Sales and Use Tax Certificate of Exemption, selecting “For Lease” as the basis for the exemption along with providing the lessor’s sales tax license or use tax registration number. This form is not required to be submitted to Treasury unless requested and should be provided to the seller to be retained for their records. Alternatively, a lessor may provide the same information required by form 3372 in a different format. See RAB 2024-11 for more general information regarding claiming an exemption.
        
        A taxpayer that makes the lessor election will lose that election if tangible personal property is used in anyway other than leasing it, including any personal use. MCL 205.97(2). If this occurs, tax is due at the time of conversion to a taxable use on the original purchase price of the property. Id

For more information, consult the Michigan Department of Treasury or a qualified tax professional.

At Thompson Tax, we offer expert guidance tailored to your sales and use tax needs. We are your Trusted Tax Advisors – contact us today!

When it comes to sales and use tax, service-based businesses often grapple with a myriad of unique considerations that set them apart from product-based businesses. The intricacies of sales and use tax for service-based businesses are not to be underestimated, as they play a pivotal role in compliance and financial planning. Below are some key points that underscore the complexity service-based businesses face when it comes to sales and use tax.

Sales and Use Tax Complexities Service-Based Businesses Face

1. Nexus

Service-based businesses need to be aware of the concept of nexus, which refers to a business’s connection to a state that requires it to collect and remit sales tax. Nexus for service-based businesses can be established through various means, such as having employees or property in a state or reaching a certain level of economic activity within the state.

2. Taxability of Services

Unlike tangible goods, services are often treated differently when it comes to sales and use tax. Some states tax services, while others do not. Service-based businesses need to be aware of the taxability of their specific services in each state where they operate.

3. Exemptions

Like product-based businesses, service-based businesses may be eligible for certain sales and use tax exemptions. For example, some states offer exemptions for specific types of services, such as healthcare or education-related services. Service-based businesses must understand the exemptions available to them and ensure they are correctly applied. It is also imperative to keep the proper documentation on hand for audit purposes.

4. Bundled Services

Service-based businesses that offer bundled services or packages must carefully consider the tax implications of bundling different services together. In some cases, the taxability of a bundled service may differ from the taxability of an individual service when offered separately.

5. Sourcing Rules

Service-based businesses operating in multiple states need to understand the sourcing rules for services, which determine the state where the service is considered to be provided for sales tax purposes. Sourcing rules can vary by state and may be based on factors such as where the service is received or where the benefit of the service is realized.

Non-compliance with sales and use tax regulations can pose significant risks for service-based businesses. The unique compliance challenges they face, such as tracking the taxability of diverse services across multiple states and determining the appropriate tax rates and rules for each service, underscore the importance of staying on top of these obligations.

Navigate the Challenges with Thompson Tax

Service-based businesses can navigate these complexities with confidence if they have a comprehensive understanding of the sales and use tax implications specific to their industry. By staying informed about the taxability of services, exemptions, and compliance requirements across different states, they can avoid potential penalties and ensure financial stability. Seeking professional guidance from tax experts can be a game-changer in this regard. 

Contact Thompson Tax today. We are your Trusted Tax Advisor and are ready to assist with all your sales and use tax needs.

Interested in navigating the complex area of Multistate Sales and Use taxation post-Wayfair?  Please join Dan Thompson for two exciting CalCPA Webinars featuring many exciting facets of Multistate Sales and Use Taxation, including California-specific content. 

If you are just starting your career and want an overview of Sales and Use Tax, or you want to learn how to address your company or client’s taxability of products and services, these webinars cater to all interested in learning about taxes. There are many opportunities to join throughout the year, and they offer up to 4-hours of CPE. For more information, please see CalCPA’s event page here.

Meet Daniel Thompson

Streamlined Sales Tax (SST) is an initiative that aims to simplify and standardize the collection and remittance of sales tax across different states. It was first implemented in 2005 and has since been adopted by 24 states. The initiative aims to make it easier for businesses to comply with sales tax laws, reduce administrative costs, and create a level playing field for retailers across different states.

What Are the Benefits of Streamlined Sales Tax?

One of the main benefits of SST is uniform definition of products and services across the states. Additionally, SST provides businesses access to free tax administration software, which can help automate tax calculations, filings, and remittances.

Current List of Full Member Participating States

*Associate Member State 

For more information about registering for the SST program, contact us today. We are your Trusted Tax Advisor.

Sales and use tax compliance can be daunting. Regulations vary by state and jurisdiction making them difficult to navigate, and to make matters even more complex, the rules are ever-changing. 

For many people, the concept of sales tax is just a charge you see on your receipt. Expanding your knowledge base to understand the compliance side of sales tax is far from your idea of fun, however, it’s an essential aspect of conducting business.

The following is a basic outline of compliance, Sales and Use Tax 101, if you will, because, let’s face it, ‘You don’t know what you don’t know.’

What is Sales Tax?

Sales tax is a tax imposed on the sale of goods and services, which is generally calculated as a percentage of the sale price. It is generally collected by the seller at the time of purchase and remitted to the state or local government. 

Sales tax is a jurisdictional tax, which means that each state or jurisdiction has its own set of sales tax rates and rules. The amount of sales tax collected is based on the sales tax rate in the jurisdiction where the sale was made, or where the customer is located.

There are four types of Sales Tax: Sellers Privilege, Consumer Levy, Gross Receipts, and Transaction Tax, and each type is imposed differently, whether on the Seller or Purchaser or on the transaction itself.

What is Use Tax?

Use tax is a tax imposed on the use or consumption of goods and services in a state or local jurisdiction where sales tax was not paid. This tax is typically paid by the consumer directly to the state or local government. Keep in mind, businesses are consumers, too, and may owe use tax on purchases intended for use by the business itself.

Registration and Remittance Requirements

You must register in each state where your company has either physical or economic nexus. Sales and use tax nexus refers to the minimal connection between a business and a state that requires the business to collect and remit sales tax on sales made within that state. Nexus is established when a business has a physical presence in a state, such as a store, office, or warehouse. Nexus can also be established through other means, such as having employees or independent contractors working in the state, making regular deliveries or installations, or engaging in other activities that create a substantial connection with the state. Understanding sales and use tax nexus is important for businesses to ensure compliance with state and local tax laws to avoid potential penalties.

What If My Business Did Not Register When We Had Nexus?

Don’t worry, there are solutions available to help you get back on track. However, it’s important not to wait too long. Once a state contacts you, you may miss out on some of the less costly opportunities available to help you get into compliance.

Once registered, you must prepare a tax calendar and file sales and use tax returns according to the filing frequency assigned to your business.

Taxability of Products and Services

The taxability of products and services varies based on the state and the type of product being sold or service being provided. Generally, tangible personal property is subject to sales tax in most states, but exemptions and exclusions exist. For example, some states exempt certain items, such as food and clothing, from sales tax. Understanding the taxability of products is important for businesses to accurately collect and remit sales tax to the appropriate state agencies. Failing to apply sales tax to products or services properly can result in penalties, interest, and other consequences; therefore, businesses must stay current on state tax laws and regulations to ensure compliance.

Exemption and Resale Certificates

The state issues exemption certificates which allow businesses to claim an exemption from sales tax for specific items or transactions. Depending on the state, an exemption certificate may also be used for purchases made by non-profit organizations or for particular types of equipment or machinery used in production.

A resale certificate allows a business to purchase goods that will be resold without paying sales tax.

Businesses must ensure they are eligible for the exemption they are claiming and should keep accurate records of exemption certificates, resale certificates, and purchases to avoid potential issues with tax authorities. 

Audits

There’s a saying in the tax world, ‘It’s not if you’re going to get audited; it’s when!’ Remember, though, that not all audits end with assessments. Being prepared is an essential step in avoiding a negative outcome. Make sure to keep all documentation (e.g., copies of returns, workpapers, purchase and expense support, exemption certificates) organized and easily accessible and, most importantly, remain compliant.

And More!

Sales and use tax compliance can be complicated, but it is an important aspect of doing business. Companies should familiarize themselves with the rules and regulations in each state where they conduct business in order to avoid penalties and ensure compliance with the law.

Reach out to Thompson Tax today! Let us help you navigate your sales and use tax compliance journey so that you can focus on growing your business. We are Your Trusted Tax Advisor.

California has proposed a new digital advertising tax (AB 2829) that has been met with mixed reactions from businesses and consumers alike. If passed, the tax would be levied on large-scale California businesses that generate over $100,000,000.00 in annual global revenue from digital advertising services and would take effect on January 1, 2025.

Some have hailed the proposal as a way to generate much-needed revenue for the state’s budget, which was hit hard by the COVID-19 pandemic and has not yet fully recovered. Supporters of the tax also argue that it would help level the playing field between brick-and-mortar businesses and digital retailers, which have avoided many of the taxes and regulations that traditional companies face.

Opponents of the tax disagree and argue that the new tax would be harmful to both businesses and consumers alike. Opponents argue that it would make it more difficult for businesses to compete in an already challenging economic environment and that the tax would be difficult to enforce as it raises constitutional concerns surrounding the Due Process and Commerce Clauses. Opponents also argue that although there is an anti-passthrough provision disallowing the tax from being charged to the consumer as a separate fee, surcharge, or line item, businesses would instead pass the cost along to consumers under the guise of higher prices.

This recent California proposal has generated significant debate and controversy, with solid arguments on both sides. What are your thoughts?

In recent news, both Indiana and Wyoming have eliminated the use of transaction counts (200) as a factor in determining sales and use tax nexus for remote sellers. This is a significant change that will affect many businesses operating in these states.

What Is Sales and Use Tax Nexus?

For those who may not be familiar, sales and use tax nexus refers to the connection between a business and a state that allows the state to require the business to collect and remit sales tax on transactions made within that state. In the past, many states, including Indiana and Wyoming, used transaction counts as a means of determining if a remote seller had established nexus within their borders.

Recent Changes

However, this method of determination has come under scrutiny in recent years, with many arguing that it places an unfair burden on small businesses that may only make a few sales within a state. In response to these concerns, both Indiana and Wyoming have now eliminated transaction counts as a factor in determining sales and use tax nexus for remote sellers.  

This is good news for many businesses, as it means they will only be required to collect and remit sales tax if they meet other criteria, such as having a physical presence within the state or exceeding a specific dollar amount of sales, currently $100,000.00 in both Indiana and Wyoming.  

*Please note that Indiana’s updated nexus threshold is retroactive to January 1, 2024, and Wyoming’s does not take effect until July 1, 2024.  

Let Thompson Tax Help

Although the recent change has made the nexus process less burdensome, the process still has its challenges. Businesses operating in different states still need to be mindful of each state’s sales tax laws to ensure that they collect and remit the correct amount of tax for each transaction.

Do you have Nexus questions? Contact Thompson Tax today to see how we can help. We have your sales and use tax needs covered from A to Z.

Let us be your Trusted Tax Advisor.

As a business owner, it is essential to remain compliant with state and local laws to ensure smooth operations. One of the most important requirements is obtaining your business license and permits and then registering for sales and use tax in each state, locale, or jurisdiction where you have met nexus. Many business owners tend to forget, however, that reviewing and updating these credentials regularly is just as important as obtaining them.

Conducting an annual business license and registration review will ensure compliance with the laws of each state where you conduct business. It can help you avoid costly penalties and fines and will identify areas where your business may be at risk of non-compliance.   

An annual review will help you identify any changes or updates that should be made to your license(s) and permits(s) and will ensure that you are aware of any new requirements that may have been added since your last review. This is particularly important if you have expanded your business operations to include new products or services, as you may need to obtain additional licenses or permits to ensure that you are operating within the law.

At Thompson Tax, we understand that maintaining these requirements can be overwhelming, and we are here to help. Contact us today to learn more.

In a recent court case, the California Court of Appeal for the Third Appellate District ruled that purchasing “discounted” cell phones bundled with wireless services requires paying sales tax based on the cell phone’s full price.  

The case in question, Bekkerman-v-CDTFA, was initiated by consumers who purchased discounted cell phones bundled with wireless services yet were charged tax on the full price of the phones. The consumers argued that the discounted price of the phones should have been used to calculate the sales tax owed.

During the hearing, the court specifically analyzed Regulation 1585. The regulation defines a “bundled transaction” as the retail sale of a wireless telecommunication device that contractually requires the retailer’s customer to activate or contract with a wireless telecommunications service for periods greater than one month as a condition of that sale.  

Based upon this definition, the court sided with the CDTFA, holding that the phone’s full price should be used when calculating the sales tax owed. The court reasoned that retailers were effectively selling the phones at a discount to induce consumers to purchase wireless service and that the full price of the phones was, therefore, part of the consideration for the purchase of the wireless service.  

This ruling was a significant win for the State and has important implications for California retailers. Retailers must be mindful of the taxation requirements of bundled sales, whether involving cell phones or any other type of products and services, and should seek guidance from a tax professional to ensure compliance with state and local tax laws. 

Thompson Tax specializes in sales and use tax across many industries. Contact us today for all of your multistate and local sales and use tax needs. We are your Trusted Tax Advisor.

As companies expand, they become more complex and require more resources to manage.  Due to ever-changing tax codes and regulations, sales and use tax compliance can be particularly challenging, and identifying inaccuracies in this area can be difficult. By conducting a reverse audit, you can potentially spot reporting errors and may even reap some financial rewards if the errors are in your favor. 

How Can a Reverse Audit Help You?

1. Identify Prospective Overpayments

A sales and use tax reverse audit is an excellent way to identify overpayments, which can occur due to incorrect classification of goods and services, incorrect tax rates, or failure to take advantage of available exemptions. By conducting a reverse audit, businesses can recover the money they are owed, significantly improving their financial position.

2. Mitigate Risk

Non-compliance with sales and use tax laws can result in significant fines, penalties, and damage to a company’s reputation. A sales and use tax reverse audit can help businesses identify areas of non-compliance and take steps to correct them before they become a problem. By proactively addressing these issues, companies can mitigate risks and protect their reputation.

3. Improve Processes

A sales and use tax reverse audit can also help businesses improve their processes by identifying areas where errors have occurred. By taking steps to prevent these errors from happening again, companies can improve efficiency, reduce costs, and increase profitability.

4. Increase Cash Flow

Conducting a sales and use tax reverse audit can increase a business’s cash flow by identifying prospective overpayments and recovering money owed. This increased cash flow can then be reinvested into the business, used to pay down debt, or returned to shareholders, significantly improving the business’s financial health.

Thompson Tax Can Help!

Reach out to Thompson Tax today to see how we can help with all of your sales and use tax needs. We are always just a phone call away.

Beginning July 1, 2024, any business involved in the retail delivery of tangible personal property (TPP) and clothing that is subject to sales tax will be required to pay a “retail delivery fee” of $0.50 that will be used to fund road improvements within the state of Minnesota. The fee will be charged once per transaction and applies to pre-tax sales of $100.00 or more. It does not apply to in-store transactions picked up at retail locations or via curbside delivery.

While the fee may seem insignificant, there are many details to consider, such as who is responsible for collecting the fee, what exclusions and exemptions may apply, should the fee be listed as a separate line item on an invoice, and compliance issues such as registration and remittance.

Although there are many moving parts, Thompson Tax can quickly help you navigate the new law’s requirements. Contact us today for all of your sales and use tax needs. We are your Trusted Tax Advisor.