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How to file a sales tax return

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May 132013

As a business owner, it is your responsibility to collect sales taxes from your customers and submit the money to the appropriate state(s) along with a sales tax return. To avoid audit problems and penalties, you need to make sure you file your return according to each state’s rules and filing schedule. While each state has a slightly different process, here are some general guidelines that can give you an idea of what to expect.

Filing frequency

Every state has different rules for when and how often you need to file your sales tax returns. It is common to see an annual, quarterly, or monthly filing frequency. Generally, the more money your business collects in revenues, the more often you have to file a sales tax return.

For example, in New York there are three filing periods: annually, quarterly, and monthly. Businesses that owe less than $3,000 a year in sales taxes can file annually during the period of March 1^st through February 28^th, February 29^th on leap years. Businesses that make less than $300,000 of sales that are subject to sales taxes need to file quarterly whereas a business that has more than $500,000 in annual sales taxable revenues needs to file monthly. Even if you don’t owe any sales taxes for a given period, you still need to file your return.

E-filing

Most states allow business owners to submit their sales tax returns electronically. This is actually a requirement in many states to save time and money. There are a few exceptions when a business needs to file a paper return. For example, in California you can’t e-file if you are submitting an amended return, if your business is registered to a permanent location but you are making sales from another temporary location, or if you are reporting on a schedule other than Schedule A, B,C, E, or G. The vast majority of business owners will e-file though.

Late filing penalties

If you don’t file your sales tax return on time, you may owe extra money as a penalty. Some states don’t charge a penalty if you are late with your return, but you don’t owe any money in sales taxes. However, if you do owe taxes, the state will penalize your late return.

For example, if you are late with your sales tax return in North Carolina, the state will charge an extra 5% per month up to a maximum 25% as a failure to file penalty as well as another 10% as a failure to pay penalty. In addition, the state will charge interest on your unpaid balance.

Since each state has its own unique process, it is always a good idea to review your state’s sales tax filing process with a tax professional to make sure your business is in compliance. This way, you can avoid costly filing mistakes.

David Rodeck

Don’t forget the use tax

Commentary, Main Street Fairness Act, Streamlined Sales Tax, Tax Specialist No Responses »

Dec 012012

States scramble to get a cut of online shopping taxes

Preliminary data show that internet sales are keeping pace with local brick-and-mortar sales so far this year. With this much revenue on the line, states are scrambling to inform the cyber-consumer about taxes due on internet purchases.

To date compliance has been, to put it mildly, not good.

Whether or not states have special internet sales legislation on the books, most states require the payment of use tax on any untaxed purchase, including those made over the internet or from out-of-state vendors.

Use tax is due on any taxable tangible product purchased by non-tax-exempt entities when no sales tax was collected at the time of purchase, regardless of where the item was purchased. This includes items purchased over the internet or from out-of-state sources including Amazon, eBay and others.

States have identified unpaid use tax as a significant loss of revenue during a time when budgets are stretched to the breaking limit. An estimate by the Streamlined Sales And Use Tax group claim $20 billion a year is being lost.

Identifying the problem and figuring out what to do about are two different things. Most states have been at a loss as to a practical remedy. Some have included a self-reporting section on the state income tax return. Other states rely on press releases, news coverage and guilt. None of these methods have so far show much effect on compliance with some sources saying as little as 20% of these taxes are collected.

Federal legislation is being closely examined by both the senate and house to try to come up with a “fair” solution to this uncollected tax problem.

The Main Street Fairness Act, which has failed in previous years, was introduced this year by Sen. Richard Durbin (D-IL) and is currently being reviewed by the Senate Committee on Finance. The bill proposes to promote the simplification, administration and collection of sales and use taxes. If made law, a minimum revenue threshold would be determined and online retailers above that line would be forced to collect sales taxes on all transactions, even those made to out-of-state purchasers. Versions of the bill are before both the senate and house and are being actively promoted by states signed on to the Streamlined Sales and Use Tax Agreement, several retailers associations, and even Amazon.com

Unfortunately, like most of the issues involved the fiscal cliff miasma, this one seems to have little chance of resolution before year’s end. You can track the bill’s progress at http://www.govtrack.us/congress/bills/112/s1452.

Charles F. Spielmann

Some filers benefit from using sales tax as a federal income tax deduction

Helpful Guides, Tax Specialist No Responses »

Nov 212012

If legislation passes congress again this year, a select group of federal income tax filers may benefit from calculating deductions using the state and local sales taxes they paid instead of state income taxes.

According to the Tax Policy Center, residents of New York and California benefited the most from using the state and local sales tax deduction in 2005 on their federal income tax.

This option is only available to filers who itemize deductions using Schedule A on Form 1040, and generally only beats the income tax deduction in a few cases:

For residents in states with no, or limited, income taxes: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.
Individuals who live in states with higher-than-average state and local sales taxes.
Individuals who made unusually expensive purchases such as paying for a wedding, home improvements or vehicle purchases.

The IRS provides special sales tax tables that average consumption by taxpayers, taking into account filing status, number of dependents, adjusted gross income and state and local general sales rates by ZIP code. Filers using the standard sales tax deduction can also add in sales taxes paid on the purchase or lease of a vehicle, boats or aircraft, and home renovations.

Filers could optionally use the actual expense method by collecting receipts for all purchases made and keeping a running tally of all sales tax expenses. This method may be beneficial if sales taxes paid were well above the standard deduction or if the filer lived in multiple tax jurisdictions.

Filers whose sales tax deduction comes out about the same as their income tax deduction may benefit from taking former since they won’t have to claim their state income tax refund the following year.

The problem with the sales tax deduction is that it never has been made permanent since it was authorized in 2004. Every two years, the issue comes up in front of legislators once again. It expired at the end of 2011, and if it isn’t renewed this year, it won’t be available to taxpayers filling out their forms in 2013.

Charles F. Spielmann

Alabama business learns an expensive sales tax lesson

Tax Specialist No Responses »

Nov 212012

“If they don’t pay their taxes, we’ll come after them,” an Alabama city councilman said after a local restaurant lost an appeal against a sales tax audit.

Unrecorded cash transactions at an Alabama restaurant earned the owner a $100,000 tax bill.

The Hoover, Alabama city council agreed to a settlement for $100,000 after the Jefferson County Circuit Court ruled in the city’s favor finding that the Top China Buffet was not keeping adequate records.

The city originally won a judgment against the buffet which was ordered to pay nearly $124,000 in back taxes and penalties. The city agreed to the settlement amount to end the dispute and commended the revenue department for its diligence and persistence.

The city of Hoover conducted a tax audit of the restaurant for the period from July 2007 to August 2010 and the investigator allegedly observed cash being accepted without being recorded. The auditor used an estimate to determined the restaurant owed $91,940 in unpaid taxes plus $31,923 in interest and penalties.

The restaurant owner accused the state of using a faulty method for estimating tax due in cases where records were not available, but admitted to owing the state more than $41,000 in unpaid sales taxes.

If they don’t pay their taxes, we’ll come after them.

Jefferson County Presiding Circuit Judge Scott Vowell said, “Even if all sales were reported, it is undisputed that the taxpayer did not keep accurate records required by Alabama law.”

The ruling also found evidence that the Top China Buffet changed hands in an apparent attempt to avoid the tax bill. The judge disallowed the change in ownership as a tax-negating tactic finding that it was not an “arm’s length” transaction because the restaurant never closed and did not change names.

“It sort of sends a signal out to local merchants that we want them as good citizens as long as they pay their taxes,” said councilman Jack Natter.

Charles F. Spielmann

Tangible or intangible? The tangled taxability of discounts and deals

Tax Specialist No Responses »

Nov 012012

Retail offers, manufacturer coupons, rebates and other savings enticements complicate the sales tax situation

daily deal discounts affect sales tax Just when retailers thought they had the rules nailed down on the taxability of different kinds of discounts, daily deal companies like Groupon have enticed states to revisit the conventions.

With just a little variation in a few states, the amount discounted through coupons, trade ins and savings offers created by retailers are generally not subject to tax if the retailer does not recoup the discounted amount.

The amount discounted through coupons and rebates offered by manufacturers that repay or refund the retailer generally ARE subject to sales tax.

The sale of gift certificates are generally not taxed since the tax is applied when the consumer returns to the store and purchases a tangible item. This gets complicated however when online “daily deal” vouchers come into play.

Questions similar to those encountered by online discount travel companies come up, questions like who owes the tax – the vendor or the discount voucher seller, or both? Is the sales tax due on the full retail value or the discounted amount? Are these vouchers equivalent to gift cards or do they constitute sale of tangible items?

States are responding to this opportunity for increased revenue in different ways. In a recently published New York State guidance on the matter, the state choose to treat the daily deals differently depending on whether the advertised item was tangible or whether it was more of a gift card-type transaction. For instance, NY will charge sales tax on the discounted value paid by the consumer to the voucher company if the item or service has a specifically advertised face value, such as a $25 pedicure discounted to $10. In this case, NY would charge sales tax on the $10.

If the advertised deal is worded more like a gift card, say a $25 voucher good for $50 worth of any product, then NY would look to receive sales tax on the full retail value of the underlying taxable goods or services, in this case, the $50 amount.

Other states are varied in their findings. Kentucky and Iowa look solely at the published face value of the voucher while California turns out to be one of the more tax-friendly states in this case, ruling that the sales tax is to be applied to the amount paid by the consumer regardless of the type of voucher. Different proposals put forth by Tennessee and Nebraska are currently under consideration by the board of the Streamlined Sales and Use Tax Agreement.

Charles F. Spielmann

Energy Star sales tax holiday in Georgia

Tax Specialist No Responses »

Oct 012012

Georgia has announced a sales tax holiday Oct. 5 – 7 for energy and water efficient products with a sales price of $1,500 or less. “Energy efficient products” include products for noncommercial home or personal use and does not apply to purchases for trade, business, resale, or commercial use.

Qualifying items can include: dishwashers, clothes washers, air conditioners, ceiling fans, fluorescent light bulbs, dehumidifiers, programmable thermostats, refrigerators, doors, or window which has been designated by the United States Environmental Protection Agency and the United States Department of Energy as meeting or exceeding each agency’s energy saving efficiency requirements, or which have been designated as meeting or exceeding such requirements under each agency’s Energy Star program.

Water efficient products include any product used for the conservation or efficient use of water which has been designated by the EPA as meeting or exceeding specific water saving efficiency requirements or which has been designated as meeting or exceeding specific requirements under the agency’s Water Sense program.

Charles F. Spielmann

Texas makes strides for sales tax transparency

Tax Specialist No Responses »

Aug 292012

Texas has one of the most difficult-to-understand sales tax structures in the modern United States. Individual municipalities and various public agencies are encouraged to fund themselves by creating special-purpose tax districts - virtually willy-nilly – sometimes resulting in dozens of overlapping jurisdictions with poorly defined boundaries. Texas tax jurisdictions

Take Harris County for example. This single county is home to Houston and hosts no less than 72 different sales tax entities. Aside from 34 city jurisdictions, Harris county has special tax districts for transit, airline improvement, crime control, emergency services, fire, general improvement, management, and municipal development.

Since sales taxes made up nearly a quarter of all state revenue in 2011, one would think there would be a vested interest in making it simple to collect and distribute. This doesn’t seem to be the case, however, since both state and city governments have been unable to comply with repeated requests to define the tax jurisdictions. A Texas comptroller web page states, “With so many entities layered upon each other, usually with overlapping boundaries, it can be difficult to identify all of the entities collecting local taxes in any given location.”

When Zip2Tax asked for jurisdictional boundary maps, we were instructed to contact individual districts for information. As a result, our staff spent months attempting to get answers from the individuals listed as district contacts. Generally, our repeated e-mails and phone messages were ignored, while the representatives who did respond said something to the effect of “no such map exists” or “go to the state’s web site and type in the address you want to know about.”

I’ve heard that when you find yourself in a hole, the first thing to do is to stop digging.

We quickly decided not to attempt to manually type in every address in the longhorn state with a population of more than 26 million. Since there was no simple answer to the question “which span of addresses fall inside your district,” the task was declared virtually impossible and mothballed.

Some may think the Texas “total tax cap” a good compromise which eliminates any real need to define the exact districts involved. The tax cap consists of a 6.25% state tax with a total combined district tax that maxes out at 2% (for a total which cannot exceed 8.25% in any location). But this is an unsatisfactory answer for any individual who wants to know how their tax dollars are being spent, not to mention these public agencies that want to be assured that the state is remitting to them the proper amount of taxes collected.

Texas seems to be aware that a problem exists and recently expanded a web site called TexasTransparency.com. While not providing any greater insight into jurisdictional boundaries, the site does go to some pains to make revenue structures more clear, at least on a macro scale.

The site is geared at educating the Texas taxpayer as well as encouraging local governments to open the books. Subsections include “Texas, It’s Your Money: Find out who is taxing you and for what purpose,” “Where the Money Comes From,” and Local Government Transparency.”

So it’s possible the knee-jerk reaction of the state saying to “Go ask the district,” and the district’s reply of “I don’t know. Go ask the state” might eventually become a thing of the past.

Find out more about sales and use taxes in Texas or visit TexasTransparency.org .

Charles F. Spielmann

Rhode Island offers tax amnesty program

Field Notes, Tax Specialist No Responses »

Aug 222012

The Rhode Island Division of Taxation is offering a limited tax amnesty program starting Sept. 2 and running through Nov. 15, 2012. The amnesty will allow certain taxpayers to pay the full amount of the overdue taxes plus 75% of interest due without having to pay the remaining 25% of interest and any penalties. It also exempts the taxpayer from additional civil or criminal penalties.

The amnesty is extended to corporate income tax, estate tax, fiduciary and personal income, sales and use tax, tobacco taxes, and unemployment and temporary disability insurance.

The amnesty program covers tax that were due before Dec. 21, 2011 and personal income tax returns that were due in April 2012. Taxes and interest must be paid in full by Dec. 14, 2012, but payment plans are available. Certain taxpayers facing criminal investigation or with cases currently in court are not eligible.

To apply for amnesty, fill out the Rhode Island Tax Amnesty Application.

Charles F. Spielmann

Ramifications of doing business in multiple states

Helpful Guides, Tax Specialist No Responses »

Aug 162012

What can happen when your business takes you across state borders?

These days it is not uncommon for even small businesses to work in many states simultaneously. While this is excellent for growing a customer base, doing business across state lines can create very complicated sales tax ramifications.

There are several factors that will create nexus for an out-of-state company. Nexus is generally defined as a physical presence or the appearance of “doing substantial business” in a given state and makes a company liable for collecting sales taxes and filing tax returns in that state.

installation may or may not be a taxable service

The taxability of installation across state borders varies according to many factors.

Service providers often do not create “tangible personal property” which is the starting point of most definitions of taxability. Frequently, but not always, they are not responsible for collecting sales tax on those services even though they may still have to file a sales tax return in that state.

Even if a company’s primary function is non-taxable, one example would be cleaning furnaces installed at the consumer’s residence, just stepping foot into another state can muddy up an already murky tax liability.

Here is one example of just how complicated it can get. A company I will call ABC Design is an interior design firm that specializes in furnishing senior living complexes. They are physically located in Texas but do work in 16 other states. They ship and store furnishings, fixtures and appliances near the work sites while construction takes place and then perform the installations.

That opens up a lot of tax/no-tax scenarios and ABC Design contacted me for advice. While I am not certified or licensed to dispense legal advice, I did some research and provided direction so they would know what kind of information to provide each state. Most states are quite proactive in helping companies figure out their full tax liabilities, so often they will provide sales tax determinations upon request.

Here is some of the information ABC Design needs to provide to each state they do business in and ask if they need to A) as a company, pay sales/use tax on, and B) collect and remit state sales tax for:

Products for resale: Most states do not tax wholesale items intended for resale, but this can depend on the type of item, whether the item can be considered a capital improvement, as well as the state of origin of the item.

Kind of service: While many services are tax exempt, there are some states with very specific and obscure rules about the types of services that this applies to. For instance, Colorado and Indiana have specific statutes making “the furnishing of rooms” a taxable service.

Shipping: Were the products shipped by common carrier or ABC Design’s own delivery vans? About half of the states do not tax shipping when performed by common carrier, like UPS, as long as it is stated separately on the invoice.

Warehousing: While storage of items creates nexus just about 100% of the time, whether the storage fee ABC Design pays is taxable or not was beyond my experience. This could depend on the wholesale status of the items being stored.

Installation: This one was tricky because it depends on many variables specific to both the kind of installation as well as various state law. I found that installations are taxable in 20 different states and it often depends on whether the installation is part of the purchase price and is required as part of the sale of the item. For instance, I might own a light fixture that I pay ABC Design to install – this service might not be taxable. But say for instance that I buy a light fixture that ABC Design can only sell me if they perform the installation, then that installation would be taxable. In states where installation charges are non-taxable, it almost always must be stated separately on the invoice. Also, certain states that tax most installations don’t tax installations on capital improvements, construction, or water and sewer improvements.

The basic takeaway from all this is that companies in doubt should seek a clear and concise determination, in writing where possible, from each and every state they do business in. While this still does not guarantee audit security, at least you will sleep better knowing the scope of questions you have to ask.

Charles F. Spielmann

Back to school sales tax holidays for 2012

Sales Tax Exemptions, Tax Specialist No Responses »

Jul 312012

Seventeen states will be exempting various back to school items from sales tax this year

Shoppers get excited about the many back to school sales this time of year. Adding fuel to the fire, many states will be waiving the state, and sometimes local, sales tax on school-related items. Generally, this means clothing, footwear, school supplies such as pencils and paper, and sometimes computers are exempted from sales and use tax for anywhere from two days to a week. Sales tax holidays for 2012

While some state representatives bemoan the loss of the sales tax revenue during this purchasing frenzy, many retailers, already offering various sales and discounts, appreciate the extra incentive shoppers are given to open their wallets. The cost versus benefit of these sales tax holidays is the subject of frequent debate but one fact is clear – consumers love it.

Consumers need to keep in mind that even though the state may be waiving the sales tax, certain local taxes, such as county, city, and/or special district may still apply. For instance, the purchase of an $800 computer in Atlanta, Georgia made on Aug. 10 qualifies for a waiver of the 4% Georgia state tax - saving a total of $32. It is still subject to the Fulton county tax of 3% plus the Atlanta metro tax of 1%, meaning that the consumer will pay $32 in local taxes on the purchase instead of the usual $64.

Some states, such as Louisiana, waive the sales and use tax on nearly all retail transactions during the back to school holiday. Normally though, exemptions are limited to items specifically targeted toward getting kids ready to return to academia. Most states also limit the exemption to sales, or portions of sales, below a certain dollar threshold – generally purchases retailing at less than $100 per item. In other words, no matter where Kim Kardashian is shopping, she’s going to be paying the full sales tax on the Gucci pumps and diamond-studded iPhone.

The sales tax exemption rules can get quite complicated, so consumers need to do their homework diligently before they hit the mall. The type of sale the store chooses to host can make an otherwise-eligible item taxable. In one example, a retailer in a state with a $50 threshold advertises pants as “buy one, get one free.” The first pair of pants is priced at $80; the second pair of pants is free. Tax is due on $80. The store cannot sell each pair of pants for $40 in order for the items to qualify for the exemption. However, the retailer may advertise and sell the items for 50% off, selling each pair of $80 pants for $40, making each pair eligible for the exemption.

Manufacturers’ coupons and rebates do not reduce the sales price of an item in the eyes of the tax collector. Store coupons and discounts do reduce the sales price therefore making many more items fall within the dollar cap.

Layaways, gift certificates, and rain checks qualify for the sales tax exemptions. Exchanges made post-holiday are not taxable, but items purchased during the sales tax holiday and returned for a refund paired with a new purchase are taxable.

Below is a full listing of states holding back to school sales tax holidays this year. The holiday dates, percentage shoppers can expect to save, and general rules governing the eligibility of items are provided. This list is not all inclusive, so please check the provided state web sites for specifics.

State	Dates	Savings	Clothing & footwear	Accessories	School Supplies	Computers/accessories	School Books
Alabama	Aug. 3-5	4%	< $100		< $50	< $750	< $30
Arkansas	Aug. 4-5	6%	< $100	< $50	Yes
Connecticut	Aug. 19-25	6.35%	Portion < $300
Florida	Aug. 3-5	6%	< $75	< $75	< $15
Georgia	Aug. 10-11	4%			< $20	< $1,000
Iowa	Aug. 3-4	6%	< $100
Louisiana	Aug. 3-4	4%	Portion < $2,500	Portion < $2,500	Portion < $2,500	Portion < $2,500	Portion < $2,500
Maryland	Aug. 12-18	6%	< $100
Mississippi	July 27-28	7%	< $100
Missouri	Aug. 3-5	4.23%	< $100		< $50	< $3,500/ software < $350	<$50
New Mexico	Aug. 3-5	5.13%	< $100		< $30	< $1,000/supplies <$500	< $30
North Carolina	Aug. 3-5	4.75%	< $100		< $100	< $3,500/ supplies < $250
Oklahoma	Aug. 3-5	4.50%	< $100
South Carolina	Aug. 3-5	6%	Yes		Yes	Yes	Yes
Tennessee	Aug. 3-5	7%	< $100		< $100	< $1,500
Texas	Aug. 17-19	6.25%	< $100		< $100
Virginia	Aug. 3-5	5%	< $100		< $20

Charles F. Spielmann

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