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Tax Tips

Tax Tips

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GOVERNMENT CONTRACTORS

Many contractors are under the misconception that if they have a contract with a government entity they are entitled to the government’s exemptions. Although the Federal Government and its agencies have immunity from sales and use taxes, the immunity does not extend to contractors performing contracts for the government, unless the contractor is a government agent and title to purchases passes directly to the government.

If you have any questions about the taxability of material purchases for government contracts, please call or e-mail us.

 

TEMPORARY STORAGE

In many states a potential tax trap exists when a taxpayer takes delivery of personal property in his home state and immediately reships or transports the property out-of-state for use in another jurisdiction. Even though the taxpayer’s intent is to have the property placed in service out-of-state, the act of taking delivery of the property first in the taxpayer’s state prior to use or installation out-of-state is considered storage. Such a transaction will be taxed by many jurisdictions where the property was first delivered.

For example, a Pennsylvania company orders computers for installation and use at its operations in Delaware. The computers are delivered to the taxpayer in Pennsylvania, solely for the purpose of recording the serial numbers, and then within hours, the computers are transported and installed in Delaware. Since the computers were initially delivered to Pennsylvania, a use tax to Pennsylvania would be incurred.

If you have any questions about the taxability of temporarily stored property, please call or e-mail us.

 

TRANSPORTATION CHARGES

Many state statutes allow an exclusion of transportation charges from the sale price if they are separately stated on the invoice to the customer. Generally, charges for transporting goods from a manufacturer or processor to a retailer are not excludable. The exclusion of transportation charges may depend on the passage of title to the goods. When title passes depends on the circumstances surrounding the sale; conduct of the buyer or seller, trade custom and what the sales contract specifies.

If you have any questions about the taxability of transportation charges, please call or e-mail us.

 

RETAILERS

The sales tax statutes impose tax on persons who make retail sales of tangible personal property for use or consumption. The statutes often refer to persons who make retail sales as retailers, dealers, or vendors. The tax may be levied on the retailer for the privilege of engaging in the business of retail selling or the tax may be imposed on the consumer. The retailer is usually responsible for collecting the tax and paying it to the state. Persons liable as retailers usually include individuals, corporations, or non-corporation entities such as partnerships, sole proprietorships, or any other entity.

If you have any questions about the tax liability of a retailer, please call or e-mail us.

 

ASSESSMENTS

Tax officials are permitted to recover any tax deficiency. The standard process for determining whether or not a deficiency exists lies with the state’s authority to conduct audits. An audit involves reviewing the taxpayer’s books and records, including the tax returns to ensure that all appropriate transactions were reported and the correct amount of tax was collected and remitted. With certain exceptions, the state is limited to the number of prior years it can hold open for audit. If an audit results in a deficiency, the state will then issue a formal written assessment. The taxpayer is generally given 30 days to file a protest or to request a hearing. Further appeals may be made to either a review board or to the state courts.

If you have any questions or concerns regarding the audit or assessment process and/or your rights to appeal, please call or e-mail us.

 

FUELS

Fuels are generally considered tangible personal property and cannot be excluded from tax unless specifically exempt. Many states exempt fuels used in manufacturing and processing activities. Also, many statutes exempt sales tax on fuels used by common carriers and fuels used for heating. In some states, motor fuels may be subject to a gasoline tax in addition to the sales tax.

If you would like to find out what fuel purchases in your business should be exempt from tax, please contact or e-mail us.

 

SERVICES DELIVERED OVER THE INTERNET

 

 Most states impose a sales/use tax on some types of services. Some states tax a much larger number of services than others. (Hawaii taxes over 150 and Illinois taxes less than 20.) A few states impose sales/use tax on on-line content transferred by means of electronic commerce. Some states tax all on-line sales as sales of tangible personal property. Other states tax them as a separate category of taxable services. Some states tax certain “content-related” electronic services, but exempt other similar services

If you have any questions about this topic, please call or e-mail us.

 

DRUGS, MEDICAL SUPPLIES, ETC.

 

 Retail sales of drugs are often exempt from tax by statute. Sometimes, the exemption may be limited to the sale of prescription drugs only. Also, exemption may be allowed for sales of prosthetic aids, hearing aids, eyeglasses and artificial devices purchased to correct or alleviate physical incapacity in humans. Statutes vary among states on these exemptions and should be consulted.

If you have any questions about this tax saving opportunity, please call or e-mail us.

 

REFUND SUBMISSION- STATUTE OF LIMITATIONS

 

 The Statute of Limitations for filing a refund claim varies significantly between states. A refund petition must be filed with the applicable taxing jurisdiction within a specified time period from the date the tax return was filed or the tax was paid. Many states require that a refund petition must be filed within three years from the date the tax was paid to the state. Some states, such as Alabama, have a hybrid requirement, where the statute requires filing of the claim within three years from the date the return was filed, or two years from payment, whichever is later. As the statute of limitation may vary significantly between states, it is important that the specific state’s statute be reviewed

If you have any questions about the Statute of Limitations for a particular state, please call or e-mail us.

CONDITIONAL AND CREDIT SALES

The fact that a sale is on credit or is conditional does not exempt it from sales/use taxes. The tax statutes specifically provide for these transactions. Most statutes either include conditional or credit sales in the definition of a “sale”. Other statutes also include these transactions as taxable, because they involve the transfer of tangible personal property for use or consumption. The regulations may require payment of the tax on these sales at the time of sale or at the time each payment is made. Lay-away sales are often treated like conditional sales.

If you have any questions regarding credit or conditional sales, please call or e-mail us.

GRAPHIC AND PHOTOGRAPHIC ARTS

Persons engaging in businesses as commercial artists, photographers, photofinishers, and sign painters are usually taxable on their purchases of tangible personal property, such as supplies and equipment. However, specified items may be exempt from tax by statute or may be nontaxable purchases for resale. The tax often applies to sales of tangible personal property by these persons. Taxable sales may include sales of photographs, blueprints, and artwork. Printing pictures and making enlargements also may be taxable.

As statutes in this area often vary widely among the states, please call or e-mail us if you have any questions regarding your particular state.

MACHINERY AND EQUIPMENT

Because machinery and equipment are tangible personal property, they are ordinarily taxable. However, many states often grant various exemptions in this area. The most typical exemption is for industrial machinery and equipment, which must be used or consumed in the production of tangible personal property (often referred to as the “manufacturing exemption”). Similarly, various items of agricultural machinery and equipment are often exempt. Repair parts for exempt machinery and equipment are also nontaxable.

If you would like to find out what machinery and equipment purchases in your business should be exempt from tax, please call or e-mail us.

LABOR AND SERVICE COSTS

A common feature of many sales and use tax statutes is to provide that the selling price or the amount of the sale be determined without any reduction for labor or service costs. This is true even when the sales tax statute limits the tax to only sales of tangible personal property, no tax being imposed on the retail sale of services. These costs are generally considered a part of the price and to eliminate them would be in effect to reduce the sales prices to which the tax applies. However, separate costs such as transportation and installation charges, which are added after the sale, are very often allowed to be excluded, if separately stated on the bill.

If you have any questions about this tax saving opportunity, please call or e-mail us.

IN-HOUSE PRINTING ACTIVITIES

Larger companies may be not be aware of considerable tax exemptions related to their in-house printing activities. Certain state statutes, such as Pennsylvania’s, allow significant exemptions for purchases of both equipment and supplies used in in-house printing facilities. However, certain criteria must be met to be classified as an in-house printing facility.

If you have any questions about this tax saving opportunity, please call or e-mail us.

CASUAL OR ISOLATED SALES

Many businesses unnecessarily incur a sales tax liability on a large dollar, but unique business transaction. Most state statutes do not tax casual or isolated sales, also called occasional sales. The exemption is usually limited to companies not regularly engaged in the retail sales of tangible personal property. The statute may limit the exemption to a specified number of sales per year or a specified dollar amount of sales per year. Unless specifically listed in a state’s statute as exempt, an exemption for these sales can not be taken.

If you have any questions about how your company may use the occasional sale exemption, please call or e-mail us.

SALES FOR RESALE

Many businesses unnecessarily incur a sales or use tax liability that should not be theirs, because they do not fully understand the concept of “sales for resale”. Sales for the purpose of resale are generally exempt from sales and use taxes. They are exempt because they are not sales for ultimate use or consumption as required by most state statutes. The right to the resale exemption depends upon the primary, rather than incidental, use of the purchases made by the buyer. The exemption is allowed if the goods purchased are for resale in the regular course of business. The seller must inquire as to the intended use as a condition to obtaining a resale exemption. The determination of taxability may be difficult where the item is not normally resold. The seller, however, need not debate the question with the customer. A resale certificate is sufficient evidence of a customer’s intent, if acquired in good faith.

If you have any questions about this tax saving opportunity, please call or e-mail us.

DIRECT PAY PERMITS

Many companies are missing the opportunity to prevent overpaying sales taxes by not using direct pay permits when purchasing property and services. Holders of direct pay permits may purchase property and services without paying sales tax to their suppliers. Instead, they pay a use tax later directly to the state. A determination of the taxability of the transaction must be made when the property or service is actually put to specific use or designated for specific use. In most states, authorization to remit tax directly to the state is limited to companies who acquire property or services under circumstances that make it impossible at the time of acquisition to determine whether the use will be taxable or exempt. Generally, each state offering a direct pay permit has specific requirements that must be met before a permit is issued.

If you would like to learn more about how your company may benefit by using a direct pay permit or want help in determining if its use is right for your company, contact us for a free, no obligation consultation.

If you have any questions about Direct Pay Permits, please call or e-mail us.

EQUIPMENT RENTAL WITH OPERATOR

There may be hidden tax refund opportunities within your company’s short term equipment leases/rentals. We have found that many companies are not eliminating the cost of the operator when determining the amount of the invoice subject to sales or use taxes. Many states provide that when a lease/rental of equipment includes the services of an operator, possession is deemed to be transferred where the lessee has the right to direct and control the use of the equipment. In those cases where control has transferred to the lessee, the operators’ wages, when separately stated, are excludable provided they reflect prevailing wage rates.

If you have any questions about this tax avoidance or refund opportunity, please call or e-mail us.

LONG TERM LEASES

There may be hidden tax refund opportunities within your company’s long term lease payments. We have found that many companies who qualify for the manufacturing and public utility exemptions were overpaying sales and use taxes by not applying their exemption to payments for the long term lease of their work equipment and work vehicles. Some states allow the exemption to be applied to both the capitalized cost of the vehicle chassis and the work equipment affixed to the chassis. Other states allow an exemption for only that portion of the lease payment representing the capitalized cost of the work equipment.

If you have any questions about this refund opportunity, please call or e-mail us.

PACKAGING MATERIALS

Many statutes exempt packaging supplies that are sold with the products to the consumer. The theory is that the tax is recovered on the packaging when the final sale to the customer is made. Sometimes the statutes refer to returnable containers where the taxability varies.

If you have any questions about the taxability of packaging materials, please call or e-mail us.

TAXES PAID TO OTHER JURISDICTIONS

Statutes often allow credits against tax for sales tax paid to another state. The credit is ordinarily limited to the amount of use tax payable. The statutes also provide that the credit is allowed only if a similar credit is granted by the state where sales tax was paid to taxpayers of the state granting the use tax credit. Sometimes a depreciation deduction is allowed against use tax for tangible personal property used in one state and brought into another state for use.

If you have any questions about the availability of credits to other jurisdictions, please call or e-mail us.

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