Rules... So Many Rules!
Welcome to your crash course in sales and use tax. Sales tax is the tax charged by the vendor on behalf of the state. Use tax is (most commonly) the complementary tax when a vendor is not required to charge tax on an otherwise taxable transaction. When a seller does not charge tax on a taxable transaction, this is likely due to the seller not having a collection requirement within that taxing jurisdiction. Under these circumstances, the buyer is required to calculate the tax and pay it to the state.
Taxable transactions vary from state to state and sometimes even jurisdiction to jurisdiction. Here are a few very high-level examples:
1. Manufacturing equipment may be entirely taxable in State A, entirely exempt from tax in State B, and partially exempt in State C. Another ripple in identifying the possibility of the exemption is understand how "manufacturing equipment" is defined in each taxing jurisdiction. We are well-versed in knowing when, where, and how to issue these exemptions so manufacturers are not paying sales tax unnecessarily.
2. Contractors are largely considered to be the end-consumers of tangible personal property. Therefore, they are required to pay tax to their material vendors and not required to collect tax from their customers. What happens if they are performing work for an exempt entity? Some states will allow the contractor to claim the exemption. Some states won't allow it. Some states will only allow it with certain contract types. Others will allow contractors to enter into agency agreements where they are buying material on behalf of the exempt entity and title is being transferred directly to the exempt entity. Our experts can help you navigate the complex tax application for contractors nation-wide.
3. Software, in-app purchases, and cloud computing is a huge, continuously evolving industry. Each state has its own rules on these items. Is the transaction a sales of personal property or is it a sale of a service? Is the property transferred electronically, accessed remotely, customized prior to delivery? Blanket statements for taxability concerning software are major red flags for us.
Set your company up for success by letting us dig into the details. Sales and use tax law is complicated and often times very confusing for businesses. Don't miss out on qualifying exemptions designed to help businesses like yours cut expenses. More importantly, don't let your company be a casualty of a sales and use tax audit resulting in penalties and interest on transactions you didn't realize were taxable. The pros here at The Sales Tax Team can create tax matrices, memos, manuals, and presentations customized for your business so no stone is left unturned.