Today's Technology for Tomorrow's Firm.
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24 October 2014 • www.CPAPracticeAdvisor.com A YEAR IN THE LIFE: SALT ACCOUNTANT Sales ta x, the "pay me now" ta x, is pa id to the reta i ler at the time of p u r c h a s e . G e n e r a l l y s p e a k i n g , traditional brick and mortar stores a re requ i red to col lec t state a nd local sales ta x on retail sales. Many online retailers are not required to collect sales ta xes on sales shipped to a not her st ate si mply bec au se they do not have a ta xable presence t h e r e (t y p i c a l l y , p r o p e r t y o r employees). Use ta x, the "pay me later" ta x, is r e q u i r e d t o b e r e m i t t e d b y t he purchaser/consumer/end-user for t a x a ble t r a n s a c t io n s w he r e t he seller/retailer did not charge sales t a x (i . e . , i n t e r n e t s a l e s). M a n y pu rchasers a re eit her u nawa re of t h i s r e q u i r e m e n t o r c h o o s e t o ignore it. Some states prov ide clear guidance and a convenient method for remiting the ta x (e.g., line item on the state sales ta x or income ta x return ), while other states prov ide litle to no guidance coupled w ith conf using remitance methods. To summarize, if the transaction is ta xable, and not ta xed at the time of sale, the corresponding use ta x is likely due from the purchaser. For e x a m ple , w he n a M i n ne - apolis restaurant owner purchases new dishes at a Minnesota restau- ra nt supply compa ny (deemed a ta xable sale), M innesota sales ta x w o u l d b e d u e . H o w e v e r, i f t h e d i she s were pu rc h a se d over t he internet from a Wyoming retailer; and the retailer was not required to col lec t M i n nesot a sa les t a x , t he rest au ra nt wou ld be requ i red to self-assess and remit the applicable use ta x to Minnesota. A s you might surmise from the above example, states have str ug- gled w ith use ta x collection and are look ing to t he Ma rket place Fa i r- ness Act as a mechanism to increase sales/use ta x compliance. Last year, the Senate passed the Marketplace Fairness Act (MFA), wh ich wou ld a l low state gover n- ments to require retailers w ithout a physical presence in the state of t he pu rc h a ser (Wyom i ng ba se d r e s t a u r a n t s u p p l y f r o m o u r example) to collect that state's sales ta x. Te bill has been referred to a Hou s e of R e pre sent at i ve s c om- mitee for rev iew. If the bill passes t h e H o u s e , t h e n i t w i l l l i k e l y become law as the W hite House has already expressed its support. Proponents of the bill claim that it w i l l help level t he play ing feld bet ween online retailers and brick and mortar retailers, and w ill also help struggling states increase their revenue. Opponents arg ue that it w ill hurt online businesses not only w ith price increases associated w ith collecting sales ta x, but also from the potential cost to integrate a new accounting system to fle and remit mu lt iple sa les t a x ret u r n s . I n a n efort to ease this burden, the MFA prov ides for a "small-seller excep- tion" which is applicable to sellers w ith annual gross receipts in total U.S. remote sales not exceeding $1 million. A s it c u r rent ly sta nds, t he bi l l would only allow states that meet cer t a i n m i n i mu m sa les t a x l aw/ procedure simpli fcation require- ments to participate. Te allure of increased sales ta x revenue v ia the remote seller rule may persuade the non- compl ia nt st ates to rev a mp their sa les ta x reg imes to comply w ith the minimum requirements of the bill. W hether you are a proponent or o p p o n e n t o f t h e M a r k e t p l a c e Fa i r n e s s A c t , i t 's i m p o r t a n t t o understand that a use ta x responsi- bilit y has always ex isted on ta xable transactions, where sa les ta x was not col lec ted . T he M a rket pl ace Fa ir ness Act is merely one of the l a t e s t a t t e m p t s b y C o n g r e s s t o a d d r e s s a m a j o r c o m p l i a n c e problem. How Does the Marketplace Fairness Act Affect Use Taxes? By Judy Vorndran, CPA, JD W hile almost ever yone has heard of sales tax, many business owners are unaware that most states have a "use tax." State laws treat sales and use tax as two sepa- rate taxes, but in reality they act in concert to complement each other. Tink of them as a "pay me now or pay me later" tax. Judy Vorndran, CPA , JD, is a Partner, and Alex Korzhen, JD, MBA , is a Manager with Eide Bailly, a top 25 CPA frm with 24 ofces in 11 states. Eide Bailly's National Tax Ofce serves as a resource for clients to help analyze complex tax issues related to business decisions.