CPA Practice Advisor

JUN 2015

Today's Technology for Tomorrow's Firm.

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28 June/July 2015 • www.CPAPracticeAdvisor.com A YEAR IN THE LIFE: SALT ACCOUNTANT So w hat shou ld you i mpa r t to eBay sellers and others trolling for business prof its on line? Here are some of the key rules to discuss with your clients. Start with the basic premise that the states sales taxes levied on pur- c ha ser s of good s or ser v ices a re per vasive. At last count, 45 states and the District of Columbia impose s a le s t a x on b u s i ne s s e s lo c a t e d within their borders. Only A laska, Delaware, Montana, New Hamp- sh i re a nd Oregon a re exempt. I n addition, states with sales taxes have a use tax mirroring the image of the sales tax. Te use tax applies when the business doesn't collect sales tax but has merchandise delivered into the state. If a business in one of the 45 states or Wash i ng ton D.C . orders mer- chandise online and has it shipped into its home state, it pays the use tax. Tis is generally reported on the state income tax for the appropriate tax year. But online sellers that col- lect sales taxes save the business the trouble of reporting the use tax. Business clients with bricks-and- mortar operations are probably all too familiar with the rules for col- lecting sales ta x from consumers. Now the landscape has been changed by the proliferation of online sellers. In a landmark care (Quill v. North Dakota, 504 Y.S. 298, 5/26/92), the Supreme Cou r t r u led t hat states can't constitutionally force out-of- s t at e s e l le r s to c ol le c t s a le s t a x without having a nexus in the state. If the business maintains a nex us (e.g., it has a warehouse or delivery center in the state), requiring sales ta x is fair game. This has become prevalent with some of the merchan - dising giants like Amazon. However, in recent years several states – notably California and New York – have become more aggressive in pursing sales ta x collections by establishing other claims of nexus. Tis trend continues to grow as more states see the sales tax revenue from online sellers as a way to f ill their dwindling cofers. In the meantime, entrepreneurs face a bew i lder ing array of laws in diferent states. Legislation proposed in Congress wou ld resolve t he con f usion, but several measures have stalled out before they ever reached the Presi- dent's desk. Te Marketplace Fair- ness Act of 2013 – which had gained some traction – required Internet retai lers and other remote sel lers with more than $1 million in annual sales to collect sales taxes. Ten these entities would have to deposit the money with the states. Now another version of this law circulating in the nation's capital seems to be picking up steam. Te Marketplace Fairness Act of 2015 gives states the option to require out-of-state Internet sellers to col lect sa les ta xes owed under state law in the same manner as in- state businesses do. Remind clients that sales ta x is t r e a t e d a s a l i a b i l i t y , n o t a n ex pense. Te business is collecting the sales ta x is an agent of the state and must remit the money to the s t ate s hor t l y a f ter c ol le c t i n g it . Ten it reduces its cash and sa les ta x liabilit y. Your clients w ill rely on you for the nit y-grit y, but they should have at least a basic under- standing of the process. Online Sellers Face Sales Tax Complications By Ken Berry R aise your hand if you have one or more clients who recently started up an online business and are conf used about the state sales ta x implications. Now all of you (or at least most of you) can put your hands down. Te number of small businesses that are Inter net-based has ex ploded the last few years as budding entrepreneurs create new business models opportunities that could only have been dreamed about in the not-so-distant past. But with opportunity comes sales tax obliga- tions that may befuddle the uninformed. Ken Berry, Esq., is a nationally-known writer and editor spe- cializing in tax and fnancial planning maters. During a career of more than 35 years, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company in the fnancial services industry. As a feelance writer, Ken has authored thou- sands of articles for a wide variety of newsleters, magazines and other periodicals, emphasizing a sense of wit and clarity.

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