Today's Technology for Tomorrow's Firm.
Issue link: https://cpapracticeadvisor.epubxp.com/i/588168
22 October 2015 • www.CPAPracticeAdvisor.com A YEAR IN THE LIFE: SALT ACCOUNTANT T h at 's w hy t he y h av e you , of course. It's part of your job to educate them on how to improve their pro- cesses, discussing how you can not only shorten the time it takes to prep and fle their tax return, but also meet ongoing state and federal compli- ance. Te last thing anyone wants is to endure a state sales tax audit. W het her you're f a m i l i a r w it h sales tax reporting and compliance o r m a y n e e d t o i m p r o v e y o u r k nowledge, here are 4 Q& A's that you'll want your self-employed cli- ents to know about. [ Do clients report sales tax as self-employ- ment income? No, self-employment income does not include any sales tax that was remited to the state, and ta xpayers cannot claim a deduction for the sales tax collected and submited. However, the taxpayer is required to include, as income, any portion of sales tax the state allowed them to keep. [ What are the sales tax requirements by state? Most states maintain this informa- t ion t h r ou g h t he i r go v e r n me nt website. For example, the informa- tion for Texas can be found at the S t a t e C o m p t r o l l e r o f P u b l i c Accounts' website. For any other state, a simple Google search is the best way to fnd a state's informa- tion. But, if you're practicing in a particular state, you should already be aware of these rules. A c c o r d i n g t o t h e S a l e s Ta x Institute, there are 45 states, plus t h e D i s t r i c t o f C o l u m b i a , t h a t c u r rent ly i mpose a genera l sa les ta x. Te fve states w ithout general s a le s t a x a r e A l a s k a , D e l aw a r e , Mont a n a , Ne w H a m p s h i r e a nd Oregon. However, A laska permits loca l sa les ta xes, wh i le Delawa re i mposes a renta l a nd ser v ice ta x . Most of the states also impose dif- ferent excise, meal or lodging ta xes, even t hough t hey don't i mpose a gener a l s a le s a nd u s e t a x . Mos t states also impose a variet y of local sales ta xes, including count y, cit y and transit ta xes. [ What are the sales tax rules for "products" vs. "services?" W h i le sel f-employed cl ients who provide a service are mostly exempt from sales ta x, most products are taxable. If your business owner sells a product or service that is subject to sales tax, he or she must register with the state's tax department, and ta xable and nonta xable sales must be t r ac k e d a nd i nc lude d on t he company's sales tax return. [ Should self- employed clients worry about nexus? Absolutely. Nexus laws are complex a nd each state ha nd les t he issue d i f ferent ly. T he best adv ice is to rev iew the laws in each new state where business was conducted. For example, did your client deliver and install a product in a state other than his or her own? Similarly, since there is the issue of "presence" in a state, your client should also be aware of use tax. For example, if your client does not have a physical presence in another state but sells items over the Internet or by catalog in that state, he or she can be subject to a state's use ta x and sometimes not to a state sales tax. To further complicate the issue, a presence in another state does not necessar i ly mean the cl ient has a retail presence in that state; how- ever, if there is an ofce, warehouse or employee working in that state, the state revenue department may consider this as a presence for ta x purposes. Avalara has a short video (w w w. avalara.com/learn/videos/sales-tax- vs-use-tax) that explains sales vs. use ta x . If your client has established nexus, check the state's sales tax laws so that he or she can accurately cal- culate, fle and remit the appropriate sa les ta x l iabi l it y. Here's a not her good resource for Internet sales tax i s s u e s : w w w . n o l o . c o m / l e g a l - e n c y c l o p e d i a /5 0 - s t a t e - g u i d e - internet-sales-tax-laws.html. Remember, your self-employed clients need your help when it comes to a l l-t h i ngs accou nt i ng a nd ta x , es pec ia l ly sa les t a x compl ia nce. Learn all you can about their nexus and their presence. In the long run, if they ignore the issue, they could be subject to a sales tax audit. 4 Sales Tax Pointers for Self-Employed Clients By Marshal Kushniruk S elf-employed clients are inno- vative, entrepreneurial and like taking a lot of risk, but prob- a b l y a r e n ' t p a y i n g m u c h attention to their back-office operations, including the somewhat compli- cated issue of sales tax. Marshal Kushniruk is executive vice president of global business development at Avalara, a provider of cloud-based sofware delivering compliance solutions related to VAT, sales tax and other transactional taxes. Contact him at marshal. kushniruk@avalara.com .