Today's Technology for Tomorrow's Firm.
Issue link: https://cpapracticeadvisor.epubxp.com/i/652065
18 March 2016 • www.CPAPracticeAdvisor.com A YEAR IN THE LIFE: SALT ACCOUNTANT Te sale of most tangible personal property is taxable in the 45 states (plus the District of Columbia) that lev y sales ta x. Ser vices, once insu- lated from transaction tax pain, are increasingly subject to tax as states respond to t he g row i ng ser v ice- based economy. If expanding sales t a x to nu merou s ser v ices a l low s states to capture more revenue, it a lso ma kes sa les ta x compl ia nce more complex for businesses. Common triggers Goods and services are "sometimes ta x able" for a va r iet y of reasons, including but not limited to: • Method of delivery • Sales tax holidays • Type of transaction: B2B or B2C Sales tax rules always vary by state. With "sometimes taxable" goods and services, the key to determining tax- ability is ofen the interplay between the product/service and the trigger. Determining taxability is the frst step towards sales and use tax compliance. Common products and services W hile in theory any good or service could be "sometimes taxable," some are more likely to fall into this cat- egory than others. Common "some- times taxable" items include: • Apparel and footwear • Books • Electronics • Food • Sporting Goods • Music and video Apparel and footwear Clothing is subject to sales tax in the majority of states that have the tax, although the laws can be capricious. For example, New York state sales ta x does not apply to clothing and footwear sold for less than $110 per item or pair, and local ta x may or may not apply. That's "sometimes taxable" with a twist. In addition, 18 states prov ided t a x- f r e e p e r i o d s f o r q u a l i f y i n g apparel and footwear in 2015. Four- teen states are prov iding them in 2016, and several more have sales tax holidays under consideration. Each state has its own list of qualif ying items and conditions for exemption. W hether they last a day, a weekend, or a week , sa les ta x hol idays ca n create a sales tax compliance night- mare for businesses that sel l into multiple taxing jurisdictions. Food Food is often exempt when unpre- pared but taxable when prepared, or exempt if a business doesn't provide seating and taxable if it does. In New York, for example, a bagel sold by quantity is exempt whether whole or sliced, but a bagel that is sliced, toasted a n d s e r v e d w i t h c r e a m cheese or buter is taxable. Te method of payment may also impact food tax- ability. Candy, sandwiches and sof drinks are generally taxable in New York but are e xempt when pu rcha sed with food stamps. Conve- nience stores, those special blend s of c a feter i a , f a s t food, and grocery store, are particularly susceptible to the ta x pain of "sometimes taxable" food. Music and video Determining the taxability of music and videos consumed at home used to be relat ively st ra ig ht for wa rd: products that could be held in con- sumers' hands, like vinyl, V HS cas- set te s a nd DV Ds , were t a ng ible persona l proper t y a nd subject to sales tax. Easy peasy. Not so, today. These days we're consuming an increasing number of books, movies and music electroni- cally. Due to the method of delivery, taxability has become as complicated as our remotes. And changing tech- nology triggers changes in taxes. Confusion starts with state laws and grows with each new regulation a n d e x c e p t i o n . A n i n c r e a s i n g number of states including Wash- ington specifcally tax digital goods and ser v ices. However many, like Te x a s, rely on e x i st i ng law s a nd defne digital goods as taxable tan- gible personal property. Kentucky sales and use tax applies to d ig ita l aud io work s and book s sold to an end user with rights for per ma nent use, but d ig ita l aud io v isua l work s sold to a n end user (with rights for permanent use) are exempt, as are digital audio visual works sold to users other than the end user or with rights of use that are less than permanent. Electronically delivered amusements like Netfix became subject to Chicago's amuse- ment tax on July 1, 2015 but litiga- tion is underway and the fate of the tax is uncertain. Te sales tax pain point for sellers of digital goods and services is likely to grow. Approximately half of the states currently apply sales ta x to dig ita l book s, dow n loaded music and ringtones. If Kentuck y is any indication (and it is), clarif ying laws just add to the confusion. Always prepared W hen it comes to sales and use tax, businesses dealing in "sometimes tax- able" goods and services must always be prepared especially if you sell via multiple channels or in multiple states. A need for sales and use tax revenue is motivating states to broaden sales tax l a w s i n n u m e r o u s w a y s , f r o m expanding the tax laws to cover ser- v ices to capt u r i ng revenue f rom remote sellers to tapping into new digital markets. Tis, in turn, could change or add to your tax obligations. Tr y ing to ma nage t h is process manually or with built-in basic tax functionality is risky. Tis is where having tax automation sofware can be benefcial. Avalara AvaTax helps bu si nesses of a l l si z es dea l w it h "sometimes taxable" goods and ser- vices. AvaTax works in your existing business systems to transfer tax data for each jurisdiction instantly and a p pl y t he r i g ht r at e s , r u le s a nd exemptions to every transaction. So you' l l never have to wor r y about being only sometimes right about sometimes taxable. Why Are Products "Sometimes" Taxable? By Gail Cole J ust when you thought you had a handle on the rules for taxing goods and services, you come face to face with the new com- pliance bully on the block: "sometimes taxable." Businesses must correctly deal with these sometimes exempt and sometimes subject to sales tax products and services or sufer the con- sequences. Knowing when tax applies to "sometimes taxable" goods and services is essential to successful tax compliance – but it's not always so easy to discern.