Sales Tax Jumpstart. October 4, CPE Credits

Transcription

1 Sales Tax Jumpstart October 4, CPE Credits Presented by the Sales Tax Institute Speaker: Diane L. Yetter, Sales Tax Institute

2 Sales Tax Jumpstart September 13 to November 8, 2018 Before the Class: Please join the webinar 7 minutes before the scheduled time of the call for a prompt start. If you have never used Go To Webinar before please take time today to test your connection before your session here: If you have trouble logging on to GoToWebinar, please view the System Requirements: We are aware that some past users have had issues logging in using Internet Explorer or if they have an older version of Go To Webinar installed on their machine. If this is the case you can try uninstalling GoToWebinar and reinstalling or you might want to try an alternative browser. If you continue to have trouble logging on, please call in on the phone using the number and passcode provide in your log-in from GoToWebinar. You can follow the PDF materials which can be accessed at Day of Class: You will have received a personalized link for each class session to use to log into the webinar. Use this link and do not share the link with anyone else. It helps us monitor attendance and gives us the ability to assist you if there are technical issues. You will be able to listen to the webinar either through your computer or via a telephone connection. This information will also be in your personalized . If you have not received the dial in information, please contact us immediately at info@salestaxinstitute.com for assistance. If you have technical difficulties during the webinar, you will be able to chat online with our technical support through the Go to Webinar application. If you cannot log into Go To Webinar, please call our office at x3 for immediate assistance or info@salestaxinstitute.com. Please be aware that it is a violation of our copyright to record the class sessions. CPE Information: Webinar attendees can earn 2.4 hours of CPE credit in the Taxes field of study for today s session. During the webinar, we will use polling questions throughout the scheduled presentation time. In order to receive CPE credit, you will need to participate in the polling questions. After the webinar, you will receive an from newsletter@salestaxinstitute.com containing a link to complete a webinar evaluation form. To receive CPE credit, you will need to complete the evaluation form online and have participated in the polling questions.

3 The Sales Tax Institute is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: Other Sales Tax Institute Courses and Webinars Please visit for more information on the Sales Tax Institute s live and online course offerings and webinars. The following webinars and live courses are currently scheduled. Visit for additional details and registration and additional offerings. Live Webinars: October 22, 2018 Sales Tax Issues for Retailers After Wayfair November 28, 2018 Manufacturing Sales Tax Exemptions That'll Save December 20, Construction & Real Property Sales Tax Deep-Dive Webinars On-Demand - available anytime: Sales Tax 101 Basic Concepts of Drop Shipments Sales Tax for E-Commerce Effective Audit Defense Techniques Sales Tax Challenges with Services Save Time & Eliminate Guesswork with Effective Tax Research

4 Diane L. Yetter, CPA, MST Diane L. Yetter is a strategist, advisor, speaker and author in the field of sales and use tax. She is president and founder of YETTER TAX, a sales tax consulting and tax technology firm in business since She is also the founder of The Sales Tax Institute, a premier think tank that offers live and online courses to educate business professionals about sales and use tax. Diane works with an extensive network of capable partners to deliver a variety of sales tax services ranging from tax technology to tax policy and planning and training. She works with clients of all sizes from Fortune 10 to small, family-owned companies in a variety of industries. She is a Certified Implementation Partner and Trainer with Thomson Reuters ONESOURCE Indirect Tax, a Certified Training and TDM Specialist for Vertex, Inc. and a Business Partner of Avalara and VertexCloud. As a speaker, Diane is frequently asked to present to industry groups concerning sales and use tax issues including the Council on State Taxation (COST), Chicago Tax Club, Diversified Communications (IOFM and Accountex), the Institute of Professionals in Taxation (IPT), National Association of Credit Managers (NACM), National Association for Retail Marketing Services (NARMS), Vertex User Conference, Thomson Reuters User Conference, and Avalara. As an author, Diane has written articles concerning sales and use tax issues; was editor for the edition of the Information Technology Association of America Software & Services State Tax Report and authored Drop Shipments: Taxation, Compliance and Planning and Multistate Guide to Sales and Use Tax: Manufacturing, both published by CCH. She also is the author of the US Sales Tax Chapter for the IBFD VAT Worldwide Research Database. Diane provides answers to sales tax questions on the website She has also appeared as an expert witness. Diane is a member of the AICPA, Illinois CPA Society, Chicago Tax Club, Chicagoland Chamber of Commerce Taxation Committee, Taxpayers Federation of Illinois and the Institute of Professionals in Taxation. She is a member of the Practitioner Connection with the Council on State Taxation, and represents client concerns on a number of task forces. Diane was named in Accounting Today s 100 Most Influential People in Accounting for 2011, 2012, 2017 and Diane serves on the KU Endowment Association s Board of Trustees and is a Past Chair of the Dean s Board of Advisors, University of Kansas School of Business where she is also an adjunct professor, teaching topics on state and local taxation and entrepreneurship. Diane earned a BS in accounting and business administration from the University of Kansas in 1985 and an MS in taxation from DePaul University in Prior to founding the company, Diane was a state and local tax manager in the Chicago office of Arthur Andersen LLP, the sales and use tax director for the Quaker Oats Company, and a sales and use tax auditor for the Kansas Department of Revenue.

5 Exemptions & Drop Shipments October 4, 2018 Copyright Sales Tax Institute 2018 Registration Homework Debrief 2 Copyright Sales Tax Institute

6 Exemptions 3 Introduction Collection required except when a jurisdiction s rules allow for sale to be made tax exempt Exemptions are based on: What is being sold Nature of the transaction How it is being used Who is the customer Careful examination of state laws must be made 4 Copyright Sales Tax Institute

7 Introduction (cont.) Keep in mind the seller s responsibility Seller responsible for proper classification of products Seller responsible for obtaining and maintaining documentation of nature of transaction Customer must document usage of items in exempt manner Customer must declare exempt status and provide documentation If documentation isn t captured, tax liability can become seller s responsibility at time of audit 5 Introduction (cont.) Multi Jurisdictional Certificates Multistate Tax Commission Certificate onew version as of 1/22/18 ohttp:// Sales Use Tax Exemption Certificate Streamlined Sales Tax Certificate orevised 5/10/17 for use 1/1/18 ohttps:// certificate 6 Copyright Sales Tax Institute

8 Introduction (cont.) Certificate issues Blanket vs. single use o Single applies only to the specific identification (PO, Project, Transaction) Purchase order in lieu of exemption certificate o States that are flexible in format of the certificate as long as all required language and a signature is included Good faith o To what extent is the seller required to make inquiry as to the validity of the exemption Paper vs. imaged o Imaged acceptable as long as image can not be modified and is readable 7 Introduction (cont.) Electronic certificate o Data may be acceptable in some states on transactions where certificate is not practical (e commerce, POS, EDI) Registration / exemption number o Most certificates require a number of some sort; some such as manufacturing may not o Validation of the number may be required o Always confirm the correct format of the number Renewal period o Renewals may be based on date issued to seller but exempt orgs may be based on date exemption was granted o Retain prior certificates until audit period closed o CCH Charts (Tools) 8 Copyright Sales Tax Institute

9 Introduction (cont.) Certificate Required Elements Name and address of purchaser (much match name on invoice) Name and address of seller Registration number of purchaser Description of property purchased Reason for exemption Statement that if the property is put to use in a taxable manner that the purchaser will remit the consumer s use tax Date and Signature of authorized individual at the purchaser Copy of license is generally not a valid certificate but could be exceptions (MS) 9 Type of Transaction Resale Wholesale, Distributor, or Retailer purchases Items used in production of other goods Packaging Resale certificates Interstate Commerce Origin state offers exemption Destination state Use tax Exemption documentation 10 Copyright Sales Tax Institute

10 Type of Transaction (cont.) Exports Sales tax imposed at point of transfer of title or possession Sales tax due if non resident takes possession of goods from retailer If retailer ships goods outside of U.S., sales tax generally not due If retailer delivers to a freight forwarder, documentation required to claim exemption Exemption documentation proof of export 11 Type of Transaction (cont.) Services Usually an exclusion rather than exemption Service provider is often considered the consumer of items used in providing the service Property and services may qualify for the resale exemption if service is taxable Purchases from subcontractors 12 Copyright Sales Tax Institute

11 Type of Transaction (cont.) Real Property Generally excluded from definition of retail sale Personal property attached to real property Structure of the contract Generally, contractors are considered the ultimate consumer of tangible personal property 13 Type of Transaction (cont.) Occasional / Casual / Bulk Sale Occasional Sale Sale of TPP not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration Limits on number of sales (charity events) Corporate reorganizations 14 Copyright Sales Tax Institute

12 Type of Transaction (cont.) Occasional/Casual/Bulk Sale Not engaged in selling TPP Outside normal course of business Sale of business or identifiable segment One bulk sale to one customer Taxable sale exclusions (inventory, titled vehicles) Bulk Sales Notifications 15 Type of Purchaser Government Federal oconstitutionally protected from taxation oexemption documentation State and Local ovaries by state oreciprocal treatment oother branches possibly exempt under other provisions oexemption documentation 16 Copyright Sales Tax Institute

13 Type of Purchaser (cont.) Government Contractor Sales taxation of Federal government constitutionally prohibited Key concept with states various court cases: oresale exemption? otitle passes to the Federal Government? Real property vs Supply Contractor Exemption Documentation 17 Type of Purchaser (cont.) Exempt Organizations States free to tax non profit Schools, Churches, PTA Federal provision 501 of IRC Require exemption application Purchases vs sales Donations Flow through exemptions for construction Exempt organization certificates 18 Copyright Sales Tax Institute

14 Type of Use Specific Industry Exemptions Manufacturing Research & Development Data Centers Call Centers Agriculture Space activities Cross State purchases Exemption documentation More details in Industry Week 19 Type of Use (cont.) Temporary Storage Some states exclude, from their definition of use, property which is stored in the jurisdiction temporarily before shipment outside the jurisdiction. othis exclusion is usually embedded in their definition and is not listed separately as an exemption. Duration of Storage (KS 60 days; IN 180 days) Usually there can be no use of the property prior to its shipment outside the state osome states allow repackaging, testing or other incidental use. Use tax due in ultimate state of use 20 Copyright Sales Tax Institute

15 Type of Use (cont.) Partial Exemptions/Reduced Rates Base Reductions opercentage of use exemptions are exemptions that are based upon the nature of the use of the property in question. Texas taxes 80% of data processing Rate Reductions omany states that do not exempt food and groceries from sales tax offer reduced rates for these products. Connecticut taxes computer services at 1% 21 Type of Use (cont.) Exempt use certificates Examples: Manufacturing, Pollution control, Farming, Common carrier In order for an exempt use certificate to be valid, a description of the use of the property is required. Many states have special forms for the different types of exempt use. oexemptions claimed on incorrect forms may be considered invalid. 22 Copyright Sales Tax Institute

16 Type of Use (cont.) Direct pay certificates A document that a purchaser provides to the seller when the use of the goods is unknown at the time of the purchase. Purchaser takes full responsibility for tax payment. May be valid only for sales tax or use tax. Most states offer direct pay but could be limited to who can qualify Application process 23 Incentives TIP: Get involved before the project starts. After it starts, you re out of luck 24 Copyright Sales Tax Institute

17 Incentives (cont.) Tax and business gifts to encourage investments in a jurisdiction Various types of incentives: tax credits, tax exemptions, financing discounts, pricing discounts, and licensing provisions In most instances, the application and certification processes must occur prior to any purchasing. Tax department needs to be aware of major investments early in the planning stage 25 Incentives (cont.) Benefits to business and taxing jurisdictions Risks Reputational Risk Claw Back provisions Require pay back of incentives if the business does not meet or exceed their promises that led to the incentive package. 26 Copyright Sales Tax Institute

18 Incentives (cont.) Examples Sales and Use Tax Incentives Enterprise Zone Programs Other Incentives Investment Tax Credit Jobs Tax Credits Research & Development Credits Property Tax Incentives Non Tax Incentives 27 Drop Shipments 28 Copyright Sales Tax Institute

19 Definition Seller/distributor accepts order from customer/end user Seller/distributor places order with shipper/wholesaler Seller/distributor directs shipper/wholesaler to ship goods direct to customer/end user Shipper/wholesaler bills the Seller/distributor at wholesale price Seller/distributor bills customer at retail price 29 Drop Shipments The Drop Shipment Model 30 Copyright Sales Tax Institute

20 Implications of Drop Shipments Transaction between Seller/distributor and customer is a taxable transaction Transaction between Shipper/wholesaler and Seller/distributor is considered a resale transaction What is the appropriate documentation to support the exempt transaction? Some jurisdictions allow alternate documentation Some states require their own registration # 31 Some states accept a pass through exemption Implications of Drop Shipments (cont.) A state cannot require out of state businesses to register to collect its tax unless nexus is established If the shipper/wholesaler requires appropriate exemption documentation, the retailer may be forced to register. Otherwise the shipper/wholesaler will be required to charge tax on the invoice to the retailer. Tax collection issues Is the in state shipper/wholesaler considered a warehouse location for determining local tax rates on intrastate transactions? 32 Copyright Sales Tax Institute

21 Sales and Use Tax Issues If the seller/distributor is not registered to collect sales tax and has no nexus with the state where the goods are shipped to the customer, will the state recognize the sale from the shipper/wholesaler to the retailer as a sale for resale? What documentation will a state accept if the seller/distributor is not registered in the state of delivery? Does the answer change if the shipper/wholesaler delivers the goods in its own vehicles, rather than by common carrier or if the goods are shipped COD? 33 Sales and Use Tax Issues (cont.) Does the answer change if the customer is reselling the goods, rather than using or consuming them? Does the answer change if the customer is an exempt entity? Do the shipping terms affect the taxability of the transaction? 34 Copyright Sales Tax Institute

22 Sales and Use Tax Issues (cont.) Is Shipper/wholesaler required to collect tax? What is tax base? oretail Price owholesale Price If the shipper/wholesaler is required to collect tax from the seller/distributor, can the seller/distributor reimburse itself by passing the tax to the customer? 35 Resources CCH Drop Shipment book IPT bi annual survey study Other state tax publications include summary level drop shipment charts that provide more general information 36 Copyright Sales Tax Institute

23 Questions? 37 Homework & Next Week 38 Copyright Sales Tax Institute

24 Homework Link to homework: course 18materials 39 Next Week Class Thursday, October 11, 11:30 1:30 EDT Review Exemption homework Tax Base Efficient Tax Research 40 Copyright Sales Tax Institute

25 Thanks to our Sponsors! 41 Get Social with Sales Tax /company/sales taxinstitute /salestaxinstitute Sales Tax Institute 910 W. Van Buren, Suite Chicago, IL (312) /user/salestaxinstitute 42 Copyright Sales Tax Institute 2018 Copyright Sales Tax Institute