GLOSSARY IPT 2016 Sales and Use Tax Symposium Beginner Basics
GLOSSARY The following definitions have been developed to facilitate an understanding of the course material. They tend to be generic in nature, and do not necessarily apply in any specific jurisdiction. In addition, the same terms may be defined differently in contexts other than those considered in the course material. Term Absorption Agency clause Agent Assessment Bracket system Bulk sale Bundling Definition The condition that exists when a seller does not add sales or use tax to the selling price as a separate itemized amount, but instead remits the tax from his or her own funds (not commonly allowed). Compare with separation. A contract provision that gives one party the authority to act as an agent of the other. In a construction contract, such a clause may authorize a contractor to act as the customer's agent in making purchases. A person acting on behalf of another person, with the authority to bind the other person in dealings with third parties. Note that one can act on behalf of another without having this authority and this is sometimes referred to loosely and imprecisely as "agency. Generally refers to a taxing authority's formal assertion that the taxpayer to whom it is issued owes a stated amount of tax, interest, and/or penalty. A tax chart provided by the jurisdiction that sets forth ranges of sales prices (usually less than $1.00) and prescribes the amount of tax due on transactions within each range. A sale of all or a substantial portion of a business's assets. Examples may include the sale of a division or line of business. Combining more than one item (which may include tangible personal property, services, intangibles, or any combination of them) in a single transaction with a single, non-itemized price. 1
Buydown Case law Class Action Commerce Clause A return of a portion of the cost that the retailer paid when purchasing merchandise for resale from either a wholesaler or a manufacturer. It usually involves some form of promotion and/or selling the product. The return of funds could be in the form of a refund or credit memo. The law as developed in the decisions of courts. Brought against a company by a class of taxpayers who have been incorrectly charged the tax. Article I, Section 8, subsection 3, of the United States Constitution. This clause provides that Congress shall have the power To regulate commerce with foreign nations, and among the several States, and with the Indian Tribes. Common carrier Compliance Computer software Conditional sale One that transports property for others for a price. The term generally refers to a carrier that is obligated to accept such business from the general public (in contrast with "private" or "contract" carriers). Other elements may also apply in a given jurisdiction (such as standardized rates or schedules). Generally refers to the functions performed to adhere to the sales and use tax laws, including but not limited to registration, filing of sales and use tax returns, and documentation of exemptions. Written or recorded instructions that direct the activities or processes of a computer or peripheral devices. Note that distinctions may be made between canned versus custom software for sales and use tax purposes. A transaction where property changes hands but title (held by seller) does not transfer until the full sales price has been paid by the purchaser. 2
Construction contractor A person who makes improvements to real property and/or may incorporate tangible personal property into realty. 1. prime contractor - usually the focus person who is responsible to the owner for ensuring the job is completed properly and timely. 2. subcontractor the person who is hired by the prime contractor to perform a specific task. An example of a subcontractor is a plumber. Consumer levy Corporation Cost plus, time and material, and separated contracts Determination Direct pay authority A type of sales tax that is imposed on the purchaser and that the seller collects for the taxing jurisdiction. Common (although not universal) features include the following: absorption is not allowed; separation is required; the tax is a debt of the buyer to the seller; the buyer can request a refund directly from the state; and the seller receives a collection allowance for collecting the tax. An entity having authority under the law to act as a single person distinct from any other, including the shareholders who own stock in it. A corporation is generally treated as a separate and distinct taxpayer for sales and use tax purposes. Contracts that are usually billed showing the separated amounts for labor (time) and materials. One of several terms that may be used to refer to a formal notification of assessment by the jurisdiction, or to the resolution of a taxpayer's objections to such an assessment. The term can also be used more broadly to refer to other types of decisions or conclusions. Authorization granted by a taxing jurisdiction that allows a purchaser to choose to remit sales or use taxes directly to the jurisdiction rather than to the seller. When a purchaser provides the seller the required evidence of such authority, the seller is relieved of the obligation to collect tax from the purchaser. 3
Division A unit of business within a legal entity that is generally treated as indistinct from the legal entity of which it is a part. Note that sometimes subsidiaries are referred to as divisions but a true subsidiary (even when called a division ) is, in fact, a separate legal entity from that of its parent corporation. Electronic commerce Electronic Data Interchange (EDI) Electronic Funds Transfer (EFT) Enumerated services Escheat Estimated assessment Excess Tax Collected Used broadly to encompass a variety of activities, including telecommunications, Internet access, online sales of products, services, or entertainment, electronic data interchange, electronic transfers of funds, and the use of proprietary networks. Sometimes used more narrowly to refer to Internet access and online sales. The transfer of data between different entities using electronic media, such as the Internet. For example, EDI may be used to replace paper purchase orders, invoices, tax returns and other documents with prescribed electronic data sets. Transfers of electronic payments or collections via the internet or other data channels. Generally refers to services that are specifically identified in a sales tax statute as taxable. Reversion of property to the state when no legal heirs or claimants exist (such property is commonly known as unclaimed property ). An assessment issued in the context of an audit when the taxpayer, according to the DOR, has not made available adequate records to determine its tax liability for the audit period. Estimates may be based on taxpayer records for a different period, industry data, or other information. Any tax collected in excess of the calculated liability. It usually happens with a state that uses Brackets to calculate the tax. 4
Excise (as in excise tax): Exclusion Exemption Exemption certificate Exhaustion doctrine An impost or duty levied on manufacture, sale, or consumption of goods within a given geographical territory, or an extraction for license or permission to practice or conduct certain trades or occupations. Examples: International: Value-added tax Federal level: manufacturer s, fuel, transportation, telecommunications, luxury, firearms, sporting goods, alcohol, etc. State level: fuel, tobacco, alcohol, gasoline, etc. sales, use, consumption, business, and occupations, etc. Local level: business license, transient or hotel, tourist, bed, etc. Two definitions: (1) A transaction that is outside the general scope of the statutes imposing the sales or use tax. Common examples include real estate, stocks, bonds, and most services. (2) An amount that is not included in the measure of sales and use taxes. Common examples include certain discounts, charges for freight, and charges for installation labor. A transaction that is within the general scope of the statutes imposing tax, but is the subject of special provisions removing it from taxation. Common examples include exemptions for charities, exemptions based on the nature of the product, and exemptions based on the use to be made of the product. A document that establishes the exempt status of the item, the service, the purchaser, or the transaction, and relieves the seller of the obligation to collect or remit tax with respect to it. Refers to a legal requirement in many jurisdictions that a person pursue relief through an administrative process before applying to a court. The doctrine is commonly (but not universally) applied in tax matters. 5
Fixed price or lump sum contract Grandfather clause Gross receipts Gross receipts tax Grounds Hearing Home rule jurisdiction Imposition clause Jeopardy assessment A contract that is for a set amount and does not separate out the charges for material and labor. Generally refers to a provision of law that creates an exception from the law's effect for something that existed before the law's effective date. For example, a law increasing a sales tax rate may include an exception for contractor purchases made in performing contracts entered into before the increase became effective. The total amount of money or other consideration received by a taxpayer for goods sold or services performed, before deductions. A tax measured by gross receipts derived from nonexempt transactions. Two states (Hawaii and New Mexico) impose gross receipts taxes that operate similarly to a seller s privilege tax. Reasons for a position or conclusion. Examples include the taxpayer's stated basis for objecting to an assessment, and the taxing authority's basis for agreeing or disagreeing with the taxpayer. When used broadly, any setting (including informal meetings) in which a person presents evidence or arguments to a decision maker. More narrowly used to refer to a formal proceeding such as a court session. Self-regulating municipality, county, or other political subdivision that has authority to levy or administer its local sales and use taxes. The sales and use tax definitions and exemptions of home rule jurisdictions may differ from those in their state s statutes and regulations. The section in the statute that levies the tax. Also see Legal incidence and the four types of sales taxes ( Consumer levy, Gross receipts tax, Privilege tax, and Transaction tax ). A type of assessment, issued without the usual review procedures, when a jurisdiction believes that collection of an amount due would be jeopardized by delay. 6
Lease Legal incidence Local Tax Caps Managed Audit ( MA ) Managed Compliance Agreement ( MCA ) Manufacturing Measure A contract by which one party (lessor) gives to another (lessee) the use and possession of property for a specified time and for specified payments or other consideration. Short-term leases may be referred to as rentals. Generally refers to the object of a tax as expressed in the law. A state's law may impose a sales tax on the seller, on the buyer, or on the transaction. The legal incidence can affect who is liable to the state for the tax, which can sue or be sued for the tax, and who can claim refunds or seek other relief. A cap on the local tax. State tax is still calculated on the full amount of the selling price. Caps can be applied on the total invoice price or an individual item depending on the tax law. A tax compliance audit that the taxpayer conducts of its own records. Representatives of the taxpayer and the taxing authority will typically meet to discuss the parameters of the audit and other pertinent data. The areas reviewed in an MA are similar to those reviewed in a routine audit conducted by a state tax auditor. An agreement that allows the taxpayer to accrue tax on its purchases on a percentage basis. Before the MCA is formalized, representatives of the taxpayer and taxing authority will typically meet to discuss the taxpayer s operations, accounting systems utilized, how data can be extracted, changes or anticipated changes within the company and how the taxpayer will monitor the accruals. The process of taking raw materials or component parts and creating a new product which has a different form, with a change in its physical and/or chemical properties, and which has a greater value than in its previous form. The dollar amount upon which the tax is computed. For example, the sales price is commonly the amount to which the tax rate is applied to compute a sales tax. 7
Nexus Occasional, isolated or casual sale Person Precedent Private ruling or Letter ruling Privilege tax (or seller s privilege tax) Purchase price The connection that a taxpayer must have with a state before that state may subject the taxpayer to its taxing powers. There must be nexus whether a state seeks to impose a tax directly on a business or instead seeks to impose on the business a requirement to register and collect taxes on its behalf. A sale made by a party not in business of selling, or an infrequent sale (usually less than three times a year) of property which is not normally held for resale or for which sales tax registration is not required (e.g., doctor sells his examining table). In sales and use tax, a distinct legal entity. Includes natural persons, corporations, partnerships, trusts, and others. The decision of a court. Can also refer to decisions of other tribunals and agencies. A mechanism for a taxpayer to write to the revenue agency and ask what tax treatment will be given to a specific set of facts and circumstances. A type of sales tax in which the seller is liable for the tax measured by total taxable sales. Common (although not universal) features include the following: absorption is often allowed; separation is not required; and the seller, not the purchaser, is liable to the taxing jurisdiction for the tax. What one pays for what one buys. See also "sales price. 8
Real property Land and improvements to land. Includes tangible personal property that is incorporated into real property, and that meets the following tests: 1. it is annexed, incorporated, or attached to land or other real property; 2. the annexation, incorporation, or attachment is intended to be permanent; and 3. it cannot be easily removed without causing substantial damage to the land or the other real property. Reciprocity Regressive Regulations Remedies Resale certificate Favorable tax treatment in one taxing jurisdiction conditioned on another taxing jurisdiction s similar application in its own law. The characteristic of the sales tax that its impact falls more heavily on the economically disadvantaged; exemptions for necessities (e.g., food, medicine) tend to mitigate this effect. Typically, the published rules of an agency, adopted according to a statutory procedure, that have the force of law until overturned. Revenue regulations generally contain the revenue agency s interpretation of the law, its directives on how taxpayers are to comply with the law, and/or its internal procedures. The procedures available to a taxpayer to resolve an issue or obtain other relief. Examples include the hierarchy of hearings and appeals to which the taxpayer is entitled in order to resolve a tax matter or audit, refunds, ruling requests, and rulemaking that can be initiated by a taxpayer. Generally, a writing given by the purchaser to the seller, representing that an item is purchased with the intent to resell it. If the certificate has all the contents required by the law of the jurisdiction, it relieves the seller of the obligation to collect or remit tax on the transaction. 9
Retailer Retail sale Rules Ruling Sale Sales price Sales tax permit Separation Service Shifting Statute The person making the sale to the final consumer; a person engaged in the business of making sales at retail (also called a jobber or dealer). Sale to an end consumer. Sometimes defined as a sale for any purpose other than for resale. See "Regulations. A generic term that can be used to refer to any decision or expression of position or opinion of a governmental authority on a specific matter A transaction which results in the passage of title or possession or both of tangible personal property from the seller to the buyer, or which results in the provision of a service by the seller for the buyer, in exchange for consideration. What one charges for what one sells. The evidence that a taxpayer has registered to collect sales or use tax within the issuing jurisdiction. Sometimes called a registration certificate. (Note: businesses may be required to obtain other types of permits to operate.) In sales and use tax, the seller's itemization of the tax amount distinct from the sales price on an invoice or other tangible evidence of the sale. Commonly required. Compare with absorption. A task performed by one person for another. In sales and use tax, shifting refers to the buyer bearing the economic burden of a tax that may be legally imposed upon the seller. The law enacted by a legislature. The word "code" may also be used in this fashion, but can also mean a body of administrative regulations. 10
Statute of limitations Subsidiary Tangible personal property Tax clause Trade-in Tender Type A provision in the law that prescribes the time within which a claim must be asserted. There are normally statutes of limitations applicable to assessments and refund claims. A corporation that is owned or controlled by another corporation. A subsidiary is generally treated as a separate and distinct taxpayer for sales and use tax purposes. Property, other than real property, that can be held, smelled, touched, seen, tasted, or which is otherwise perceptible to the human senses. Excludes intangible property that is evidenced by tangible things, such as stocks, bonds, and money. Generally refers to a contract provision that addresses the way the parties will handle tax issues amongst themselves. Tax clauses within contracts do not supersede the tax statutes. Generally, any allowance or credit for any tangible personal property taken in partial payment by a retailer on the purchase of goods. The medium used to pay for the purchase (i.e. check, cash, or credit card) Transaction tax A type of sales tax in which the transaction, rather than the buyer or the seller, is subject to tax. The seller is liable to the state for the collection and remittance of the tax. The buyer is also directly liable to the state for any unpaid tax. Common (although not universal) features include the following: absorption is not allowed; separation is required; the tax may be a debt of the buyer to the seller; buyers may not be able to get a refund directly from the state; and a collection allowance may be available to the seller for collecting the tax. 11
Transactional True object test Unjust Enrichment Use Vendor discount Voluntary disclosure The characteristic of a sales or use tax that indicates the tax is applied to a discrete event (a single sale or use), rather than a series of events (e.g., all of the income for one year) or a condition (e.g., the value of property as of a given date). A test used to evaluate the intent of the parties in determining whether or not a transaction is taxable (often when a transaction involves a mix of products and services). For example, the test may be applied to decide whether the intent of the parties was a taxable sale of tangible personal property per se or the transfer of tangible personal property incidental to a non-taxable service. Also known as the essence of the transaction test. Occurs when a retailer over collects the tax from the customer but only pays the calculated amount to the jurisdiction. This usually occurs when a jurisdiction uses the bracket method of tax rate calculation. In order to avoid this, the retailer must remit the tax using an effective rate rather than the stated rate. Commonly defined as the exercise of any right or power over tangible personal property incident to its ownership, other than the sale at retail. Can also be the enjoyment or the benefit of a taxable service. An amount a retail seller is permitted under the law to deduct from the tax remitted to the jurisdiction, as compensation for collecting the tax. May also be referred to as the collection allowance or similar terminology. A process by which a taxpayer can settle past liabilities with a jurisdiction by coming forward prior to any contact by the jurisdiction. It is often begun anonymously via a third party, and generally results in a negotiated agreement that relieves the taxpayer of penalty or other amounts that would otherwise be subject to assessment on audit. 12
Waiver Whistle Blower Suit Wholesaler Wholesale sale A term most commonly used in the tax field to mean the taxpayer s formal agreement to keep a period open for review and assessment by the taxing jurisdiction, that is, an agreement to forego the benefit of the statute of limitations. A waiver is evidenced by a form completed and signed by the taxpayer and the jurisdiction. A case where a retailer has not collected or paid the tax that was owed the jurisdiction. The retailer is sued for not collecting the tax and depriving the taxpayers of the tax dollars that should have been owed that jurisdiction. A person that makes sales to resellers rather than to the end consumer. A sale to a retailer or other purchaser who is not an end consumer. 13
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