Software Maintenance Contracts Taxable? It Depends.

This is a question that we get all the time. We get the questions from sellers of software and buyers of software alike. The taxability of software maintenance turns sometimes on whether it is mandatory or
optional. The taxability also depends often on exactly what is included in the "maintenance."

Big Chains Double Taxing Customers?

George Gombossy of the Hartford Courant has been writing a few articles that are probably scaring some large retailers. This is a potentially large exposure for these companies. What's the exposure? Class-action lawsuits. Apparently some large chain retailers are taxing exchanged items twice in Connecticut.

You Buy A Company You Buy Their Sales Tax Problems

Let's say your company wants to acquire another company. What are the sales tax issues? We recently performed some due diligence for a client of ours who was negotiating to buy a competitor. In this particular case, the acquisition was an asset purchase. Only certain assets were purchased, not all or substantially all of the assets just certain assets. The issues to consider will vary of course depending on the nature of the transaction and the facts present in the situation, but this case will at least be instructive as far as the given facts.

A New Way States Are Using to Find You

So you use 3rd party contractors to perform work on your behalf in another state. Does that mean you have sales tax nexus in that state? The answer to that is "yes, probably".

We have many clients in this situation. They will usually concede that they should get registered in these states, but they want to make a benefits vs. cost analysis. Sometimes they ask us to assess the risk of being found by a taxing jurisdiction, when their only contact with a state is through nonrelated 3rd parties.

Alabama Is The Lowest Taxing State -- So Why the Long Face?

This editorial in the Birmingham News surprised me at its melancoly tone. Sort of self-loathing attitude about their own state. I would have seen the "low-tax" attribute as a big positive to bring in business. Instead, this paper wants AL to tax everyone more. Check out the gloominess:

NY May Get the Boot from the SSTP

The SSTP has a committee that evaluates whether a state remains in compliance with the SSTP agreement. So what happens if one or more states fall out of compliance? And it's easy to imagine that states will adopt various provisions from time to time that will move it in and out of compliance with the SSTP. What a mess this creates. Apparently NJ is the first state to cross that line. The CRIC (Compliane Review and Interpretations Committee) was all over it according to a report we read in CCH. Apparently, New Jersey is not in substantial compliance with the Agreement because of its failure to enact certain telecommunication provisions.

Don't Remit Tax - You Could Go To Jail?

This headline from the Associated Press was a bit startling.

WA yacht broker charged with felony theft of sales tax

Most people think about penalty and interest being the big problem when it comes to not remiitting tax collected. But this yacht broker in Everett, Washington is thinking that penalty and interest would be by far preferable to the going to jail part.

Whiplash In Ohio As They Switch Back To Origin Based

On April 25, the Ohio Department of Taxation issued a press release about a recent bill signed by the Governor switching back to sourcing sales at the origin instead of destination. You may recall that Ohio swiched to destination sourcing back in 2006 in an effort to become a full member of the Streamlined Sales Tax Project (SSTP).

Refund Opportunity in Missouri for Electricity Resold

Hotels in Missouri can purchase electricity for resale to the extent it is used for paying guests and not in common areas. So how do you calculate that amount? You can use the Department's suggested form, but it's complicated and time consuming. Or you can just use the relative square feet for guest rooms and common areas. That was the method used by one Taxpayer and it was finally ok'd by the Commisioner in MO. See Kansas City Power & Light Co. v. Director of Revenue, Missouri Administrative Hearing Commission, No. 06-1589 RS, March 12, 2008.

 

Contact us at www.PeisnerJohnson.com for help in securing these refunds. We can usually do it for less than it will cost you to do it yourself.

Refund Opportunity in Missouri for Electricity Resold

Hotels in Missouri can purchase electricity for resale to the extent it is used for paying guests and not in common areas. So how do you calculate that amount? You can use the Department's suggested form, but it's complicated and time consuming. Or you can just use the relative square feet for guest rooms and common areas. That was the method used by one Taxpayer and it was finally ok'd by the Commisioner in MO. See Kansas City Power & Light Co. v. Director of Revenue, Missouri Administrative Hearing Commission, No. 06-1589 RS, March 12, 2008.

 

Contact us at www.PeisnerJohnson.com for help in securing these refunds. We can usually do it for less than it will cost you to do it yourself.

Air is TPP in Ohio

Last week I had a piece about how a number of states are beginning to define electricity as tangible personal property. Of course, electricity does meet the definition, since it can be felt, measured, etc. However, many states specifically say that utilities are providing a service, not selling TPP.  What about air?

ITunes (and Other Downloaded Software) May Soon be Taxable in CA

California is facing a huge budget deficit. That means they are going to cut spending and balance the budget right? Of course not. They are seeking more revenue. One thing that makes California different from most states is that they do not define software as tangible personal property.

Marland Computer Services Sales Tax REPEALED

There was quite firestorm of protest ignited when Maryland passed the computer services sales tax bill during a special session convened in 2007. It was set to go into efrect on July 1, 2008. However, before it could take effect, it has now been repealed. Under the legislation enacted in 2007 that is now repealed, "computer service" included:

MN Tax Court Finds Company President Personally Liable

The MN Tax Court confirmed once again, something we all should know. Corporate officers can be held personally liable for unpaid taxes. Sometimes, these cases reach an individual who really seems blameless for the situation, but in this case, it's hard to argue with the decision of the court. In this case, as reported by CCH, the individual had the ability to sign checks, and he could hire and fire employees. He had joint control of the corporation's financial affairs with other officers, and he had an entrepreneurial stake in the corporation. Thus, the court found that the individual had the authority and responsibility necessary to hold him personally liable for the corporation's unpaid tax.

Changing a Light Bulb Taxable in FL, But Not Changing the Fixture

The Florida Department of Revenue issued a Technical Assistance Advisement, No. 08A-006, on March 5, 2008 discussing the tax treatment of cleaning nonresidential properties. The specific question was whether store lighting retrofits performed by a contractor in Florida stores are subject to sales tax.

What Local Taxes Do You Charge in Texas?

What local tax to charge in Texas can be very tricky. And Texas, recently changed the statute on the MTA tax making it potentially more complex. The Comptroller of Public Accounts recently issued a letter with some explanation that is helpful. Here it is:

You May Never Want to Do Business in NJ After Reading This

This article by Jason Method of the Gannett News Service may convince you never to do business in NJ.   He tells the story of South Carolina businessman J. Barry Godwin whose company builds and delivers Stingray power boats.

Read what happened to one of his truck drivers who was merely passing through the state.

TN Agrees Telecom Sold to ISP Not Taxable

The Tennessee Department of Revenue issued a Letter Ruling on February 8, 2008 stating that TN could not charge tax on telecommunications sold to an Internet service provider since Federal Law prohibited such taxation. (See TN --Letter Ruling No. 08-08.) If you would like a copy of the full ruling, we can get it for you. Here is their analysis:

Schwarzenegger Sorry That Services Not Taxed in CA

Listen to (I mean read) what CA Governor, Schwarzenegger said last week at a town hall meeting in the Northern California city of Pleasant Hill:

"The way we are taxing. I mean, we are missing a lot out there," the governor said. "There's whole new economies that are developing, service-oriented economies. Manufacturing is going down."

 

So taxing services is on the horizon out there in CA. I would agree with the writer of this article in the Sacramento Bee, that the most likely first target will be telecommunications and cable television. I really have to shake my head though when an elected official thinks any item not taxed is a big dissapointment.

Nebraska Getting Tough

Nebraska has 73 auditors out there trying to find companies who owe tax. This recent article in the Omaha World-Herald describes how the Nebraska Department of Revenue has added about $12.5Million to state coffers in the last 3 years and it all started with an amnesty program. The amnesty program funded the hiring of more auditors and a computer programmer. Let the data mining begin.

How Many Auditors Are Out There?

Here's a rundown of the top 10 states in terms of auditors employed:

1. 730 -- California

No surprise here and probably none of our clients are suprised either. CA is very active with our clients. But usually CA, by any measure you come up with, is pretty much double the size of any other state.

States Share Information on Use Tax Evaders

There was this interesting article in Forbes magazine about the number of states that include a line on their individual state income tax form for people to voluntarily enter how much use tax they owe on their own purchases. The article discussed the various methods used to encourage voluntary compliance. In the end, though, even the most effective approach (which was to provide lookup tables for taxpayers) resulted in only 3% of taxpayers reporting any use tax. That's not very good. Now to quote from the article:

Electricity Held to be Tangible Personal Property in CA

This recent CA appeals court case about coal purchased by a producer of electricity caught my eye. (Searles Valley Minerals Operations, Inc. v. State Board of Equalization, California Court of Appeal, Fourth Appellate District, No. D049905, February 26, 2008). The court held that coal doesn't become part of the final product and therefore cannot be purchased for resale in CA. That could have been expected. The interesting part to me was that they first went through an analysis of whether electricity is even "tangible personal property" for purposes of CA sales/use tax.

Certain Conveyor Equipment Exempt in NY

Here's an interesting Advisory Opinion hot off the presses out of NY that actually favors the taxpayer.  Did you know that conveyors can be exempt in NY if they are used directly and predominantly in production activities? It's the truth, read on for some of the specific facts and some language from the Opinion.

If You Call It Sales Tax, You Must Remit

There was a recent case in WA that illustrates an important concept in sales tax. That is, once you have nexus in a state, they can force you to be their agent tax collector. As their agent, you collect taxes in trust, and bear the burden of those taxes until they are remitted.

Spend $800,000 and Get $40Million Back From New York

New York has some interesting programs to be sure. I found this fascinating article in the Albany Business Journal Online that tells of the "Brownfield Program" that awards tax credits to companies that clean up and develop hazardous sites. Sounds like a worthwhile endeavor. It has been proven true that when the government tries to encourage behavior with tax credits, behaviors definitely are encouraged. The problem is that the behavior they hoped to increase, isn't always the one that increases.

Class Action Suit Possible Avoidance Tactic

CCH reported on a case involving a mobile phone company has asked the U.S. Supreme Court whether a class action may proceed alleging that the company violated California law by charging sales tax on the full retail value of discounted wireless telephones. 

You May Qualify for R&D Exemption in MA

CCH alerted us to a revised exemption in MA, that you may qualify to recieve -- check it out. Certain types of corporations can purchase TPP used directly and exclusively for research and development. Before you give up on this as a possible benefit for your company read on.

IL Passes Exemption for Manufacturers

CCH reported this morning that IL has passed a budget bill that contained a temporary exemption for certain equipment. Here's the report from CCH:

"Production-related property

"For purposes of the manufacturing and assembly exemption from retailers' occupation (sales) and use tax, the term "production-related tangible personal property" means all tangible personal property that is used or consumed by the purchaser in a manufacturing facility in which a manufacturing process takes place.

Back to School Tax Holiday in Tennessee -- in March?

Tennessee is having a "special", "one-time only" sales tax holiday in March. Tennessee's special, one-time sales tax holiday will run from Friday, March 21, 2008, at 12:01 a.m., through Sunday, March 23, 2008, at 11:59 p.m. During the tax holiday, the following items are exempt from sales and use tax: (1) clothing with a price of $100 or less per item; (2) school and art supplies with a price of $100 or less per item; and (3) computers with a price of $1,500 or less.

 

Big Note: None of these items are exempt if for use in a trade or business.

 

Click here for link to TN website

Buy Vehicles Tax Free with Montana LLC

I want to say from the outset that I have not investigated this story independently. I do not claim that this practice will work in any state. But there was an article recently in a Framingham, MA newspaper about people using a Montana LLC to purchase RV's sans the sales tax. The practice is to set up an LLC in Montana, and that company will buy the vehicle. Montana will allow you to register your vehicle in their state. But, according to this article, Montana will not share any information about the owner of the LLC that would allow a given state to track them down.

Big News! You Can Be an Origin-based State and Still Be in the SSTP

Sounds like the SSTP is in danger to me.

Is this the beginning of the end of the SSTP?

The Streamlined Sales Tax (SST) Governing Board has amended the SST Agreement to allow states to become full members even while continuing to source sales on an origin basis. As reported in CCH, the Board and its predecessor organizations rejected repeated attempts in the past to change the Agreement to allow origin sourcing, most recently at its meeting in Kansas City, Kansas. However, the Board relented when confronted with the impending loss of at least two associate member states, uncertain prospects for adding further states, pressure from local governments, and a divided business community.

Did You Collect (or Pay) That Michigan Sales Tax On Services for 10 Days?

If you collected it or paid it, then you may be in the refund business.

 

Effective December 1, 2007, a 6% Michigan use tax was enacted on certain taxable services. That new tax was vastly unpopular and was repealed but not until December 10, 2007. What to do for the interim? Here's the answer (from CCH): A person that provided any service subject to the tax and collected the tax beginning December 1, 2007, before the legislation that repealed the service tax was signed into law, must return the amount of the tax to the person that received the service or remit the tax to the Department of Treasury, and the person that received the service may apply for a refund of the tax. A person that fails to remit any tax collected from a person that received a service is subject to penalties unless the collected tax was returned to the person that received the service.

The ERA Begs Congress Not to Pass SSTP Legislation

Information Week had the story on a different retailers association that had the opposite opinion from the National Retail Federation. The Electronic Retailers Association issued a statement on Thursday squaring off over legislation that would require Internet merchants, mail-order houses, and other "remote sellers" to collect sales tax across state lines."

Another State with a Surplus

Here's the headline and story from the Missouri newspaper the Columbia Tribune:

State tax income higher than expected

Published Thursday, December 6, 2007

JEFFERSON CITY (AP) - Missouri's tax revenue is coming in ahead of what was budgeted.

The state Office of Administration says November's net general revenue was up more than 6 percent compared to November 2006. Missouri's annual budget takes effect in July. Through the first five months of its fiscal year, net general revenue was up about 4.5 percent compared to last year. The state budget was built on an assumption that revenue would grow by 3.8 percent this year.

The larger-than-projected increase is largely because of income taxes. Individual income tax revenue was up more than 7.5 percent during the first five months of the budget year. Sales tax collections were up barely 1 percent over last year.

National Retail Federation Begs for SSTP Passage

It's hard to blame them really. If the big retailers are charging tax, but their competitors are not, that is a competitive disadvantage. Here's the compelling argument from  J.C. Penney's Vice President and Associate General Counsel-Tax Wayne Zakrzewski.  "We are here to ask you to level the playing field between sellers that collect sales tax and those who cannot be required to collect the tax because they do business in the community on a virtual rather than physical basis." 

Expanding Manufacturing Facility? Beware the Contractor Trap

We frequently get involved in transactions where a client is expanding the manufacturing plant. Many times they hire a contractor to do the work. The contractor ends up buying all the materials (including certain equipment that would likely be considered manufacturing equipment) and installing it or incorporating into the structure they're building. This is NOT good. 

If You Use an "Agent" in Another State, You Might Have Nexus

Here's another example of a situation where non-related people acting as your "agent" can give you nexus with another state.

This was an administrative decision recently issued in Alabama. It involves an out-of-state company that rented graduation caps and gowns to students in Alabama.

Durable Medical Equipment and Prosthetic Devices Exempt in GA

We were alerted by CCH that a Georgia regulation (Reg. 560-12-2-.30) addressing the sales and use tax treatment of sales of drugs and medical equipment has been amended to provide additional guidance regarding prosthetic devices, durable medical equipment, and insulin. 

Certain People Can Purchase Goods in Washington Tax Free

Did You Know?

 

Residents of certain states, U.S. Territories, and Canadian provinces that have a state or provincial sales tax rate of less than 3% are eligible to purchase goods in Washington without paying sales tax if they will take and use the goods outside the state.  BUT, sellers are not required to make these exempt sales, and no refund is available if the seller chooses to collect sales tax. According to CCH, this exemption is commonly used by residents of Oregon, Montana, and the province of Alberta, Canada.

Big Changes In Arkansas Sales Tax

Effective January 1, 2008, big changes have happened in Arkansas. The changes include how local city and county sales taxes are to be administered in the following circumstances:

• Delivery of Merchandise to Customers --Beginning January 1, 2008, if your business makes a retail sale of property and delivers the tangible property through common carrier, your truck, mail, or by any other shipping or delivery method to your customer, you will charge the state, county, and city taxes based on where the purchaser takes receipt or delivery.

Michigan Services Tax Was in Effect For a Few Hours -- What Do You Do If You Collected It?

The MI Services tax was in effect for a few hours on 12/1/2007. The repealing law allows the businesses that collected the tax to either refund to the customer or pay to the state. For taxpayers that did not collect the tax the legislators have agreed to pass legislation to hold them harmless.

Tax "Paperwork Snafu" Results in Bad Pubilicity

Just about the last thing a tax department wants is something they are responsible for to result in bad publicity for their publicly-held company. Here's an example of something that my guess is not the tax department's mistake, but was a major crisis to deal with for a well-known company.

Tax Department Pays $38,569 for a 12 Pack of Toilet Paper

You've seen the headline that goes something like this: "Federal Government Pays $735 for a Hammer". Well, here's a case where a retailer probably had to spend many thousands dealing with a customer who filed what she called a "message lawsuit". The question you have to ask yourself is "what's the message?"

Do People Shop Online to Avoid the Tax -- Looks Like the Answer is No

According to this article in Forbes magazine, 17 out of the top 20 Internet retailers are brick and mortar operations that collect tax. Also, it is estimated that consumers paid sales tax on half of their online purchases this Christmas.