Confused, frustrated, and just plain annoyed with Sales Tax changes? The hours spent month to month trying to keep track of it all can really add up. When it comes to your unique business needs, contact a BRP professional to provide the commitment and expertise to keep your business on track. Let our professionals help manage it all and free you up for more “sales time” and less “taxing time”.
The following is Part 1 of a 4 Part series that will help answer some basic questions.
UNDERSTANDING & MANAGING SALES & USE TAX
By Carol Schubert, E.A.
Part 1 of 4 Part Series
What is Sales Tax?
A form of excise tax initiated by the retail sale of taxable tangible personal property (TPP). The property is not being taxed, but the retailing of the property triggers the tax. In some states, specific services are subject to sales taxes as well; A levy on the buyer, on the seller, or on the transaction itself.
Retail Sale -Transfer of title, possession, or both to the user. Generally, only sales to end users or consumers are subject to sales tax. Wholesale sales to those who will then retail the merchandise to others are generally exempt from sales tax as “sales for resale” (resell certificate required).
Taxable – Goods are generally taxable unless specifically exempted. Services are generally exempt unless specifically listed as taxable.
Tangible Property – Property that can be held, smelled, touched, seen or tasted, or which is otherwise perceptible to the human senses. Note: Illinois does not have a statute on what is “tangible property”.
Personal Property – Property that is not real property, but fixed to the ground and improvements that become an integral part of the same. Personal Property is non-taxable.
Taxable Services – Certain services that are subject to sales taxes in specific jurisdictions. These vary depending on the statutes of the various localities.
Interstate Transactions – For sales tax purposes, business that is conducted between businesses located in differing states (outside state).
Intrastate Transactions – For sales tax purposes, business that is conducted between business entities that exist within the same state.
The Nature of Use Taxes
- Use taxes are complimentary or supplemental to sale tax.
- The sales taxes and use taxes work together to ensure all taxable transactions are indeed taxed.
- Use taxes compensate for any missing sales taxes generally in cases of the storage, use, other consumption of goods in a state.
- Use taxes are meant to prevent sales tax evasion on out-of-state purchases, to make a level playing field between in-state and out-of-state sellers, to tax withdrawals for use from previously untaxed stock, and to prevent discriminatory taxation based on where and how purchases are made.
- Unlike sales taxes, which are generally remitted by sellers, use taxes are generally remitted by the buyer.
Some examples of occasions where use taxes may be imposed:
- Importing goods for consumption.
- Resale property that is consumed or used instead of sold (i.e., comp meals)
- Creation and use of self-constructed assets.
- Transfers of sales of property between divisions or subsidiaries.
- Transfer of used equipment from a location in s different state.
- Renting equipment from an out-of-state supplier.
- Storing equipment in a state different than the state in which it was purchased or in which it will be used.
- Removing parts from manufacturing inventory to repair property under warranty.
- Removing product from finished goods inventory to use it instead of selling it.
Don’t get frustrated and spend too much time on “taxing situations”. Contact Bronswick Reicin Pollack for assistance, advice, and expert knowledge to guide through the process.
Portions of the information are from the Sales and Use Tax Workshop, and used with permission by Fred Pryor Seminars. All rights reserved.
Coming in the next and future Newsletters:
Part 2 – Nexus, Interstate Commerce Destination vs Origin Sourcing, Taxable Basis
Part 3 – Warranties, Exemptions, Registration & Compliance
Part 4 – Streamlined Sales Tax Project
Look for these great articles and stay ahead of the curve! Contact a BRP professional to keep your business up to date and ready for success.
Disclaimer: The information contained in this Blog (the “Blog”) is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. In no event will BRP, or its partners, employees or agents, be liable to you or anyone else for any decision made or action taken in reliance on the information in this Blog or for any consequential, special or similar damages, even if advised of the possibility of such damages.