TaxConnex Sales Tax Blog

Sales Tax and Pokémon Go

Posted by Brian Greer on Tue, Jul 26, 2016 @ 02:00 PM

 

If you have children, then you’re probably aware of the recent Pokémon Go phenomenon. 

It’s a virtual reality game that requires the player to interact with their environment in the quest to find various Pokémon characters, evolve them, and wage battles with other players’ Pokémons.  Pokémon Go is the only “video game” I know that requires the player to get up and move around. 

pokemon_go_in_park.jpg

The basics are that you visit different Poké-Stops in order to retrieve Poké-Balls that are then used throughout the game.  These Poké-Stops are in various locations and using GPS the player walks around until a Poké-Stop appears on their screen.  Once at the Poké-Stop the player retrieves Poké-Balls.  The Poké-Balls are then used to capture Pokémon as they appear on a player’s screen as they walk around their environment.  Additionally, by walking the player can evolve their Pokémon into more powerful Pokémon.  “Incense” can be used to attract Pokémon to a specific player for capture while “lures” are used to attract Pokémon to areas where multiple players can capture the Pokémon. 

My kids walked over 5 miles over the weekend at Piedmont Park in Atlanta and another local park while playing this game.  From that perspective, it’s better than sitting in front of a TV playing a video game.  The number of people playing this game is incredible and fun to watch when you’re out and about.

So what does this have to do with sales tax?

The app download is free.  But like other apps, there are in game purchases that the player can make.  For example, the Poké-Balls, lures, and incense can all be purchased.  Are these items subject to sales tax?

It’s potentially big business.  Estimates range between 15 million and 30 million downloads in the first week alone.  In my research I did not find any data that references the “average in game purchase” per-download so it’s difficult to determine the total revenue and potential sales tax here.  However, I do know that Nintendo’s stock price has skyrocketed over 50% since the launch of the app in mid-July. 

Here’s a partial list of states that tax digital downloads and would likely charge sales tax when you buy Poké-Balls, lures, and incense:

 

“Specified digital product” means an electronically transferred digital audio-visual work, digital audio work, or digital book; provided however, that a digital code which provides a purchaser with a right to obtain the product shall be treated in the same manner as a specified digital product. [N.J. Rev. Stat.  §54:32B-2(zz) .]

 

  • Ohio – Starting January 1, 2014, digital products, including books, music, and videos delivered electronically, are subject to tax just as they are if purchased or rented from a retail establishment, pursuant to a provision that imposes the sales-use tax on all transactions by which a specified digital product is provided for permanent use or less than permanent use, regardless of whether continued payment is required. [Ohio Rev. Code Ann.  §5739.01(B)(12) .] "Specified digital product" means an electronically transferred digital audiovisual work, digital audio work, or digital book. "Digital audiovisual work" means a series of related images that, when shown in succession, impart an impression of motion, together with accompanying sounds, if any. "Digital audio work" means a work that results from the fixation of a series of musical, spoken, or other sounds, including digitized sound files that are downloaded onto a device and that may be used to alert the customer with respect to a communication. "Digital book" means a work that is generally recognized in the ordinary and usual sense as a book. "Electronically transferred" means obtained by the purchaser by means other than tangible storage media. [Ohio Rev. Code Ann.  §5739.01(QQQ) .]

 

For specific tax guidance on your Pokémon Go purchases you may contact TaxConnex at 1-877-893-5304 or click below. New Call to action

Topics: sales tax, pokemon

Filed An Online Sales Tax Return Lately?

Posted by Brian Greer on Thu, Jul 21, 2016 @ 10:30 AM

tax_computer.jpgI often speak with companies that are considering sales tax compliance outsourcing.  I’m surprised at the frequency I hear comments like, “all the returns are filed online – it’s easy”. I guess the people that tell me that haven’t filed a return online recently.  Or perhaps they are filing in some of the less complicated states. 

I was reminded how time consuming this task can be recently.  I was helping a colleague file a few returns online.  Here’s what I discovered:

 

  • Let’s start with Pennsylvania.

    This return was actually pretty easy.  There were a couple of line items I had to account for but it took me just a couple of minutes to file online and submit a payment.  If only all states were this easy.

 

  • Utah was next.

    Hmm…..do I use Schedule A or Schedule J?  Schedule J it is.  This was much more involved than the Pennsylvania return.  It wasn’t difficult - it just took more time than necessary.  For each location, I had to pick the location from a drop down list and then enter the tax.  Why can’t the data entry screen for the return have all the locations listed and then you enter the tax where appropriate.  Utah done – also not hard but very inefficient.

 

  • I finished with Texas.

    I had a detailed spreadsheet of 6 printed pages with the various taxes due to different local and special taxing districts.  It was a key entry exercise and I was distracted a couple of times during the data input.  When I was finished entering the 6 pages of data – I couldn’t file the return.  Evidently after 30 minutes of “inactivity” the website times out.  I didn’t know that entering data was considered “inactivity”.  On the second go around, I saved the return after every two pages of data entry.  OK…..Texas done – not too hard but took a ton of time – close to one hour on this one.

 

There were other returns as well.  Some simple – others more difficult and time consuming like Texas.  Keep in mind that this was toward the end of the compliance cycle – the data had already been imported into a tax return system where the data was parsed out to the specific locations and a nice, clean data entry sheet was produced.  It’s incredible how disparate the taxing rules and even the tax forms and online sites are from state to state.  I’m sure if I did these returns every day I would become more efficient at it and I could greatly reduce the amount of time spent. 

During the whole process, I kept wondering how could all of this ever be simplified to a point where software could automate the entire process?  I just don’t see it happening.

 

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Topics: sales tax, online filing

Sales Tax Relief for Internet E-Tailers?

Posted by Brian Greer on Tue, Jul 19, 2016 @ 10:30 AM

internet_sales.jpg

Just last week new legislation was introduced into the US House of Representatives by Congressman Jim Sensenbrenner (R-WI.). 

The “No Regulation Without Representation Act of 2016” aims to more clearly define physical presence and to shut down the many challenges to Quill including click-through nexus, notification and reporting requirements like in Colorado, and the economic nexus standards recently enacted by Alabama and South Dakota.

Additionally, the legislation would prescribe a 15-day de minimis threshold.  This would provide a consistent guideline rather than the current interpretation of how many days of certain activities (i.e. solicitation of sales or providing services) creates sales tax nexus.

Here are the specific requirements to create physical presence as outlined in the bill:

  1. owns or leases real property in the state
  2. owns or leases tangible property in the state
  3. has employees, agents or independent contractors in the state specifically soliciting product or service orders from customers in the state
  4. has employees, agents or independent contractors in the state providing design, installation or repair services in the state
  5. maintains an office in-state with three or more employees for any purpose.

The following activities are specifically excluded from creating a physical presence:

  1. referral agreements with in-state persons who receive commissions for referring customers to the seller (no more click-through nexus)
  2. presence for less than 15 days in a taxable year
  3. product delivery in-state by a third-party
  4. Internet advertising services not exclusively directed towards, or exclusively soliciting in-state customers

This legislation would certainly simplify determining sales tax nexus.  It does not address the supposed loss of sales tax collections by the shift in buying patterns to the internet.  However, I’m not convinced the loss of sales tax collections are as significant today as previous studies have indicated.  Many internet sales (as much as 80% as described by some resources) are via big box retailers that collect sales tax and Amazon which continues to expand the number of states where they collect sales tax.  Could this new legislation put to bed this sticky issue once and for all?

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Topics: sales tax nexus, sales tax, Amazon

If You’re a Contractor You May Owe More Sales Tax

Posted by Brian Greer on Thu, Jul 14, 2016 @ 10:30 AM

Sales tax for contractors can seem quite simple on the surface but there are some unique factors to consider.

sanding_smmoth.jpgGenerally speaking, a contractor is considered the end user consumer of any materials they purchase and are required to pay either sales or use tax on the purchase of these materials.  Additionally, generally speaking, a contractor’s receipts – that is what they charge their customer – are not subject to sales tax. 

There are exceptions and nuances to these rules and a few are noted below:


1.    Contractors will often purchase materials and have them delivered to their corporate office or warehouse, and the vendor will charge the applicable tax based on where the materials are shipped.  Later, the contractor will use these materials as part of a project – perhaps in a different location from where the materials were originally shipped.  Depending on the location of the project, additional use tax may be due. 

Consider an example where a contractor in Georgia purchases materials and has the material delivered to their warehouse in Atlanta.  The vendor charges, and the contractor pays 8% sales tax – 4% state, 3% county, and 1% local.  The contractor then installs the materials at a client site in Greensboro, NC.  The combined sales tax rate in Greensboro is 6.75%.  It seems like there is no additional tax due – the contractor paid 8% in Atlanta and the total rate in Greensboro is 6.75%.  However, the tax paid is offset against tax due at the respective state, county and city level.  The total Greensboro rate of 6.75% consists of 4.75% state rate and 2% county rate.  Due to the rate difference at the state level, there’s an additional .75% tax due to North Carolina.  The county tax has been satisfied as well as the local tax.



2.    In other states, the general rule that the contractor’s receipts are not subject to tax is not accurate. 

  • For example, in Texas, lump sum contracts to remodel existing commercial property are subject to sales tax.  In this same Texas situation, the contractor would issue a Texas resale certificate on the purchase of any materials used in the performance of the contract. 

  • Similarly, in New Mexico, charges for construction services and all tangible property that will become an ingredient or component part of a construction project are subject to the New Mexico gross receipts tax.  Additionally, the purchase of the tangible property by the contractor would not be subject to the gross receipts tax – the property is purchased for resale like in Texas.


While there are some general rules that are applicable to contractors, there are nuances from state to state.  The list above does not constitute a complete list of state by state exceptions.  Please consult a tax advisor regarding your specific situation.

 

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Topics: sales tax

Top Five Changes In Sales Tax This Year

Posted by Carol McIlvaine on Thu, Jul 07, 2016 @ 11:00 AM

check_up.jpgSales tax check up time!

Here are the top 5 changes related to sales tax compliance in 2016:

  1. Filing Frequency Changes – Many jurisdictions have reviewed the previous year’s filing history and are made hanges to your account. Some jurisdictions will mail your notification of this change, but please be aware that other notifications may come electronically - especially if you file online. Not updating your filing frequency will cause notices and may cause penalty and interest if your account switched to a more frequent filing frequency.
  1. Rate Updates – January brings the largest number of rate changes of the year. If you are contracted with a third party to procure your rates, then most likely you are prepared. However, if you have to manually program your rates into your ERP or POS system, then you might be behind. Easch jurisdiction does a pretty good job announcing their rate changes on their website, by mail and some by phone. You should check and make sure you have the most current tax rate.
  1. Jurisdictional Changes – We saw two major changes with telecom taxes for January. California introduced the CA MTS. This is for prepaid mobile Telephone Services. There are significant differences for retailers vs. direct sellers, so it is important to understand the new filing requirement. Another big change we saw with Telecom is the IL local E911 returns are now all being reported to the State instead of directly to the individual jurisdictions.
  1. Electronic Filing and Payment Requirements – Similar to changes in filing frequencies, the states have reviewed the filing history and thresholds may have been met to trigger an online filing or payment requirement. Also, more and more jurisdictions are trying to go paperless and are making these electronic methods mandatory.
  1. New or Changing Prepayment Requirements – Also be aware of a new requirement for prepayments. These may also be known as estimated payments or deposits. Prepayments are generally required for taxpayers that remit larger tax liabilities. If your business has grown, you may have reached a threshold to trigger the prepayment. Again, these notices may not come in the mail, but could be communicated electronically through your online account. Kansas is one of those states.

Are you overwhelmed yet? Just review your jurisdictional notices carefully and remember the notices could be provided to you online.

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Topics: sales tax compliance

What Triggers a Sales Tax Audit?

Posted by Brian Greer on Wed, Jun 29, 2016 @ 11:38 AM

scream.jpgA sales tax audit can be your worst nightmare as a business owner or operator. Even in the best case scenario, you’ll lose incredible amounts of productivity cooperating with state authorities who have an unbelievably frustrating eye for detail.  In the worst case scenario, you’ll end up with a huge bill you weren’t expecting.

Here are some things that can trigger a sales tax audit.

Your Invoices to Clients

Audits tend to beget audits.  If one of your clients is audited, and the state found that you didn’t charge the client sales tax on a transaction (or worse, a series of transactions), you may end up getting audited.  To protect against this, make sure you are charging sales tax under all appropriate circumstances.

Abundant Internet Sales

The law surrounding the taxation of sales occurring over the Internet is confusing and rapidly changing.  However, there is one general truth: companies must collect sales tax on intrastate transactions.  If you have a physical location in State A, you should charge a sales tax on all sales to people in State A (assuming what you’re selling is taxable).  Businesses that make most of their sales out of state, however, sometimes neglect to charge sales tax on the minority of transactions that occur entirely within the state.  State auditors know this, and can make it a basis to conduct a sales tax audit.  Again, make sure you are charging sales tax under all appropriate circumstances.

Industry Practice

Auditors know that competitors tend to have similar business models.  They also know that some industries are more susceptible than others to tax deficiencies based on the complexity of the taxation scheme.  If an auditor begins to see a pattern of sales tax violations among your competitors, he might conduct a sales tax audit on you next. 

A Disgruntled Employee

Many employers are worried that a particularly bad firing might result in an employee blowing the whistle to state and federal agencies, including state tax agencies.  It certainly does happen.  The good news is that auditors don’t like to spend their time chasing violations that don’t exist.  A disgruntled employee is going to need to show some credible evidence of sales tax violations in order to cause an audit.

Random Bad Luck

It’s impossible to completely guarantee that you won’t be made the subject of a sales tax audit.  Every state agency has some mechanism for choosing its audit victims at random.  If your name comes up, you’ll be getting audited, even if you took all the steps you possibly could to avoid it.

The best defense is to be prepared to provide the documentation that proves you’ve followed the rules!

economic nexus and sales tax

Topics: sales tax, sales tax audit, sales tax auditor, audits

Puerto Rico VAT Vetoed

Posted by Kelly Felker on Thu, Jun 23, 2016 @ 10:30 AM

puerto_rico-1.jpg

With just days before enactment, both legislative branches in Puerto Rico voted to override the Governor’s original veto of legislation repealing the Puerto Rico (PR) Value Added Tax (VAT) on May 26, 2016. 

That’s right… the legislature originally voted to repeal the proposed VAT.  The Governor then vetoed the repeal requiring the legislature to carry a two-thirds majority in order to override the Governor’s veto and ultimately repeal the proposed VAT– which it did.

The change to the tax system was proposed by Governor Alejandro García Padilla and called for replacing the sales and use tax (SUT) with a VAT effective June 1, 2016. Representatives and the Governor hoped the tax reform would help stimulate Puerto Rico’s economy which has faced almost a decade of negative average growth.

Under the VAT system, tax would be paid along each step of the value chain with tax credits being applied for tax previously paid.

Some believe the VAT system is easier to administer and has fewer loopholes thus increasing compliance and collections.  The hope was to relieve Puerto Rico from its current debt crisis.

Since inception, the VAT system was largely opposed by the citizens and businesses of Puerto Rico due to poorly defined changes and requirements, an overall higher tax rate, as well as updates that would be necessary to billing systems. 

In an effort to communicate solidarity and protest, many businesses (including doctor’s offices), closed on March 3rd to participate in “No Consumption Day.” The thought process behind the protest day was to show the government the impact that the people could have and to put pressure on representatives to fight for the repeal.

In response, Governor Padilla, exercised his right to veto the legislative decision to kill the bill that would create a radical transformation of the Puerto Rico tax system.  Padilla explained a need to stimulate the economy, creating a new tax system, and reducing tax evasion – all of which he believed the new VAT system would do.

So the people spoke and the legislators listened and exercised their right to override the veto of the Governor – sounds a bit confusing?  I would agree…however, they did it and now the PR VAT Tax is a No Go! 

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Topics: VAT tax

Tennessee Challenges Physical Presence Nexus Standard

Posted by Brian Greer on Tue, Jun 21, 2016 @ 10:30 AM

 

tennessee_legistlature.jpgAs we continue to monitor how states are attacking the physical presence standard to determine sales tax nexus, I recently saw that Tennessee is getting ready to introduce a new regulation. 

This new regulation would require out-of-state businesses to collect and remit the applicable sales tax provided they have more than $500,000 in sales in the preceding twelve months. 

It’s a bit more generous from a threshold perspective than the Alabama regulation which is $250,000 but still is a slap in the face to the Quill physical presence standard.  If this gets approved, I would expect an almost immediate legal challenge. 

See the full article as reported by McDermott Will & Emery.

 

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Topics: sales tax nexus, sales tax

Some Not So New and Exciting Things About Sales Tax

Posted by Robert Dumas on Thu, Jun 16, 2016 @ 02:00 PM

Sometimes it’s difficult to find something  new and exciting about sales tax and sales tax bored_baby.jpgcompliance to share.  (Can you imagine not having anything exciting to say about sales tax?)  

So…I have decided to share with you some of the “not so new and exciting things” (although extremely important) we have learned about sales tax and sales tax compliance in the 20+ years we have been in this business:

 

  • Sales tax is the ugly step child of all tax disciplines (no offense to any step children intended)
  • Sales tax is not as sexy as income tax (only a CPA could think income tax is sexy)
  • You never want to spend the money necessary to be 100% right with sales tax, but you always want to spend as much money as necessary not to be 100% wrong (read it again and it will make more sense)

  • Everyone thinks they know a lot more about sales tax than they really do (just because it is on the internet does not mean it is true)
  • Sales tax nexus is the most misunderstood sales tax concept (nexus is not just direct physical contact)
  • No one thinks about sales tax until a major issue surfaces (crisis management is rarely a good strategic approach for sales tax)
  • Sales tax compliance adds no value but can create tremendous financial risk if ignored or mismanaged (have you heard of penalties and interest?)
  • Sales tax compliance is not ‘rocket science’ but don’t let anyone tell you it is easy (regardless of what a salesperson may tell you…there is no ‘easy’ button)
  • People can experience a tremendous amount of pain, discomfort and risk with a sales tax compliance outsource solution and remain unwilling to make a change (dysfunction is the new normal for some people)

 

Sometimes bullet points and humor are best.  I understand humor is relative, but remember, I’m a CPA.

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Topics: sales tax nexus, sales tax

Vermont is Next to Introduce Economic Nexus for Sales Tax

Posted by Brian Greer on Tue, Jun 14, 2016 @ 02:33 PM

vermont.jpg

In the continued assault on the physical presence standard generally associated with sales tax nexus, Vermont has recently passed legislation affecting “out-of-state” retailers. 

Similar to the South Dakota legislation recently passed, and taking components of the Colorado reporting requirements, Vermont’s legislation was signed by the Governor on May 25, 2016.  Fortunately, for “out-of-state” retailers, there’s a bit of time before they must follow these new requirements – July of 2017 – or the first day of the first quarter following any overturning of the Quill physical presence standard.

Specifics of the Vermont legislation include:

  • A requirement by “out-of-state” retailers to collect and remit the sales tax if they have either $100,000 in sales in the preceding twelve month period; or 200 or more transactions in the same period. 
  • Vermont has also adopted notification requirements whereby “out-of-state” retailers must inform their customers of their obligation to self-report the use tax to the state of Vermont in those situations where the retailer does not collect the sales tax. 
  • It also requires the retailer to send an annual statement of total sales to any individual or business with more than $500 in receipts over the previous calendar year.

 

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Topics: sales tax, Vermont, economic nexus