TaxConnex Sales Tax Blog

Myths and Misconceptions - A Guide for Telecom Tax Compliance

Posted by Brian Greer on Fri, Aug 26, 2016 @ 02:00 PM

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I speak with several companies each week that are in the process of launching a new VoIP telecommunications service.  Misinformation abounds including……”Since it’s delivered over the Internet I thought it was tax free.”  I hear the following comment also…..”My carrier is collecting and paying all the taxes and fees for me.”

Let me dispel these rumors. 

First, VoIP is both taxed and regulated.  It is not tax free. 

Furthermore, carriers are generally only collecting those taxes and fees that apply to the wholesale transaction when they sell the service to you.  As a telecom reseller, you are exposed for the applicable taxes and fees on the mark-up at least and potentially for the taxes and fees that you have already paid to your carrier.

As a result of the various myths and multitude of confusion, I developed a quick reference guide for those who are entering the telecom service market.  This guide is not meant to be all encompassing but is meant to provide baseline information and the framework for establishing a process to ensure tax and regulatory compliance for your telecommunications and certain types of VoIP services.

The Top Ten List Includes:

  1. Identify the Federal regulatory requirements
  2. Identify the State and Local regulatory requirements
  3. Determine the State and Local transactions tax applicability
  4. Determine how you will invoice your customers
  5. Apply for the applicable federal licenses
  6. Apply for the applicable State and Local regulatory license(s)
  7. Register with the applicable State and Local tax authorities
  8. Implement a compliance reporting solution
  9. Submit the appropriate exemption documentation to upstream carrier(s)
  10. Calculate, bill, collect, and remit your taxes and fees

 

Click here to download the complete guide,

“Top Ten Guide for Managing Taxes and Regulatory Fees”.

 

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Topics: VoIP tax, VoIP, telecommunications tax

The Complication of Sales Tax Registrations

Posted by Brian Greer on Thu, Aug 18, 2016 @ 10:30 AM

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In the sales tax world, “registrations” can take on multiple meanings. 

Generally speaking, sales tax registrations refer to the authorization to collect sales tax in a particular jurisdiction. 

This type of registration occurs at the Department of Revenue or similar agency – sometimes with a local jurisdiction.  Once a valid application has been submitted and the applicable fee or bond paid, the jurisdiction will issue a sales tax license.

In the past when paper-based applications were the norm, a business could complete and mail the application along with their fee or bond to the Department of Revenue.  Many of these applications would also ask for the Secretary of State (SOS) identification number.  With the paper-based application, a business could leave this line blank and in most situations a sales tax license would be issued without a question.

However, now that the applications have been moved online, most of the states require a SOS identification number before the application can be submitted. 

Thus, a second level of registration is required – this one with the Secretary of State.  The SOS grants permission to conduct business in the state. 

As part of the SOS application process, a business must provide the address of their “registered agent” in the state.  What is this? 

A registered agent is someone (a person or company) that receives legal correspondence within the state and forwards this correspondence to the business. 

Essentially, the state needs to know where to send information in the event of a lawsuit.  This doesn’t have to be a separate company that acts as the registered agent.  If the business has an office in the state, then that location can be used.

That would end the process for a business selling tangible personal property and/or services. 

But what happens when a business provides telecommunications services such as VoIP, wireless communication, broadband connectivity, etc.?

 In this situation there are additional registration requirements.  A business would need to determine in which states their particular telecommunications service is subject to regulation.  If the telecommunications service is regulated, then the business would also need to register with the PUC / PSC – Public Utility or Public Service Commission.  Furthermore, there would be a Federal registration obligation with the FCC.

In summary, if selling TPP and providing services, the following are required:

  • Registration with the Department of Revenue which issues the sales tax license
  • Registration with the Secretary of State that grants the right to conduct business in the state
  • Registered Agent to receive legal correspondence

If providing telecommunications services:

  • Registration with the Department of Revenue which issues the sales tax license
  • Registration with the Secretary of State that grants the right to conduct business in the state
  • Registered Agent to receive legal correspondence
  • Registration with the PUC / PSC if the telecommunications service is regulated in the particular state where service is provided
  • Registration with the FCC if the telecommunications service is regulated

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Topics: sales tax registrations, Secretary of State ID Number

Wait…You want to REWARD me with TAX?

Posted by Noelle Ard on Thu, Aug 11, 2016 @ 02:00 PM

rewards_cards-636015-edited-722664-edited.jpgLet’s get real, sometimes we are too busy “multi-tasking” that we hear something in the background that just makes us turn our head in awe (like a confused puppy).  Over the last week I was filing sales tax returns and had “background noise” on (the news) and I overheard a local TV station mention...

We soon could be taxed on our “rewards” that we get from various providers, vendors, grocery stores, gas stations, etc. 

Wait is this true?  Are they talking about sales tax?  Do I owe more income tax?

I thought that the rewards program was “free” – I only signed up (with my dummy email account) to get that extra 20% off for that day or to get the $5 gift-card for my next purchase…now I’m being penalized because you wanted to reward me for my loyalty.  Something doesn’t add up – it just can’t be – I didn’t ask for the rewards – you forced me into it so that I could get my prescription on autofill! 

In Biden’s words – “That’s Malarkey!”  So I had to get to the bottom of this and see just what we were all getting ourselves into.  To my disbelief, there was actually not a ton of information (at least recent information) on the taxability of “rewards” specifically due to loyalty. 

Relative to sales and use tax, very few states have issued specific guidance.  Often times, the issuer of the reward is left to determine if the rules associated with “coupons” fit the facts of their rewards program.  From a coupon perspective, the question is whether sales tax is applied to the total value of the transaction or the value of the transaction after the discount/reward is applied.

Minnesota was one of the few states that has issued specific guidance related to sales tax and rewards programs.  In Minnesota, the value of a reward will be treated as a discount – and therefore will not be subject to sales or use tax – if the reward is not purchased, is not provided in exchange or services, cannot be redeemed for cash, and is not reimbursed by a third party.  Store discount cards and punch cards that provide a price reduction after a certain number of purchases are specifically referenced.

On the sales tax side, it seems to be more of a retailer/issuer problem to manage.

On the income tax side, fortunately, as a consumer, these rewards programs are not subject to income tax reporting provided that the reward is provided in conjunction with a purchase.  Rewards that are provided as a “promotion” to open a new account or to open a new credit card are potentially subject to income tax.  Don’t be surprised if you get a 1099-MISC in these situations.

I wonder what the news broadcast was referencing?  Perhaps state legislators want to change the fact that sales tax would be due on the entire value of the transaction rather than on the discounted value (after the reward is applied).  It would be a subtle way to increase sales tax collections without increasing the sales tax rate.  Those legislators can be sneaky.

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Topics: sales tax

Top Tips to Avoid Sales Tax Audit Assessments

Posted by Brian Greer on Wed, Aug 10, 2016 @ 02:00 PM

Sometimes a sales tax audit is unavoidable.  Perhaps an auditor has audited one of your customers and discovered one of your invoices without sales tax applied.  Maybe you’re unlucky and you were selected in the audit lottery.  Perhaps a disgruntled employee blew the whistle on you.

Regardless of the circumstances, there are some steps you can take to minimize or eliminate an assessment if you are identified for a sales tax audit. These proactive audit defense tips include:

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1. Know Your Sales Tax Nexus Footprint.

Be sure you understand your sales tax nexus footprint.  Without sales tax nexus, you have no obligation to collect or remit sales tax – the burden to accrue and pay the tax shifts to your customer.  Sales tax nexus is a connection with a state that’s substantial enough for that state to hold you accountable to their sales tax rules.  Sales tax nexus can be created by sales people traveling into other states, utilizing subcontractors to fulfill your contracts with your customers, exhibiting at trade shows, and other activities too.  It’s a good idea to review your sales tax nexus footprint periodically to make sure nothing has changed in the business.  Often times, the tax group is the last to know of a new hire or other activities that could create a sales tax liability.

 

2. Maintain Proper Exemption Certificate Documentation.

One of the first items an auditor will ask for are the exemption certificates to substantiate any exempt sales you have claimed on your sales tax returns.  It may be obvious that you are selling to a retailer and your sale is exempt for resale purposes.  However, sales tax is often a form over substance issue, if you don’t have the appropriate exemption certificates, the auditor may assess you.  Furthermore, some exemption certificates expire periodically and must be renewed.  If you have expired certificates, they will be rejected by the auditor.  Depending on the audit process, a few expired certificates within a sampling could lead to a large assessment across the lot of transactions.

 

3. Evaluate The Taxability of Your Products/Services. 

For some businesses, the taxability of their products/services does not have a lot of variability.  For example, tangible personal property will be taxable unless the specific type of TPP you are selling is identified as non-taxable by statute.  Other products/services tend to have disparate tax rules across states and tend to change over time as well.  The technology field comes to mind – specifically SaaS, electronically delivered software, data processing, digital downloads and telecommunications services.  The statutes are in constant flux around these types of products and the taxability of your transactions should be reviewed periodically to ensure you are calculating tax properly.

4. Other tips to avoid sales tax audit assessments include:

  • Use the proper tax rate, including state, county, city, and district rates
  • Make sure you are filing properly – should you be filing a sales tax return or a vendor’s use tax return?

What other tips do you have for a proactive defense of a sales tax audit?

 

Learn More... Download Our Tips to Survive a Sales Tax Audit

 

 

 

Topics: sales tax audit, audit defense

EYE ON Maine Sales Taxes

Posted by Jeff Meigs on Thu, Aug 04, 2016 @ 09:57 AM

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Maine sales and use tax applies to the value of tangible personal property and selected services sold at retail. The state sales and use tax is imposed at the rate of 5.50%.

In addition, the following services are taxed under a service provider tax at the rate of 6.00%, effective January 1, 2016 (5% until 12/31/2015):

  • cable and satellite television or radio services
  • fabrication services
  • rental of video media and video equipment
  • rental of furniture, audio media and audio equipment pursuant to a rental-purchase agreement
  • telecommunications and ancillary services
  • the installation, maintenance or repair of telecommunications equipment
  • private nonmedical institution services (until October 15, 2015, was private nonmedical institution or personal home care services)
  • community support services for persons with mental health diagnoses
  • community support services for persons with mental retardation or autism
  • home support services

And what would a statement on Maine be without a lobster reference: 

Sales of feed used in aquacultural production, including feed for lobsters in tidal circulating lobster pounds, are exempt. The exemption does not apply to sales of water or feed for lobsters kept in tanks for sale.

With a relatively low sales and use tax rate and relatively small population of taxpayers and business in Maine, it’s not likely a top priority for most companies.  However, Maine has to be on your list of summer places to visit and, like any state, there are always sales tax nuances to consider.

Stay tuned for more of Jeff's EYE ON series as he blogs aboout sales and use tax State by State.

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Topics: sales tax, Maine

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. 

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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

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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