GLOSSARY OF TERMS
SALES, USE AND COMMUNICATIONS TAXCommunications Tax
A special tax imposed on a variety of communications services, such as wireless and long-distance services. These taxes usually have special state and local tax rates that differ from the traditional sales tax rate.
The purchaser – not the retailer – has the responsibility for determining whether or not a sale is exempt from tax. If the purchaser does not submit a valid exemption certificate to the retailer, the retailer has the responsibility to assess and collect the sales tax from the purchaser. The retailer has the responsibility to determine the validity of the exemption certificate. Only valid exemption certificates protect the retailer from assuming responsibility for the sales tax on the exempt transactions. Failure to obtain an exemption certificate at the time of sales may leave the retailer with the responsibility to pay the tax to the state if the retailer is assessed tax under audit by the state.
In general, exemptions are statutory exceptions eliminating the need for the retailer to collect sales tax on a particular transaction or on all transactions with a customer. The most common exemption is “sale for resale,” which allows retailers’ to purchase products from wholesalers free of tax. The presumption is that all sales of property are taxable unless there are specific and enumerated exemptions. Even though the statutes may clearly identify an exemption, the burden of proof is still with the retailer to support any untaxed sales they have made.
Gross Receipts Tax
A tax on the total gross revenues of a company, regardless of their source. It is similar to a sales tax, but it is levied on the retailer of tangible personal property or services rather than the consumer of the goods or services. Even though the gross receipts tax is imposed directly on the retailer, the tax is ultimately passed through to and charged to the consumer.
The connection or link that a retailer has with a state. If the retailer has sufficient nexus in a state, the state and its municipalities have the authority to impose sales tax collection and remittance responsibility on the retailer. The determination of nexus is the first step in determining a retailer’s sales tax collection responsibility. Nexus is established by the ownership or lease of real estate or tangible personal property or by having employees in a state. Though it is more difficult to determine, nexus is also established through indirect physical presence, such as independent contractors or agents.
A tax on the sales price of tangible personal property or taxable services. The responsibility for assessing and collecting the sales tax falls on the vendor/retailer making the sale. The tax is most commonly collected at the point-of-sale. In some states, the sales tax is also known as a “privilege” tax and is imposed directly on the retailer for the “privilege” of doing business in the state. The measure of the tax is retail sales price of the goods sold. In other states, the sales tax is known as an “excise” tax and is imposed directly on the sales price of the property.
Tangible Personal Property
Any property that is perceptible to the senses. In general, all tangible personal property is subject to sales tax unless the state specifically excludes it from tax. States also include many types of digital products as TPP even though they are not perceptible to the senses.
The taxing jurisdictions have the authority to audit the books and records of retailers to ensure that the retailer is properly calculating, assessing and remitting the tax on all taxable transactions.
Situs literally means position or site. For tax purposes, it is the jurisdiction (state, county and city) that has the legal authority to tax a transaction. For sales tax purposes, it is generally the jurisdiction in which a sale of tangible personal property or taxable services occurs. For use tax purposes, it is the jurisdiction in which tangible personal property or taxable services are used. Situs is easy to determine when the entire transaction occurs at the point-of-sale, but it is more difficult to determine situs when the transaction involves numerous sites, such as when the point-of-sale differs from the point of delivery or title transfer. Determining situs is particularly complicated for communications and internet-based sales transactions.
In general, professional and personal services are not taxable unless the state includes specific types of services in their definition of taxable transactions. Examples of taxable services in many states include communications, data processing or information analysis. In most states, services are deemed to be non-taxable unless the statute specifically lists the service as taxable. The taxation of services varies widely among the states. Some of the services that can be taxed by certain states are: information services, data processing, custom computer programming, training, installation, delivery charges, hair care, security and detective services, background screening, commercial property rental, and employment verification services.
A tax imposed on the sales price of goods and services purchased for consumption (and not resale) when no sales tax was charged by the retailer. Use tax is complementary to the sales tax. That is, no property or services are subject to use tax if they would not be subject to sales tax. Use tax is imposed on the purchaser of tangible personal property or taxable services otherwise subject to sales tax where the vendor/retailer did not collect the tax. This tax is usually associated with untaxed purchases made from out-of-state vendors. It can also be due on certain in-state purchases. In most cases, the liability for use tax rests equally with the vendor and the customer.
The retailer is the collection agent for the state or local jurisdiction that imposes the sales tax. A retailer that sells directly to the consumer of taxable personal property or services has the legal responsibility to collect the tax for the state. If the retailer fails to collect and remit the tax, the state can impose the tax directly on the retailer along with penalties and interest for failure to collect and remit the tax.