Understanding Use Tax
As selling across state lines becomes more common, navigating differing local taxing requirements can become increasingly difficult.
When making a sale,
businesses widely understand their obligations when it comes to collecting sales tax. But use tax can be a little trickier, even though it is the fl ip side of the same coin. Use tax is typically paid in
Is the customer a tax exempt organization? Yes
Does state law exempt the sale to the tax-exempt organization? The scope of state exemptions for tax-exempt entities varies.
place of a sales tax when a buyer purchases from a seller located in a different state than where the product or equipment is being used. If the seller does not have a presence, or nexus, in the buyer’s state, then sales tax
No
Yes
No tax is due on the exempt organization’s purchase so long as applicable state procedures followed (i.e., exemption certificates given). BUT - Does the state impose a contractor use tax on contractors using goods or services purchased tax free by exempt organizations?
No
Yes
Tax can be imposed upon the purchase price of tangible personal property or services used by contractors in performing services to exempt organizations to the extent that sales tax was not paid upon the initial purchase thereof. This cost is generally passed through to the tax exempt organization by contract.
No No tax likely due
Will what you are selling remain tangible personal property or ultimately become a fixture to real property?
Look to state law regarding what does or does not constitute a fixture. This is generally a facts- and circumstances-based test which looks to factors such as party intent, means/method of attachment to realty and ease of removal.
Fixture to Real Property Are you doing installation
Tangible Personal Property Are you doing installation?
Yes
Sales tax must generally be collected and remitted on the sales price of the item sold unless an applicable exemption applies.
Purchasers performing installation are generally not entitled to resale treatment because they will be deemed to be the user of the purchased goods in the performance of a contract.
No
Sales or use tax generally must be paid by the installer on the purchase prices of the item resold.
Sale for resale treatment will generally not apply to the seller, who is deemed the user of the sold item in performing a contract, unless an applicable state exemption applies.
Yes
Sales tax must generally be collected and remitted on the sales price of the item sold unless an applicable exemption applies.
States may also charge tax on installation services.
No
Sales tax must generally be collected and remitted on the sales price of the item sold unless an applicable exemption applies.
may not be charged and the buyer is supposed to pay the use tax to the taxing authority. Use tax can be complicated because different states — and municipalities — have different requirements for what kinds of purchases are covered by the tax and the rate typically varies between taxing bodies. When it comes to foodservice equipment sales, dealers that commonly do business in one market may not be familiar with the rules in another area. Further, if the buyer fails to pay the tax, the dealer might still be considered liable and the state could assess a penalty with interest on the dealer. While the dealer may be able to fi ght such claims, the messier nature of use tax can make it diffi cult. “A defense here might be to prove that the purchaser paid use tax (either voluntarily or as a result of an audit they went through), but this requires coordination with the purchaser, which may or may not be easy,” notes Chris Wilson, a partner at the Holland & Knight law fi rm. “Because states have varying laws in this area, it is important to obtain guidance to ensure that you have an understanding of how states classify transactions, how tax applies and the extent to which any exemptions might apply (along with any certifi cation requirements),” Wilson adds. The fl ow chart on this page is designed to help dealers determine how and when to apply sales or use tax in most situations. FEDA will continue to work with Holland & Knight to develop additional resources and share more information in the coming months.
14 FEDA News & Views
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60
