Presenting a live 110-minute teleconference with interactive Q&A Sales and Use Tax Key Fundamentals Mastering Tax Base, Compliance, Nexus, and Other Essential Multi-State Concepts THURSDAY, NOVEMBER 15, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Monika Miles, Co-Founder, Labhart Miles Consulting Group Inc. , San Jose, Calif. Dru Beguelin, Sales Director, Sales and Use Taxes, Meridian Global Services , White Plains, N.Y . Joseph Geiger, Senior Tax Consultant, Vertex Inc. , Berwyn, Pa. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Sales and Use Tax Key Fundamentals Seminar Nov. 15, 2012 Monika Miles, Labhart Miles Consulting Group Joseph Geiger, Vertex Inc. monika@labhartmiles.com joseph.geiger@vertexinc.com Dru Beguelin, Meridian Global Services dru.beguelin@meridianglobalservices.com
Today’s Program Sales Vs. Use Tax Slide 8 – Slide 13 [Monika Miles] Slide 14 – Slide 33 Sales And Use Tax Nexus [Monika Miles] Slide 34 – Slide 57 Essential Compliance Concepts [Joseph Geiger] Slide 58 – Slide 66 Revenue Agency Administration Of Sales Tax [Dru Beguelin] Slide 67 – Slide 69 Role And Status Of SSTP [Dru Beguelin]
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Monika Miles, Labhart Miles Consulting SALES VS. USE TAX
Sales Tax 101 Sales tax is one of the most common taxes encountered every day by businesses and consumers alike. 9
Sales Tax 101 (Cont.) The concept of sales tax is prevalent in daily conversations because: • States need revenue. • Increasing numbers of online transactions • Smaller companies are able to expand their sales footprints quickly because of increased technology. 10
Some Terms And Definitions • Sales tax • Use tax • Nexus • Tangible personal property 11
Sales Tax And Use Tax • Sales tax and complementary use tax are imposed by state and local jurisdictions on retailers for the privilege of selling ―tangible personal property‖ in the jurisdictions. • 45 states and the District of Columba impose sales taxes. 12
Sales Tax • The responsibility of sales tax collection is generally borne by the seller, if the seller has the minimum connection necessary with the state to require the seller to collect and remit the tax. (Nexus) • If the seller does not have the minimum connection necessary to collect, then the purchaser must self-remit the use tax . 13
Monika Miles, Labhart Miles Consulting SALES AND USE TAX NEXUS
Nexus • ―The sufficient connection that an entity must have in order for a state to impose a tax‖ • Generally, physical contact between a taxpayer and state must occur. • Defined by U.S. constitutional principles and U.S. Supreme Court cases 15
Nexus Examples • An employee living or working in a state • An independent contractor working on behalf of the company in a state • Soliciting sales in a state (i.e., regular travel to visit prospective customers in a state) • Ownership of property in a state • Rental of property • Participating in trade shows 16
Nexus: Why It’s Important • Sales tax is a gross tax. Net operating losses will not reduce a sales/use tax liability. • Taxes based on capital stock may also apply. • An aggressive state may assert that tax is due when in fact nexus has not been established. 17
Tangible Personal Property • The term ―tangible personal property‖ (TPP) refers to property that can be seen, weighed, measured, felt or touched, or perceived by the senses. • In general, unless otherwise exempt, sales of TPP are subject to sales tax. 18
History • Our current system stems from various state statutes and regulations, • From the U.S. Congress, and • From U.S. Supreme Court decisions in multi-jurisdictional cases. 19
U.S. Constitutional Basis For Sales Tax • Two constitutional provisions that are regularly discussed in state tax cases are: – Due Process Clause – Commerce Clause 20
Due Process Clause • No state shall ―deprive any person of life, liberty or property, without due process of law.‖ • Taxes = ―Property‖ 21
The Commerce Clause • Authorizes Congress to regulate commerce among the states • Prohibits states from enacting laws that might unduly burden or inhibit the free flow of trade among the states (dormant Commerce Clause) 22
Summary • A state cannot impose a tax obligation on an out-of-state corporation unless the Due Process Clause ―minimal connection‖ and the Commerce Clause ―substantial nexus requirements‖ are satisfied. • The landmark case in this regard is Quill Corp. v. North Dakota 504 U.S. 298 (1992). 23
Quill : Facts • Mail order office supply retailer • Locations in California, Illinois and Georgia • No employees or other offices in North Dakota 24
Quill (Cont.) • In Quill , the U.S. Supreme Court concluded that in addition to any minimum connection with a state (Due Process Clause), a business must have substantial physical presence nexus (under the Commerce Clause) before the state could impose sales/use tax collection requirements. 25
Catalog Sales • In Quill , the Supreme Court concluded that Congress was better qualified to resolve the matter of state taxation of catalog sales. • Congress has taken no action! 26
Catalog Vs. The Internet VS. 27
Sales Over The Internet • The Internet is, for sales tax purposes, in essence a virtual catalog. If the seller has nexus in the state to which the order is to be shipped, the seller should collect and remit those taxes. VS. 28
The Growth Of Internet Sales • Non-existent when the high court decided Quill • No tax collection obligation on seller without a physical presence in a state (like catalog sellers) 29
Example • Susie, who resides in Texas, received a catalog from ShoesGalore and has selected a pair to order. • She reviews the order form and notes in the fine print that ―customers in CA, FL, and IL must add sales tax.‖ • Susie happily sends in her order form and feels like she has saved the sales tax 30
Why It’s Important ― Sales tax is a pass-through tax. The thing that concerns most companies is the burden and cost of collection and remittance of the taxes.” 31
The “Amazon Dilemma” • Large vs. small companies • ―Tax loopholes‖ • Compliance burden • Use tax 32
Why It’s Important • Sellers of items via the Internet must collect and remit applicable sales tax, if the seller has nexus in the state of the destination of the sale. If the seller does not have nexus, the seller is not yet required to collect and remit the tax. 33
Joseph Geiger, Vertex Inc. ESSENTIAL COMPLIANCE CONCEPTS
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