July 7, 2018

Sales Tax: Head Shaking Regulations Make Compliance Nearly Impossible

Sales Tax.  Technically called Sales and Use Tax in many jurisdictions.  And the bane of all businesses that are required to collect it.

The topic of sales tax as been a hot discussion item recently,  given the United States Supreme Court's recent 5-4 decision (read it here) that states can impose sales tax on Internet purchases.  This new ruling effectively overturned the Court's 1992 Quill decision, which required a physical presence in a state before collecting sales tax.

While I concur with the Court's decision, the unaddressed issue about sales tax is very simple:  For businesses required to collect sales tax, the myriad of head shaking regulations makes full compliance nearly impossible.  And for nationwide businesses, they must deal with completely different sales tax regulations within the 44 states plus the District of Columbia that impose the tax.  (Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose a general statewide sales tax.)  Oh, and different sales tax rates within every county, town, and city.  Take a look at a few sales tax rules.  Do these make any sense to you?

Massachusetts:  Clothing and footwear is exempt from sales tax.  Well, kinda.  The exemption is limited to clothing and footwear costing $175 and less.  For costlier items, sales tax is imposed portion of the purchase price about $175.

But wait, there's more!  "Certain" clothing and footwear items are always taxed.  Among items included in this always taxed group are shower and bathing caps, purses and handbags, the much-in-demand handkerchiefs, and clothing worn by horse jockeys.

Colorado:  "Canned" software that is purchased by disc or on other tangible personal property is subject to sales tax.  However, "canned" software purchased and downloaded electronically is exempt.  But  .... if you purchase and electronically download electronic media including music and books, those items are subject to sales tax.

Electronic Filing of Tax Returns and Electronic Payment of Taxes:  Want to electronically file your tax returns or electronically pay your taxes?  Every state that imposes a sales tax imposes the tax on the fee charged to electronically file your tax returns or pay your taxes.  So yep, you get to pay a tax in order to pay your taxes!  Yippee!!

California:  I could do a month worth of posts about California's sales tax quirks; I'll stick with a few for now.

California - Prescription Medication:  Prescription medication is exempt from sales tax in California.  Well, not really.  If you are human, it is.  But if you purchase a prescription for you dog or other pet, even if it is a medication also used by humans, the prescription is subject to sales tax.  It doesn't matter if the medication is purchased from your vet or a human pharmacy such as Walgreen's.

California - Food:  Complying with THIS items is a mind-numbing doozy!  Food eaten at a restaurant is always subject to sales tax, while the same food ordered and taken to go may ... or may not ... be subject to sales tax.  Oh, and it also depends on whether or not the food is hot or cold when taken to go.

But wait, there's more!  As in exceptions.  Here's a bit of what California sales tax regulations say on this topic:
"Sales of food for human consumption are generally exempt from tax unless sold in a heated condition (except hot bakery items or hot beverages, such as coffee, sold for a separate price), served as meals, consumed at or on the seller's facilities, ordinarily sold for consumption on or near the seller's parking facility, or sold for consumption where there is an admission charge."
Got that?!  And golly gee, just exactly what foods do - and do not - fall into the above categories is subject to anyone's interpretation, including your California State Tax Auditor in a sales tax audit.  Here's what one of California's state taxing authorities, the State Board of Equalization, once had to say on this food and sales taxes matter:
"A cold food product sold individually and to go is not taxable. The sale of a cold food product sold as part of a combination package may be taxable ... If you sell an egg salad sandwich to go, you are not liable for tax on the sale. However, if you sell an egg salad sandwich as part of a combination package, you may be liable for tax."
Once again, got all that?!  May be taxable??!!   Geesh!!

I swear, if our politicians that enact these taxes actually had to run businesses and deal with sales tax compliance and collection, we'd see much simpler sales tax regulations!

Sales Tax Concerns?  
About Mary Rae Fouts, EA

Mary Rae Fouts, EA provides tax, insurance consulting, and expert witness services to clients who have technical or complex concerns.  For more information about Mary and her professional services visit FoutsFinancialGroup.com.

Mary Rae Fouts

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