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Sales & Use tax filing for non-taxable services?
Posted on 2/18/20 at 1:48 pm
Posted on 2/18/20 at 1:48 pm
My company performs non-taxable services in many different states. These services require the use of relatively expensive equipment, which is owned by our parent (non-US) company.
We pay 'Use' tax on the value of this equipment (monthly lease) to our US headquarters state, which is where roughly 20% of our revenue is derived. However, it seems as though we may (?) be required to pay Use tax in every state that we are deemed to have Economic Nexus (offshoot of Wayfair decision?).
While the net result of tax likely wouldn't change much (i.e. we'd pay other states and get a credit back from Texas), it would be a nightmare to register and report in all of these states. The primary question is 'Are we required to register in all of these states if we perform non-taxable services with equipment that requires Use tax filings/payment?'
We pay 'Use' tax on the value of this equipment (monthly lease) to our US headquarters state, which is where roughly 20% of our revenue is derived. However, it seems as though we may (?) be required to pay Use tax in every state that we are deemed to have Economic Nexus (offshoot of Wayfair decision?).
While the net result of tax likely wouldn't change much (i.e. we'd pay other states and get a credit back from Texas), it would be a nightmare to register and report in all of these states. The primary question is 'Are we required to register in all of these states if we perform non-taxable services with equipment that requires Use tax filings/payment?'
1
Posted on 2/18/20 at 4:32 pm to litenin
quote:
'Are we required to register in all of these states if we perform non-taxable services with equipment that requires Use tax filings/payment?'
Depends on the state.
Not trying to be a jackass... but SALT issues can be rather complex. Sounds like you work for a decent size company, hopefully you have a good CPA firm that has some SALT experts on staff.
If not, I reccomend that you reach out to someone at a firm like Weaver or Ryan that has a solid SALT practice. Might be worth a few thousand to get a researched answer. Many states have become HORRIBLE to deal with on issues like this.
Posted on 2/19/20 at 1:24 pm to LSUFanHouston
Thank you and I appreciate the response. I'm actually a CPA that has been relying on our tax department's advice (before we were sold) from about 10 years ago. I decided to take a Sales & Use tax seminar after realizing recently that I needed to learn more. The seminar raised many more questions than it answered.
We use one of the Big Four for fed/state tax and I considered asking them for further guidance as you suggest. I thought it couldn't hurt to ask this site as part of my further research in the area.
Like the instructor from the seminar mentioned, they don't teach you this area at all in school. It's the most complex area of tax and the states are very aggressive. On top of that, it's usually the lower level accountants that have to figure all of it out.
We use one of the Big Four for fed/state tax and I considered asking them for further guidance as you suggest. I thought it couldn't hurt to ask this site as part of my further research in the area.
Like the instructor from the seminar mentioned, they don't teach you this area at all in school. It's the most complex area of tax and the states are very aggressive. On top of that, it's usually the lower level accountants that have to figure all of it out.
Posted on 2/19/20 at 1:27 pm to LSUFanHouston
Everything I've found from the various states refers to a threshold on annual sales or transactions, yet many times excludes 'non-taxable' or 'exempt' sales. If I take those definitions literally, then I can say we have zero taxable sales and thus not required to register/file.
However, I think they would argue that they are owed a portion of the Use tax we're paying to Texas.
Our tax department years ago suggested NOT filing in those states but we've grown some since then and I think technically we should be filing.
However, I think they would argue that they are owed a portion of the Use tax we're paying to Texas.
Our tax department years ago suggested NOT filing in those states but we've grown some since then and I think technically we should be filing.
Posted on 2/19/20 at 9:11 pm to litenin
quote:
yet many times excludes 'non-taxable' or 'exempt' sales. If I take those definitions literally, then I can say we have zero taxable sales and thus not required to register/file.
I’d call some DOR’s personally. Ask for a supervisor or track one down. Get something in writing from them. I don’t have a clue about Use Tax but they are about 50/50 with being super helpful or complete pieces of crap in my experience.
Eta: how would they prove what you owe? I’m not telling you to not pay your taxes, but I’m just curious if there would be an easy way for a DOR in another state to prove you owe a use tax on equipment that moves around?
This post was edited on 2/19/20 at 9:14 pm
Posted on 2/20/20 at 11:37 am to litenin
quote:
m actually a CPA that has been relying on our tax department's advice (before we were sold) from about 10 years ago.
This area of tax law has changed A LOT in 10 years. In addition, while there are some general similarities due to commerce clause and multi-state compact compliance, 50 states means 50 variations.
quote:
Like the instructor from the seminar mentioned, they don't teach you this area at all in school. It's the most complex area of tax and the states are very aggressive. On top of that, it's usually the lower level accountants that have to figure all of it out.
That is all very true.
Posted on 2/20/20 at 11:38 am to baldona
quote:
but I’m just curious if there would be an easy way for a DOR in another state to prove you owe a use tax on equipment that moves around?
Usually, it stars with a bored field examiner surfing around and finding companies that have registered to do business in a state and don't have a revenue account number, or businesses that maybe file income taxes in a state, but don't file sales and use taxes.
Get ahold of the income tax return and start looking. See similarities to companies that file use tax.
Send a letter to the company and go from there.
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