SALES TAX ISSUES AND SOLUTIONS FOR TEXAS BUSINESSES

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1 State and Local Tax Consulting SALES TAX ISSUES AND SOLUTIONS FOR TEXAS BUSINESSES Nathan Day

2 Agenda Texas Sales and Use Tax Overview Sales Tax Exemptions and Exemption Certificates Taxability Issues Sales Tax Compliance Voluntary Disclosure and Audit Defense Multi-State Sale and Use Tax -2-

3 Sales and Use Tax - Texas Texas Sales and Use Tax Overview Imposition of sales tax (Tex. Tax Code Ann , , ) Transaction tax Taxable sale or purchase Tangible personal property Enumerated taxable services -3-

4 Sales and Use Tax - Texas Texas Sales and Use Tax Overview Responsibility for sales tax ( 3.286) Collection of tax Permitted seller Payment/liability of tax Purchaser Seller -4-

5 Sales and Use Tax - Texas Texas Sales and Use Tax Overview Sales tax vs. use tax Sales tax Goods are purchased in Texas Example purchase something from a store in Texas Use tax Goods are purchased from outside Texas and used in Texas Example purchase something online from a California retailer Same taxability rules and tax rates -5-

6 Sales and Use Tax - Texas Sales Tax Exemptions and Exemption Certificates Exemptions based on the item (e.g., Certain food items; Water; Certain medical items; etc.) Exemption based on use (e.g., Manufacturing; Resale; Agriculture; etc.) Exemption based on the type of purchaser (e.g., Nonprofit organizations; Government entities; etc.) -6-

7 Sales Tax Exemptions and Exemption Certificates Exemption certificates ( 3.285; 3.287) Types of exemption certificates General exemption certificate Resale certificate Direct pay certificate Agriculture certificate Maquiladoras Occasional sale Other Sales and Use Tax - Texas -7-

8 Sales Tax Exemptions and Exemption Certificates Exemption certificates ( 3.285; 3.287) Types of exemption certificates General exemption certificate Resale certificate Direct pay certificate Agriculture certificate Maquiladoras Occasional sale Other Sales and Use Tax - Texas -8-

9 Sales and Use Tax - Texas Sales Tax Exemptions and Exemption Certificates Exemption certificates ( 3.285; 3.287) (continued) Acceptance of exemption certificates Required information Validity period db_search.html Retention -9-

10 Sales and Use Tax - Texas Taxability Issues Service providers (Tex. Tax Code Ann ) Taxable services Amusement services Cable television services Personal services Motor vehicle parking and storage services Repair, remodeling, maintenance, and restoration of tangible personal property Telecommunications services Credit reporting services Debt collection services -10-

11 Taxability Issues Sales and Use Tax - Texas Taxable services (continued) Insurance services Data processing services Information services Real property services Real property repair and remodeling Security services; Telephone answering services; Internet access service Utilities -11-

12 Taxability Issues Service providers (Tex. Tax Code Ann ) Nontaxable services Mixed transactions Purchases Sales and Use Tax - Texas -12-

13 Taxability Issues Sales and Use Tax - Texas Contractors and construction ( 3.291; 3.356; 3.357) New construction vs. existing structure Nonresidential vs. residential Lump-sum vs. separated contracts Purchases -13-

14 Taxability Issues Sales and Use Tax - Texas Not-for-profit entities ( 3.322) Qualifications for a sales and use tax exemption Charitable Educational Religious Federal Others -14-

15 Taxability Issues Sales and Use Tax - Texas Not-for-profit entities ( 3.322) (continued) Registration requirements html Purchases by a not-for-profit entity Sales by a not-for-profit entity Joint ventures with for profit entities -15-

16 Taxability Issues Sales and Use Tax - Texas Manufacturing ( 3.300) Who qualifies for the manufacturing exemption? What is exempt? Key items that are not exempt How the exemption is obtained Installations -16-

17 Taxability Issues Sales and Use Tax - Texas Mergers, acquisitions, and corporate reorganizations ( 3.316; 3.7) Occasional sale exemption Qualifications Successor liability Seller requirements Purchaser requirements -17-

18 Sales and Use Tax - Texas Sales Tax Compliance State and local sales tax collections ( 3.286) Cash basis vs. accrual basis Local tax rates One place of business Multiple places of businesses -18-

19 Sales and Use Tax - Texas Sales Tax Compliance State and local sales tax filings ( 3.286) Frequency Reporting taxable purchases E-file vs. paper Must file even if no tax is due Late filing penalty even if no tax is due -19-

20 Sales and Use Tax - Texas Sales Tax Compliance Use tax accruals ( 3.346) Nontaxed taxable purchases Common on purchases from out of state Remit when filing sales tax return if permitted Remit on Texas use tax return if not permitted Best practices -20-

21 Sales and Use Tax - Texas Sales and use tax compliance Registration and permit requirements ( 3.286) Sellers of taxable items Business restructuring Change in ownership information -21-

22 Sales and Use Tax - Texas Sales Tax Compliance Sales and use tax research Texas Comptroller s Sales Tax Webpage: Texas Comptroller s State Tax Automated Research System (STAR):

23 Sales and Use Tax - Texas Voluntary Disclosure Agreements ( VDA ) Advantageous way to remit past due taxes Anonymous process Limited lookback period Generally will waive penalty and interest Qualifications -23-

24 Sales and Use Tax - Texas Sales and Use Tax Audits Sales tax audit process Best practices Advanced preparations -24-

25 Sales and Use Tax Multi-State Nexus Collection and Filing Requirements Sales/Use Tax Nexus connection or presence in a state sufficient to require businesses to collect sales/use taxes. Activities likely creating nexus: Property or employees physically present in the state Services performed in a state (i.e., installation, repair, training, and many more) -25-

26 Sales and Use Tax Multi-State Nexus Collection and Filing Requirements Activities likely creating nexus (continued): Temporary visit by sales people, independent contractors, and agents Inventory including consignment and WIP Many others!! -26-

27 Sales and Use Tax Multi-State Practice and Procedures Sales and use tax filings Tax rates to charge Taxability determinations Software providers TaxCloud.net CCH Vertex Others -27-

28 Sales and Use Tax Multi-State Practice and Procedures Drop shipments Drop shipment scenario Rules vary by state Exemption certificate requirements Sales tax permit requirements in ship-to state -28-

29 Sales and Use Tax Multi-State Voluntary disclosure agreements ( VDA ) Advantageous way to remit past due taxes Process Individual states MTC Limited lookback period Generally will waive penalty Qualifications -29-

30 Questions? Please contact me: Nathan Day, CPA Direct: Mobile: Daytexastax.com (Day Texas Tax, LLC is not a CPA firm) -30-