Multi-State Sales and Use Tax Attorneys
Multi-State Sales and Use Tax Attorneys
Multi-State Sales and Use Tax Attorneys
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The Supreme Court of the United States (“SCOTUS”) has had its hands full with tax cases this year. Although largely unpopular and unexciting for the general public, SCOTUS find tax cases even less appealing. In fact, since 1992 in Quill, SCOTUS has not heard a case dealing with sales tax nexus. Despite its unpopularity, the nexus issue is an important one since the advent of the Internet. However, every statistic has its anomaly. From a state tax perspective, SCOTUS issued two opinions in 2 days, which is impossible. The first case, the DMAcase came down yesterday, March 3, 2015, ruling that a taxpayer could embark on a constitutional challenge to a state tax in federal court. Even more riveting, SCOTUS ruled today, March 4, 2015, in theCSX case.

By way of brief background, federal law prohibits states from imposing taxes that “discriminate against rail carriers.” With that in mind, Alabama decided to impose a 4% tax on diesel fuel purchases made by a rail carrier and exempt similar purchases made by other competitors, namely motor and water carriers. However, motor carriers pay 19 cents per gallon of fuel tax on diesel purchases and water carriers don’t pay tax on diesel fuel purchases. Is this the type of discrimination the feds were talking about? Does anyone really care?
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Direct Marketing Association has continued its fight for consumer privacy with Colorado. In September, 2014, I wrote about how DMA has taken its challenge up to the Supreme Court of the United States. DMA filed its opening DMA Brief.pdfin the Supreme Court of the United States on September 9, 2014 and argued that the case should be allowed to be heard in federal court. A summary can be found DMA Summary.pdf. The Supreme Court heard the case in its recent term and announced its opinion on March 3, 2015. From a state and local tax perspective, the case has broad and interesting constitutional issues.

At its heart, Colorado thought it would effective to enact a law that affected “non-collecting retailer.” In Colorado’s eyes, if a company made sales in Colorado over $100,000, then it was subject to a host of regulation, including: provide notices to Colorado purchasers, send annual purchase summaries to the customers and send the report to Colorado. This all had to be done despite the fact the company had no nexus, or connection, with Colorado. DMA, agroup of businesses and organizations that markets products using advertisements, thought this was incredibly onerous and unfair, so it challenged the Colorado law in federal court. At trial, the DMA convinced the trial court that this law was impermissible because it convinced a judge that the law discriminated against, and placed an undue burden on interstate commerce.
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For the past few years, I have been writing a number of blogs and articles recently discussing the Department of Business and Professional Regulation here in Florida and its potentially unfair audit tactics. Many of you have seen cigar wrappers, or the more scientifically described “blunt wraps,” at convenience stores and gas stations throughout the state and country. Are those items tobacco products subject to Florida’s other tobacco products tax? On January 9, 2015, our first case went to hearing on the taxability of blunt wraps in Brandy’s – Amen Complaint.pdf
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Most states attempt to encourage manufacturers to set up a business in their state. Manufacturers typically provide numerous benefits to a state’s economy such as job creation. One of the carrots typically used by a state is to offer sales and use tax incentive for a manufacturing company. In almost every state with a sales and use tax, machinery and equipment purchased for use in the manufacturing process is exempt from tax. What if a glass manufacturer purchased chemicals, such as nitrogen and hydrogen for use in its glass manufacturing process? Would that be a tax exempt purchase of equipment?
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Although nexus sounds like a terrible disease, it is just a fancy word meaning a connection or link. If a company has enough of a connection or link to a state, then the state can impose its power of the company. With nexus, a state can impose its laws on the business including sales tax laws. From a sales tax perspective it can require the business to charge, collect, and remit state taxes such as sales tax. In 1992, Quill v. North Dakota was decided, which announced that having a physical presence in a state was sufficient nexus to require a company to follow a state’s state and local tax laws. In other words if your business has an office, a warehouse, some inventory, or a person (employee and yes, an independent contractor) then it likely has nexus under the physical presence test in Quill.

For life in the 1990’s this was big news to businesses who engaged in innovative marketing. Businesses that were on the cutting edge that sent things like mail order catalogs and floppy disks to solicit customers were being harassed by states alleging they had nexus. Today, with the internet as the backbone to the modern economy, states are trying the same tactics by creating laws to get more companies under its rule.

In 2008, New York led the innovative charge for click through nexus legislation. Also known as the “Amazon law,” due to its perceived targeting of Amazon, New York created a law that if a New York residents website generated over a certain number of sales in a 12 month period for a particular company, then there was a presumption that such company had nexus in New York. Amazon and Overstock took exception with this law, but ultimately lost at New York’s highest court. Unfortunately, the Supreme Court of the United States declined to hear the case.
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In order to limit liability, many tax professionals and attorneys offer simple advice to their business clients who also own real estate. In order to avoid exposure to valuable real estate, many business owners are advised to segregate the risky business operations into its own legal entity separate from the real estate. While it may be worthwhile from a business liability standpoint, it is often a recipe for disaster for Florida sales tax purposes.

Florida is the only state that taxes commercial rent. In fact, many tax professionals take it a step further. Man times, for federal tax and cash flow purposes, attorneys set up a lease between the real estate entity and the business entity, often equal to the mortgage, insurance, and property tax costs. In other situations, and often with no formal lease in place, the corporate attorney will just have the business entity pay the mortgage, property insurance, and real estate taxes directly on behalf of the real estate company. Whether there is a lease, or if the tenant company pays the expenses directly, or even if the companies are related then Florida sales tax still applies. Below are 4 simple rules to keep in mind when it comes to Florida sales tax on commercial rent Continue reading

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In early 2014 I wrote an article that explores a way in which many state and local tax “SALT” professionals advise their clients to save on state and local tax. The issue is a common one for real property improvement contractors. Specifically companies that sell real property improvements to governments or other tax exempt entities, there is a real incentive to save on high sales tax rates. What if instead of selling a real property improvement, the company separated itself into two separate legal entities. Company 1 could sell tangible personal property, tax free, to the tax exempt entity/governmental entity. Company 2 could install the tangible personal property tax free because they are only providing a service. Assuming both companies had separate contracts, the entire transaction would escape sales and use tax in most states. Conversely, if a single company purchased materials and used them in a real property improvement, then it would owe tax on all of its purchases. This savings is often substantial.
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Many state and local tax (“SALT”) practitioners often refer to state and local transaction taxes as “gotcha” taxes. Over ambitious state agencies seek to extort money from businesses all the time by using fire first, ask question later type tactics. SALT auditors write up whatever they can as taxable and force businesses to prove them wrong. Similar to state and local sales and use taxes, motor fuel tax can often be a mine field for the unsuspecting business. In a 2014 decision, a Pennsylvania court agreed with the revenue agency’s “gotcha” mentality in Luther P Miller Inc v. Pennsylvania, 88 A. 3d 304 (Pa. Comm’w Ct 2014).
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Anytime I need a gift for just about any reason, 1-800 Flowers or Flowers.com, is where I turn to first. The online retailers make it incredibly easy for someone who needs as much help as I normally do to send gifts to others. I can just go online, pick one of their pre-packaged gifts, give them my credit card, and then the recipient magically receives the gift as quickly as I need it. Recently, the Florida Department of Revenue decided that it is entitled to sales tax whether the flowers are delivered in Florida or outside of its borders. Being that this is contrary to normal sales tax destination rules, the taxpayer decided to fight back.
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Anytime a state agency, such as the Florida Department of Revenue (“FL DOR”) gets their hands on third party reporting, you can rest assured they will be coming after that industry in full force. In 2011, the FL DOR passed a law that required wholesalers of alcohol and tobacco to report all of their sales to retailers directly to the FL DOR. Being that the FL DOR knew what each convenience store, liquor store, restaurant, and bar bought by way of beer and cigarettes, they could easily compare them to the same retailer’s sales tax returns. For those that the FL DOR suspected of underreporting or just pocketing the sales tax, the investigation letters started in late 2011 followed by some 200 audit notices per quarter in early 2012. Now about three years later, one can only suspect that the next FL DOR “campaign” will be focused on the next industry in which the FL DOR could most easily get it hands on. So who’s next?

For years the Department of Revenue had access to DMV reports that could show the cars being sold by a retailer with a Florida dealer license. In late 2013 through early 2014, our friends in Tallahassee formulated a methodology that more quickly, efficiently, and accurately compared the DMV reports and warned us the notices were coming. With that in mind, we knew the auto industry was next on the FL DOR’s hit list.
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