"Mutli-state Sales and Use Tax"

Published on: March 6, 2013

MULTI-STATE SALES AND USE TAX: Would You Rather Read About Sales Tax or Get Some Jawbone Grafting

It never ceases to amaze me as to the types of cases and industries that come up in our practice. In late 2012, a Taxpayer, or its representative, inquired to the Missouri Department of Revenue whether certain sales it made to its customers are subject to Missouri sales and use tax. As a state and local tax attorney and the proud recipient of a recent jawbone graft, this particular ruling caught my attention. Specifically, in LR 732, Mo. Dept. of Revenue (August 10, 2012), a dental supply and service distributor sold single patient use medical materials to its customers. The medical materials happened to be used for structural support for bone tissue during jaw bone grafting.

Jawbone Grafting.jpg

Like every one of the 45 states and the District of Colombia that has a sales and use tax regime, Missouri has a medical supply exemption. Medical exemptions are often popular ways for Legislatures to look popular by exempting items such as food and medicine that is necessary for people to survive. States take the position that taxpayers should not be burdened with state taxes for items that are essential.

At issue in LR 732, Mo. Dept. of Revenue (August 10, 2012) was Missouri’s exemption for “orthopedic devices” such as rigid or semi rigid leg, arm, back or neck braces that are used to support weak or deformed body, or restrict or eliminate motion in diseased or injured body parts. Sounds delicious, don’t it? In any event, the Taxpayer was curious if jawbone grafting materials fit within this gruesome sounding exemption.
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Published on: February 28, 2013

There’s An App For That: Sales and Use Tax Implications of IPhone Apps Addressed in Illinois

By Jerry Donnini, Esq.

Everyone has seen the clever IPhone commercials, which promote its applications (“Apps”) and states the famous phrase “there’s an app for that!” Some sources even boast that as of the end of 2012, there were some 750,000 apps available on the Iphone App Store. From useful apps like ESPN, Shazam, and Urbanspoon, to useless apps like Have2P Restroom Locator, Can I Drive Yet, and How to Text A Girl, there truly might be an app for everyone. There are even Apps like Bargain Bin which locates apps that are on sale.

Attempting to cash in, many people and businesses have attempted to create their own apps to eventually sell to Apple. While most just think about hitting it big, the state and local tax attorney in me wonders where the sale of an app is taking place and if this type of transaction is subject to sales tax. Continue reading

Published on: February 26, 2013

Multi-State Sales Tax Update: STATE TAXATION OF NATIVE AMERICANS UPDATE

By Jerry Donnini, Esq.

Few attorneys or accountants practice or ever even heard of lawyers that practice in the area of Native American Taxation. However, I have found this unexplored area of the law to be fascinating. Similar to many areas of state and local tax work, Native American Taxation is poorly developed and the rules are unclear and largely don’t make any sense. While it is common for multi-state SALT attorneys like me to live in a world with no clear answers, living in this gray area of the law is uncomfortable for most lawyers and professionals.

Over the past few months, there have been a few developments in the area of Native American Taxation that have caught my eye. At the core of most state taxation issues involving Native American Tribes, is the struggle of a state’s power to tax transactions on tribal reservations versus the Indian Commerce Clause. Almost every lawyer and tax professional has heard of the Commerce Clause. The Commerce Clause is the provision in the United States Constitution that gives Congress the power to regulate interstate commerce. Specifically, the Commerce Clause states in Article I, section 8, that Congress shall have the power, “To regulate Commerce with foreign Nation, and among the several states.” Most people are only taught or only remember that part of the Commerce Clause, but the Commerce Clause continues to read “and with the Indian Tribes.” It is this provision that has led to enormous debate and litigation in the world of state taxation with the regards to the Native Americans.

From the early days of our nation, in Cherokee Nation v. Georgia (1831) and Worcester v. Georgia (1832) it has been battled over whether and to what extent the Indian Reservations are foreign and discrete nations within the United States borders. Identical to most undeveloped state and local tax issues, the same problems remain in 2013.
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Published on: February 18, 2013

Multi-State Sales and Use Tax: McDonald’s Participates in Sales Tax Savings Program

By Jerry Donnini, Esq.

As many of you are aware, today, February 18, 2013, is President’s Day. For many that means banks are closed and, more importantly, work is closed. For many others, like me, President’s Day really just feels like another day. However, this President’s Day is special thanks to McDonald’s.

Like most of the country, on my drive into work this morning, I heard about McDonald’s special President’s Day promotion. Specifically, if a customer purchases a Big Mac or Quarter Pounder, a second delicious sandwich can be purchased for a penny. Why did McDonald’s charge a penny, rather than just giving it away for free? Perhaps, the corporate executives at McDonald have read my riveting state and local tax blog last week.

For the few of you that did not read my blog I did last week, I wrote about the power of the sale for resale exemption offered by most states in their sales and use tax regime. In a nutshell, this means that when a business purchases something it does not pay tax but rather charges tax to its customer when the item is resold.

The policy behind the sale for resale exemption is that sales and use tax attempts to tax consumption by adding a tax to purchases made by the end consumer of a good or service. While each state varies as to exactly what is and is not taxable, every state that I am aware of has a sale for resale exemption. Conversely, if the business is the end user on items it purchases it owes a use tax on those items. The sale for resale exemption can be a very powerful multi-state sales tax technique if used correctly.
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Published on: February 13, 2013

MULTI-STATE SALES AND USE TAX: THE POWER OF THE SALE FOR RESALE EXEMPTION IN SALES TAX CASES

By Jerry Donnini, Esq.

Anytime I go out to eat or to a fast food restaurant, my mind automatically thinks in terms of ways a company can save wasteful state tax dollars in its operation. Whether I am at a restaurant that hands out silverware, a fast-food chain that offers plastic silverware, or a restaurant that gives away items, the use tax issues can likely be avoided if the company practiced careful sales and use tax planning techniques.

Over the past few years, a couple of cases in Alabama showcase the ongoing dilemma. The first case involved Logan’s Roadhouse. Many of us have been to a Logan’s across the country and enjoy the ability to eat peanuts and throw the shells all over the floor. But how many of us, aside from me, actually analyze the sales and use tax implications of this practice? Peanut Shells.jpg Are the peanuts being purchased by Logan’s and resold to its customers? Or is Logan’s purchasing the peanuts for its own use as a giveaway to its customers?

In a similar case, Kelly’s Food Concepts (KFC, Popeye’s, and Church’s Chicken) illustrates a common restaurant problem that has been litigated since the creation of the sales tax. Are items purchased by a restaurant such as napkins, utensils, straws, stirrers, trays, kitchen supplies, ketchup, salt and pepper, toilet paper, and other items on the table, for the restaurants use or resold to the customer for its use?

Without immediately diving into the cases, it seems appropriate to explain a common problem faced by the state and local tax professional. Most states (45) have a state sales tax regime. The sales tax attempts to tax consumption by adding a tax to the end-user of tangible personal property (“TPP”). While each state various as to exactly what is and is not taxable, every state that I am aware of has a sale for resale exemption. That means that when a business purchases something it does not pay tax but rather charges tax to its customer when the item is resold. Conversely, the business is the end user on items it purchases for its own use (items not for resale) and it owes a use tax on those items. While it seems obvious whether an item is an exempt sale for resale, as shown by a couple simple examples above, this inquiry can become quite complicated.

Published on: January 17, 2013

Sites That Pay Shopper Commissions – Is it Nexus Creating?

By Jerry Donnini, Esq.

Over the past few years many retailers and online companies have turned to shopper’s personal webpages for advertising. In our current online marketplace, individuals can post items, outfits, and recipes to their social media sites. Piggybacking on our growing use of social media in our daily lives, companies have taken advantage of this by paying individuals for tweets, posts, and other social media disseminations that drive customers to a company or online retailer. Using this tactic, social media sites such as Twitter, Facebook, and Pintrest are being transformed into paid promotion generators. An October 2012 article written in the New York Times that can be found here, discusses a Manhattan talent agent. In her free time the shopper posts various fashion items to her social media sites, such as lipsticks on her Pintrest account and her “night life collection” on Beso (which apparently is a shopping website.) If her posts drive customers to the lipstick site or Beso, the companies will reward her by paying her a fee. Some sites, such as Beso pay users around 14 cents for every click the individual sends to Beso. While other retailers, such as Pose, pay only when a product is purchased resulting from the click (usually around 5%). According to the article, the Manhattan talent agent makes about $50/month from promotion fees.

After reading this article, I am sure many readers had the same thought I did – can the fee paid from the retailer to the individual create nexus for sales tax purposes? Actually, I am sure the only people that even thought about this are state and local tax attorneys like me who spend many of their hours reading about sales tax laws. On a serious note, it does present an interesting sales tax law issue as to whether these activities can create nexus to an online retailer who has nothing in the state aside from a shopper who happens to post their products to social media.
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