Software Tax

[S T]

Sales Tax or Use Tax

The term seems to be the same, sales tax the vendor collects from the consumer and pays the appropriate agency and use tax, the purchaser needs to report to their state and pay the appropriate tax. It would then seem on this premise that the Vendors that we purchase from, are assuming the collection and payment responsibility on our behalf, regardless of which State we are located in.

I found the following explanation on the Calif State Board web site - so maybe this will assist in explaining the sales tax/use tax that you are now being charged.

8.Why would an out-of-state company charge me California sales or use tax?
Any out-of-state company that is "engaged in business" in the State of California must register with the Board of Equalization to collect use tax on their retail sales of tangible personal property to California customers.

"Engaged in business" can include:

A permanent or temporary office, distribution center, sales or sample room, warehouse, or other place of business in California.
Having a representative in California who makes sales, takes orders, installs merchandise, trains customers, or makes deliveries.
Receiving rental payments from the lease of tangible personal property that is located in California. There are many out-of-state companies not physically "engaged in business" in the State of California that make retail sales to California consumers. These companies usually solicit orders via the Internet or through mail order. Their only connection to California is shipping merchandise by U.S. mail or other common carrier to California customers.
Some out-of-state companies with no physical presence voluntarily register with the Board of Equalization as a courtesy to their California customers. They collect the California use tax from their California customers. This relieves California customers of their use tax liability, if they retain proof of their payment of use tax to the vendor. Once registered with the Board of Equalization the out-of-state company is legally obligated to collect the use tax.

California consumers are advised to review their receipts from out-of-state companies to determine if they were charged California use tax. It is also important for customers to determine if they were charged the proper rate of tax for the area where they use, store or consume the merchandise. For example, if an Alameda County consumer was only charged 8.25 percent use tax on taxable merchandise, he/she would be liable for the remaining 1.50 percent tax on the purchase because Alameda County has a 9.75 percent sales and use tax rate.

From Tennesseans for Fair Taxation

http://www.fairtaxation.org/otherissues/streamlinedsalestax.php

Sandy

[Corduroy Frog]

Amazon.com

AJ, it would be interesting to see an encapsulated chronology of Amazon's battle with the State of NY. I don't think they will prevail in state court, only if they appeal using the precedent of the Federal Supreme Court ruling. I think in state court when the state is the plaintiff (or defendent), justice goes out the window and the only thing that matters is whether the state needs the money.

The internet added a new dimension to sales taxation. Amazon has the resources to collect from every state, but if they are not liable, then why should they? I think given enough time that eventually the Feds will tag-team with the states and provide a pool of collected money for the various states, and it will appear as if it were a VAT on interstate internet purchases.

Drake is a cost-effective software, but I don't know how they could have nexus in Ohio, unless they have a sales rep who lives there.

- "Liberty and Justice for all who can afford it" -

[AJsTax]

!. I think you will find that Amazon has lost all appeals so far in New York against the sales tax collection. That is just the start.
2.I have paid sales tax to Drake for all orders so far. They have no office in Ohio as far as I know. Do the live seminars give rise to nexus??? I do not know. They still are one of the best total packages available.

We just had a client get audited by the state on sales and use tax. He is going to have to pay many, many thousands on equipment purchased out of state that no sales tax was paid. And not just one year. Very difficult and LONG process.

Sales tax can be worse than income tax to figure out and comply with b/c of all the taxing districts that can put on a sales tax with different rates.

[Burke]

I don't think TTB charges me tax, but I would expect to have it added to my bill if I operated in Minnesota.

TTB charges me State tax and I don't operate in Minnesota. Most anything I order over the internet or by phone (physically mailed or shipped to me) sales tax is collected in my state, including items from catalogues, etc.

[Snaggletooth]

Less than Candid

Drake may be responding to a NC law, but NC couldn't care less whether they are collecting taxes from TN, AL, OH, etc. My guess is that somehow my state has successfully convinced them that they have "nexus" here. As John says, almost any flimsy excuse seems to be working, and the Supreme Court has ruled twice against foreign states on this very thing. I believe Amazon.com has successfully used the Supreme Court decision to avoid the assessment of sales tax in every state except perhaps Washington.

It is less than candid if Drake knew this was going to happen, and slipped in their 10% increase without mention. For the user, this is a whopping 20% increase. I was considering a competitor who was ostensibly $300 cheaper. The other vendor is now $400 cheaper and I wasn't told.

There is scarcely a state that doesn't by statute require users to pay "use tax" to assure the state gets their money in cases of foreign vendors who don't charge and remit. In my state, the law defines as part of use tax, "goods imported into Tennessee from other states." This technically makes me liable for this, however, there is no vehicle to report/remit unless I apply for a Sales & Use tax. Some states have a line on their income tax return, for their citizens to go to the trouble of remitting use tax on imported goods and internet purchases.

[JohnH]

More and more states are finding any flimsy reason to declare Nexus and thus require the vendor to collect Sales Tax even when there's no physical presence. Once they get their hooks in the vendor, they can then go after Income Tax, so the state benefits both ways.

I think the issue Snags is tuning into is a result of a change in the NC law effective Jan 2010. I don't think Drake had any choice in the matter, as the law seems to be aimed directly at companies like them.

This state is getting downright obsessive about the issue. For several years now, NC has been expecting you to pay Use Tax on any taxable purchase when the seller does not collect sales tax. Look on the D-400 and you'll notice there's a line for it. (all my clients are, of course, very diligent about reporting this... whenever it applies)

I can also guarantee that any business which is audited by NC for any reason will see the auditor sniffing around for Use Tax. They aren't shy about asking for info specific to Internet purchases or out of state purchases. They will make blanket requests for invoices and they often know which national vendors to target when they review purchases journals, office equipment/supplies, etc. I suspect that they are refining their data base on this issue on a regular basis.

[S T]

Not the Answer

From Taxea

I have the same understanding as you do about physical presence. I would ask Drake to give you a cite requiring that they charge the sales tax and then I would ask them to refund my money, cancel my order and find yourself another program.

My Tax Software is based out of Utah - If I order the software on "CD" I am charged the sales tax, didn't matter if I was in Calif or NC. The rep advised me this year, if I ordered as a "download" then I would not have to pay the sales tax. Same is true with my other vendors of Tax/Accounting Software, such as CFS- Tax Tools, etc.

When I order supplies such as envelopes, tax folders, etc, I am always charged sales tax, even though the firm I order from might be in New Jersey, or California or Timbucktoo!

There is a "Sales Tax Law" on how these vendors must charge, I just can't find it to give you the cite. Part of it is the "physical presence" but I know there is something else as well. I deal with it on two of my "Graphic Artists".

I have noticed that some of my vendors don't charge sales tax, so then that makes we wonder whether or not they have grossed up the amount to include the sales tax and then the vendor is reporting, or if I have an issue of reporting the purchase of the product to my State and paying the Sales/Use Tax?

As I stated in another part of this thread, the Sales Tax Laws and Reporting are slightly more than Complicated .

Sandy

Sandy

[taxea]

For the first time, an out-of-state tax software company has sent me a separate invoice for sales tax. Drake first went up 10% for the upcoming year, and didn't tell me there would be sales tax assessed on a separate invoice until they received my money for 2010. The tax is in addition to the 10% increase (and is overbilled on top of that).

I believe the law still states that in order to charge sales tax, a company must have a "physical presence" in the subject state. I wonder where Drake's Tennessee office is. Of course, there may be pressure coming from various revenue-starved states as to the definition of "physical presence."

What about providing telephone support to customers from another state? Is this "physical presence?" What if they have an employee who lives in the other state? I would categorically surmise that unless a company has enough activity to file a tax return as a foreign corporation, they do not have a physical presence.

Anyone have any comments on possible "elastic" physical presence interpretations? What about first-time-ever state sales tax billings from Drake or other software?

I have the same understanding as you do about physical presence. I would ask Drake to give you a cite requiring that they charge the sales tax and then I would ask them to refund my money, cancel my order and find yourself another program.

[taxxcpa]

Drake tax

If Drake has any kind of representative in your state, that is a physical presence. If they conduct a seminar or otherwise do anything other than take orders over the internet, telephone or mail, the state can tax it.

I understand New York is trying to tax Amazon on books, etc. by stretching their interpretation to indicate that Amazon has a presence in NY.

[PIGLEE]

I live in AZ and a couple of years ago Drake started charging me sales tax. They also asked if we had been paying AZ use tax on Drake. AZ has a use tax, and if we don't pay sales tax on purchases from out of state we are liable for the AZ use tax. I also noticed on Drake's bill they ask if work in certain states. Welcome to the pay more club. First it was sales tax, then an extra amount for the disks, now a price increase.

[gkaiseril]

And if you live in a state with a sales/use tax you may have to pay the use tax for purchases from out of state sources, and if you paid sales tax to another state on that item you are given a credit for those taxes paid and owe the difference. Many states have sent blanket notices to taxpayer asking for these back taxes based on an income formula.

[Snaggletooth]

North Carolina

Sandy, if you have Drake, they would have to charge you the tax because their physical headquarters are in Franklin, NC. I don't think TTB charges me tax, but I would expect to have it added to my bill if I operated in Minnesota.

[S T]

Sales Tax On Software

State Sales Tax rules are more than complicated I have found.

I have always been charged Sales Tax on software or Books, regardless of the Vendor physical presence. Had more to do whether or not I received a "disk" or books.

I didn't have to pay the Sales Tax this year on renewals, as I opted to download from the internet site, rather than receive a "CD" This is true of several software vendors that I deal with.

Maybe TaxBook can also provide some insight on this.

Sandy

[Snaggletooth]

For the first time, an out-of-state tax software company has sent me a separate invoice for sales tax. Drake first went up 10% for the upcoming year, and didn't tell me there would be sales tax assessed on a separate invoice until they received my money for 2010. The tax is in addition to the 10% increase (and is overbilled on top of that).

I believe the law still states that in order to charge sales tax, a company must have a "physical presence" in the subject state. I wonder where Drake's Tennessee office is. Of course, there may be pressure coming from various revenue-starved states as to the definition of "physical presence."

What about providing telephone support to customers from another state? Is this "physical presence?" What if they have an employee who lives in the other state? I would categorically surmise that unless a company has enough activity to file a tax return as a foreign corporation, they do not have a physical presence.

Anyone have any comments on possible "elastic" physical presence interpretations? What about first-time-ever state sales tax billings from Drake or other software?