Sales tax on Tax Prep Software

[Zee]

I'm sure everyone here pays Use Tax on all their internet purchases. When re-ordering Drake today, I noticed they're asking user's to check a box indicating they've paid Use taxes for the year(s) used. In my case, 2005, 2006, 2007.

I'm wondering are other software companies also asking for this disclosure on order forms?

[JCH]

What is Drake doing with this information they're gathering?

[Zee]

What is Drake doing with this information they're gathering?

Beats me. I suppose they're just trying to protect themselves in case of a sales/use tax audit.

[JohnH]

I'm betting they've either been through a sales tax audit, are presently going through one, or else they're trying to insulate themselves against a future one. Like many other states, North Carolina has ramped up their S&U tax auditing in recent years because it's a cheap source of revenue.

[zeros]

Use Tax-Drake

I reported that I did not pay the use tax in prior years. I am assuming that either Drake or the Minnesota Sales Tax Division will be sending us a bill for the two prior years.

[tpert]

I believe that they have determined that they should be remitting sales tax for prior years to certain states and are going to be proactively doing this. The question is likely so that they can reduce the amount paid to your state by what has already been paid.

[thomtax]

Based on the letter sent out by Drake, they apparently have been audited by some state sales tax units that are forcing them to start collecting sales tax on the software sales. They said that they had retained some attorneys in Atlanta to do research for them, but they will be collecting sales tax this year.

Also, if I understand correctly, they are being forced to pay sales tax for some back years. This information about you paying use tax is to be used to not pay sales tax on the programs that have already had tax paid for. In addition, the last information that I had was that they are not going to bill their customers for the past years for which they are having to pay taxes on. They are going to pay the bill for the customers. There are not many companies that will do that for you.

Someone quipped in an earlier post that not everyone will have to pay the tax, but would not explain the comment.

LT

[tpert]

In addition, the last information that I had was that they are not going to bill their customers for the past years for which they are having to pay taxes on. They are going to pay the bill for the customers. There are not many companies that will do that for you.

I agree with the sentiments of the last sentence. I believe that some of their customers have unilaterally decided to send in amounts to Drake to cover this expense.

[erchess]

What is needed

is a Federal Law or perhaps even a Constitutional Amendment to the effect that sales other than those where the customer goes to a bricks and mortar store and leaves with everything he has paid for are never subject to sales or use tax. If goods are delivered or if what is received is intangible (such as you looked at a movie or an exhibit) or are consumed where bought (as in a restaurant or bar) if goods or services are delivered later by any means, or if the sale is arranged by mail or electronic means then there is no sales tax. The point is that almost everything could conceivably be delivered n a tax free manner states and localities would be able to charge only what were perceived as trivial sales and use tax rates.

[David1980]

is a Federal Law or perhaps even a Constitutional Amendment to the effect that sales other than those where the customer goes to a bricks and mortar store and leaves with everything he has paid for are never subject to sales or use tax. If goods are delivered or if what is received is intangible (such as you looked at a movie or an exhibit) or are consumed where bought (as in a restaurant or bar) if goods or services are delivered later by any means, or if the sale is arranged by mail or electronic means then there is no sales tax. The point is that almost everything could conceivably be delivered n a tax free manner states and localities would be able to charge only what were perceived as trivial sales and use tax rates.

Right after they repeal the federal income tax right?

[JohnH]

Not defending the states by saying this, but the fact is all states are constantly looking for new sources of revenue and Sales & Use tax is a good place to focus. The internet has created a bit of a problem for them, but it also provides a better opportunity to identify the sellers, so they are getting more aggressive.

By going after companies that have lots of interstate business, coupled with stepped up enforcement of Use Tax collections, they can get a pretty good return for their auditing buck. Use tax is almost universally ignored, so if they plug the gap on the selling end they can then focus on the buying end. A side benefit the states derive from this approach will be that the buyer can't subsequently plead ignorance if the states can compel the seller to either collect the tax or ask the question "Did you pay your use tax on this purchase?" every time something is purchased on the internet.

[Black Bart]

I'm with ya, EC

(What is needed) is a Federal Law or perhaps even a Constitutional Amendment to the effect that sales other than those where the customer goes to a bricks and mortar store and leaves with everything he has paid for are never subject to sales or use tax...

Now there, by George, is a stance -- No sales taxation without representation! -- that stirs a fervor in all red-blooded, patriotic American citizens. Lead on, MacDuff!

[Jesse]

Based on the letter sent out by Drake, they apparently have been audited by some state sales tax units that are forcing them to start collecting sales tax on the software sales. They said that they had retained some attorneys in Atlanta to do research for them, but they will be collecting sales tax this year.

Also, if I understand correctly, they are being forced to pay sales tax for some back years. This information about you paying use tax is to be used to not pay sales tax on the programs that have already had tax paid for. In addition, the last information that I had was that they are not going to bill their customers for the past years for which they are having to pay taxes on. They are going to pay the bill for the customers. There are not many companies that will do that for you.

Someone quipped in an earlier post that not everyone will have to pay the tax, but would not explain the comment.

LT

In Wisconsin if you are required to charge and collect sales tax from customers then you are required to pay the sales tax if you do not collect without a resale or exemption certificate. The WDOR will not come after the consumer, it is the sellers responsibility.

If Drake was required to collect sales tax and they did not, then Drake, in the requiring states, is responsible to pay the sales tax. If the consumer paid the use tax, possibly Drake can reduce the sales tax bill incurred by the audit.

On the other side, if Drake was not required to collect sales tax and the customer was required to pay use tax then the consumer and not Drake is responsible to pay the bill. So Drake is most likely compliant in some states and paying up in other states.

[gkaiseril]

U.S. Supreme Court Decision

In Quill vs North Dakota 1992 the U.S. Supreme Court ruled that under the North Dakota sales and retailers tax North Dakota could not force Quill an Illinois corporation to collect North Dakota Sales or Retailers tax unless Quill had a Nexus, physical presence or some kind, to North Dakota. The decision also stated that North Dakota could collect the Use tax from the residents of North Dakota purchasing items from outside of North Dakota and have them delivered or brought into North Dakota.

http://www.taxfoundation.org/blog/show/963.html

http://www.law.cornell.edu/supct/html/91-0194.ZO.html

This logic also applies to purchased made using the Internet, it is a tax on the user. And the "No Internet Tax" refers to the taxation of the POP connection to the Internet by the communication companies and not the federal, state an local taxes on the telephone, wireless, or cable bills to the consumer.

State like Maine are sending dunning letters to residents about Use tax for out of state purchases. This also accounts for the Use tax appearing on many state tax returns.

Sort of like the IRS regulation that entities that pay a worker for more than 80 hours in a state have to report the wages paid to that state on the W-2. So, if your any of your clients work for a firm that send them or have them report time by location of service may have to prepare more out of state returns.

Many states are having budget shortfalls and are looking for revenue anyplace they can.

[Zee]

Nexus

I spoke with Drake Sales this morning. They explained that they were indeed audited (wouldn't say which state), and it was determined that Drake's visits for sales presentations and seminars in those states resulted in Nexus.

As such, Drake is gathering the information necessary to remit the sales tax to those states claiming Drake has Nexus, and charging sales tax this year with each order.

Apparently, they are not planning to charge sales tax to those state where they don't conduct seminars or presentations and those user's have received communication.

I expect all of us will be seeing a whole lot more taxation of internet purchases in the near future. The states have found an easy revenue source...going to the directly to the company's and auditing them.

I have no idea which states are non-Nexus in this situation, or how accurate the sales representative's representations are.