Posted in tax
Companies that deliver products through digital download are being pursued aggressively for collection of sales tax. Examples of these products include music, movies and educational course. Since a digital download is not a tangible product, and educational courses would be considered a service when performed with a live audience, the states are broadening their definitions to include these items based on the availability of these products as a tangible CD or DVD.
Although taxpayers in many states are required to pay use tax when they are not charged a sales tax on internet purchases, states have an incredible challenge enforcing these rules as taxpayers often times do not understand how, when, or even why they should be paying this tax. So when does the state actually enforce and collect - under audit, which is generally far to costly to make worth while. State regulators find it far easier and cost effective to force businesses at the point of sale to charge customers for sales tax and remit to the state.
Similar to nexus for income taxes, it isn't enough to have a sale in some random state to cause the seller to collect/remit sales tax. The business must also have nexus with that state which is triggered by having another form of connection. These connections are often referred to as presence, in the form of employees, property or in some cases third parties acting on behalf of the business. Without presence (or "nexus"), a business is not currently responsible to collect/remit sales tax.
What happens if a company sells a product that must be delivered and installed? Depending on the method of delivery and/or how extensive the installation is, nexus could be triggered - even if no future sales can be reasonably anticipated in the state! That can also be true when the businesses uses a third party to install or service the product.
Congress is currently working on a bill titled the "Mobile Workforce State Tax Simplification Act" which would require states to follow a single set of rules to determine when and if employees would become taxable from state to state. Employees who would be affected by the act are those who travel for work, such as consultants, auditors, salesmen and possibly product technicians. Under the Act, employees who visit a state on business for 30 days or less in a calendar year would be eliminated from the payroll withholding requirement.
Currently states have a variety of rules, with some allowing for a de minimis threshold where a minimum number of days is required to trigger the withholding. However, there is no uniformity and although businesses may set an internal policy, they often times do not analyze the rules from state to state which can add exposure not just for the business but for the individual as well.
To review additional information please visit www.twbatescpa.com, or if you would like to discuss further please call 781-438-6655.
Last Updated by Mike on 2012-10-29 07:40:58 AM