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Understanding Sales and Use Tax: Key Concepts and Nexus

Learn about sales and use tax, including definitions, implications for residents like Doris O'Brien, nexus requirements, tax burden examples, excluded goods, tax-exempt purchasers, areas of current interest, and other related taxes and issues.

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Understanding Sales and Use Tax: Key Concepts and Nexus

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  1. Sales Tax Defined Sales Tax • Imposed on the retail sale of tangible personalty or services within the taxing jurisdiction

  2. Use Tax Defined Use Tax • Imposed on the possession, use, storage, or consumption of tangible personal or services within the taxing jurisdiction

  3. Use Tax Illustration Doris O’Brien • Resident of State A • Purchases $ 30,000 of goods • Pays $ 1,200 sales tax (*) • $ 30,000 X 6.5% $ 1,950 (1,200) $ 750 net tax due

  4. Sales and Use Tax Nexus Vendor's physical presence in state is required (Quill decision) and is established if the vendor: • Maintains a place of business for selling or storing property in-state. • Uses employees or independent contractors for selling or delivering goods in-state.

  5. Sales Tax Burden • Wealthy taxpayer illustration: • Income (net of income taxes) of $ 200,000; 50% Investment or $ 100,000; Consumption $ 100,000 including $ 6,000 sales tax • Middle income taxpayer illustration: • Income (net of income taxes) of $ 50,000 Consumption $ 50,000 including $ 3,000 sales tax

  6. Excluded Goods or Transactions • Sales for resale • Ingredient or component parts Industrial or agricultural machinery or equipment • Property used or consumed in manufacturing • Containers and packaging • Occasional sales

  7. Tax-exempt Purchasers • Federal government and agencies • State and local governments and agencies (public hospitals, state schools, etc. • Not for profits

  8. Areas of Current Interest • Definition of Specific Exemptions • Taxation of Services • Sales Tax Audits (Tyco) • Taxation of e-Commerce • Streamlined Sales Tax Project • Alternative Approaches to Sales/Income Tax • Sales/Use Tax on Capital Changes • Competition with No Sales Tax States—NH,DE,MT,OR • Tax Amnesty, Holiday Programs

  9. Payroll Taxes • State Withholding Arrangements • Unemployment Compensation • Audit Issues

  10. Property Taxes • Ad valorem base • Personal Property Taxes • Autos and Similar Vehicles • Accounts Receivable, Inventory, Machinery and Equipment • Intangibles • Real Property Taxes • Assessment & Collection Procedures

  11. Other Taxes • Incorporation Tax • License Tax (Occupations & Professions) • Realty Transfer Tax • Mortgage Recording Tax • Capital Stock Tax • Franchise Tax

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