Technology companies sales tax checklist
- Do you make Internet sales? (In all Internet sales, sales tax is due … assuming that the product / service is taxable. The issue is whether the seller is obligated to collect and transfer or whether the buyer must report himself.)
- Do you have affiliated (to generate sales) relationships with companies outside the country?
- Do you have sales representatives traveling outside your country?
- Do you participate in trade fairs outside your country?
- Do you have employees or agents who perform services on your behalf outside your local jurisdiction?
If you have answered "yes" to one or more of these questions, you can create a sales tax obligation outside your original state. Also remember that the income tax association is not equal to the sales tax association. The rules apply differently.
Nexus is "contact" or "link". The term "sales and use tax" refers to the relationship between a person or entity and a tax jurisdiction that is sufficient for that jurisdiction to require a person or entity to comply with its laws relating to the sale and use of taxes.
The current basis for determining when the relationship between sales and the use of taxes is found in two Supreme Court cases: Quill Corp. vs. North Dakota (26 May 1992), National Bellas Hess, Inc. vs. Department of the Avenue of State of Illinois (8 May 1967). In Quill Corp and National Bellas Hess, Inc. , The Supreme Court ruled in favor of taxpayers, limiting the states ’ability to impose their tax authority on interstate commerce. The guidance from these two situations can be used in today's markets to manage sales and use tax liability responsibilities.
While most countries continue to refer to these cases when determining the boundaries of the relationship between sales tax, countries continue to pursue expanded sales and use of the tax authority. Since Nexus is the primary component that requires a company to collect and transfer sales tax, it is important to point out some difficulties in determining whether or not the company has a sales tax relationship.
As with most issues related to sales tax and its use, determining whether or not there is a relationship between sales tax requires some level of interpretation of the state’s statute as it applies to the entity’s activities. With this background, here are the most common problems that technology companies face in terms of the relationship between sales tax. Also, it should be noted that sellers do not actually "charge" sales tax. Instead, the seller "collects and converts" the sales tax. This can be important. For example, as with Internet sales, sales tax is always “due”. This problem becomes whether the seller is obligated to collect and transfer the tax or if the buyer is obligated to provide a self-report.
# 1. Join Nexus, "Amazon Laws", and Nexus Click-Through
The internet has resulted in a shift in our purchasing patterns and lower sales tax revenue. With our current tax system and nexus rules as described above, a retailer outside the country (translation – retailer without a relationship in the state) sells goods to a consumer or an online business that is not required to collect sales tax. The buyer has the responsibility to self-assess the tax and to transfer the use tax voluntarily to the state. Most companies realize these nuances, but many consumers are not.
States ensure compliance with these laws through business reviews; however, states do not have the bandwidth, nor are they practical, the audits of each consumer. So, instead of going after the consumer, countries look to apply tax rules that require businessmen outside the country to collect the tax.
This is why "nexus affiliate", "amazon law" or "click nexus" have evolved. These are the ways in which countries have attempted to use existing relevance criteria to require retailers outside the country to collect the tax that has not been collected. A typical scenario occurs when a business outside the country forms a relationship with a company within the state (often referred to as a subsidiary) with the sole purpose of referring customers via a connection to the company's website. For this referral, businessmen within the state receive some kind of commission or other consideration. The relationship established through its affiliate programs creates a business association outside the country, which creates an obligation to collect and transfer local sales tax. Multiple states including Illinois and California have introduced modern link legislation that mainly targets large Internet retailers such as Amazon, hence the title "Amazon Law". In response to this legislation, Amazon has dropped its affiliate programs in most of these states. By dropping its affiliate programs, the company intends to end its association with the state and avoid responsibility for collecting potential sales tax. However, this can be a problem as most countries consider a link for a minimum of twelve months after the activity that created the relationship.
New York State has passed legislation called a "commission agreement", which creates a credible assumption that the person (the seller) who sells tangible personal property or services seeks business through an independent contractor or other representative if the seller makes an agreement with a New Yorker who resides Resident, in exchange for commission or other consideration, potential customers directly or indirectly, whether via a link on a website or otherwise, to the seller (click the link). The assumption applies if the total cumulative receipts from sales by the seller to customers in the state who have been referred to the seller by all residents with this type of agreement with the seller are more than $ 10,000 during the previous four quarterly periods ended at the end of February, May, August, and November. This presumption can be refuted by proving that the resident with whom the seller entered into did not participate in any application in New York on behalf of the seller that meets the requirements for binding to the US constitution during the preceding four quarterly periods. Tax Law No. 1101 (b) (8) (6).
Technology companies should review their affiliate programs and understand which countries, specifically, have "Amazon Amazon", "nexus" or "Click-Through Nexus" rules. This is an area that is constantly changing and requires close monitoring. At the time of publication, California passed a one-year "Amazon Law" repeal.
Travel Sales Representatives
The idea of a sales representative in a home office in a state other than where the company is located is a clear example of an activity that establishes the sales tax relationship in the state in which the sales representative is located. However, what happens when a salesperson travels to other states to meet prospects or clients? This type of activity occurs frequently with technology companies where the salesperson meets the possibility of showing their products. Whether or not this type of activity is created, the sales tax relationship will depend on the situation and the frequency of the activity. The rules for each state are slightly different in terms of the extent to which to create a bond. However, for some states, the sales representative who travels to the state for one day will create the Sales Tax Association. While other countries have more lenient thresholds, there is a general rule that three days of activity of this type will create a sales association and use tax purposes.
Texas states that sellers outside the state who participate in the sale, rental, or rental of taxable goods for storage, use, or any other consumption in Texas must collect the use tax from the buyer. A "retailer doing business in this state", as well as other activities, may include any retailer: the presence of any representative, agent, vendor, sales officer or attorney operating in Texas under the authority of the retailer or its affiliate company for sale or delivery, Seizure orders for any taxable items. Texas Tax Code Ann. 151,107 (a) (2); Texas Tax Publications 94-108, Engaged in Business (Sales and Use Tax), 11/01/2006.
Nexus Strategy: Instead of face-to-face client presentations, technology companies may consider making product demos online via Webex, GoToMeeting, or any other similar application.
Technology companies frequently participate in trade fairs. Usually, companies attend trade fairs to promote their products and services. The company may promote its products and services through employees or agents represented and / or display its merchandise via a kiosk or kiosk. In either of these scenarios, the company implements some kind of solicitation.
It is the solicitation activity that determines whether or not an association has been established. However, a number of countries have set specific thresholds (number of days in attendance at a trade fair) in order to determine the time for a company to attend a trade fair in the state. For example, California has set a standard for more than fifteen (15) days – meaning if you attend trade shows in California for fifteen days or less, you will not create a link in California (assuming this is your only activity within a state). Cal. Priest and taxes. CD. 6203 (d); cal. Regus Code. 18 1684 (b).
Nexus is not created with Michigan if the only contacts a person contacts with Michigan consist of: (1) attending a trade show where no merchandise requests are taken and sales are not made or (2) participating in a trade fair where there is no Goods orders and sales are not made for less than 10 days cumulatively on an annual basis. However, this rule does not apply if the person also performs the following activities: soliciting sales; performing repairs or providing maintenance or service for property sold or intended to be sold; collecting current or overdue accounts, through assignment or otherwise, related to sales of property or personal services Tangible; delivery of property sold to clients; confirmation or supervision of confirmation on or after shipment or delivery; training for employees, agents, representatives, independent contractors, brokers or others who act on behalf of the seller outside the country or for potential customers or clients; provide any Technical assistance or service to clients including, but not limited to, engineering assistance, design service, quality control or inspection of products or similar services; investigation, dealing or otherwise assisting in resolving customer complaints; providing advisory services; or soliciting or negotiating Or entering into concession or licensing agreements or similar agreements. Michigan Revenue Administrative Bulletin 1999-1, 05/12/1999.
Technology companies should carefully plan where to exhibit and understand the sales tax thresholds associated with each state for this type of activity.
# 4. Employees or agents perform services
Technology companies that send employees to a country to provide implementation, installation, or repair services create a sales association and use tax purposes. The fact that this activity is unsold or unsolicited does not mean that this activity does not create the sales tax association. On the contrary, these activities are more likely to establish a sales association and the use of tax purposes.
The Washington State Supreme Court confirmed, in a recent ruling, that the manufacturer whose employees traveled to the state with the sole purpose of simply meeting clients to manage the relationship was sufficient to establish a bond. This activity was considered as a mechanism that created a market in the country and as a result created a factory association. R W R MANAGEMENT, INC. , Appealed, Against Washington State, Revenue Service, Defendant, 10-332, 06/27/2011.
Non-employee use of customer support can have a similar effect. For example, a technology device company that uses a local supplier to repair or perform other maintenance to its customers provides service through a subsidiary and is considered to have established a sales association and used it for tax purposes. Whether the person providing the service to the customer is an employee at work or not, it is not important to the United States. The fact that a person is present in his jurisdiction and performing a service on behalf of business outside the country is sufficient to establish an association of businessmen outside the country.
Technology companies should evaluate non-sales activities that they perform in each state including installation, maintenance / support services in addition to services provided by a third party representative when evaluating their sales and the use of foot-related tax.
The relationship between income tax is not equal to the relationship between sales tax
It is often assumed that if an income tax exists on a company, it also has a sales tax relationship. end of story. This is true, but only partially true. The second half is that the company can have a sales tax relationship without an income tax relationship. The sales tax threshold is much lower than the income tax. For example, soliciting sales is generally an activity to create sales tax, while this same activity will not, by itself, create an income tax association (see P. L. 86-272). The most well-intentioned CPA firms tend to assume that since nexus is not created for income tax purposes, sales and use of nexus tax do not exist. This is certainly not intended but is the result of limited knowledge of sales and use of tax laws.
In Pennsylvania, sellers / sellers outside of the state who maintain a workplace in Pennsylvania and sell or rent concrete personal property or taxable services must register and collect sales tax and use Pennsylvania. Ba. Stat. that. 72 7202; Pa.Stat. that. 72 7237 (b); Pa. Code 61 56.1 (a) “Preserving the Workplace” in the State of Pennsylvania, in addition to other activities: regularly or substantially seeking orders within the State of Pennsylvania through an attorney, vendor, agent or representative regardless of whether applications are accepted in Pennsylvania. Ba. Stat. that. 72 7201 (b); Pascal Code 61 56.1 (b).
Technology companies should be aware of the specific expertise CPA firms have in providing sales tax advice. Sales tax is a unique system with different rules from state to state.
Creating a sales tax relationship is often the culmination of multiple link creation activities. For example, a technology company might spend three days in a country, ordering, two days at a trade fair, and a day or two in implementing its products. Each of these activities can create a sales tax association on its own but must also be shown in relation to other association creation activities.
An important note is that once the sales tax association has been established, the need to collect and transfer sales tax is triggered (assuming that what you sell is subject to tax in a particular case). The sales tax link is linked to the legal entity and extends across all sales channels. For example, if you have a direct sales channel and an online sales channel, once a link is created in a state, both channels are subject to sales tax laws and use of that status.