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Sales & Use Tax – Three Things You Should Know

by: Smith and Howard

September 29, 2014

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Here’s a quick list of the three things you should know about sales tax on services, provided by our Sales & Use Tax expert, Tim Howe:

  1. Services can be taxable just like the sale of property – Companies commonly make the mistake that if they are only providing services they are not required to charge sales tax to their customers. Some states are already taxing services quite aggressively, while others are just getting up to speed on legislation regarding the taxation of services and the business appetite for such a form of taxation. Either way, it’s important to understand the rules governing the jurisdictions in which your company operates to ensure proper compliance and that the business is not paying tax on a service when is does not have to.
  2. Knowing your location is critical for compliance – Now that your company has identified the services being provided are taxable, does your business actually have the requirement to collect and remit the tax from your customers? Some executives are shocked to understand that there are close to 7500+ taxing jurisdictions in the United States alone. A number of these jurisdictions have similar rules to which they prescribe for the application and administration of sales tax within their boundaries. However, you can always find a difference in rate, rule definition, or compliance requirements as a company transacts business across the country and the changing global landscape. Furthermore, tax laws are constantly being updated and reviewed, which can make the administration and compliance with these jurisdictional rules even more difficult for today’s fast growing businesses.  This is why Smith & Howard is consistently staying in front of the changing tax laws and legislative environments for our clients through nexus studies, product taxability assessments, and compliance diagnostic reviews.
  3. Purchasing activities  – Don’t  just trust your vendor – So your business has sales tax under control and within compliance, but what about the concept of “use” tax? What exactly is use tax and does it even apply to services?  It’s not uncommon for business executives to provide a blank stare when discussing the idea of use tax. Basically, if goods or a service is provided to the business without tax charges from the vendor and the goods or service are considered to be taxable, then the business probably has the obligation to remit use tax on that service or the goods. Sound confusing? The rules around use tax and the application of penalties and interest by auditors is becoming common place and only getting more complex with the changes in sales tax rules for internet-based sales companies and expansion of e-Commerce.  Furthermore, this may be a good time to have a discussion with your business vendors to see if they have had the opportunity to review their services for taxability.  Chances are very good that if you don’t understand the rules and are asking the questions, they don’t understand the rules either.

For more information about sales tax on services please contact Tim Howe at 404-874-6244.

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