Sales & Use Tax

[Trnr395]

Hello everyone!

If a company purchases goods from another country and resales them at wholesale companies who are tax exempt in this country does the company have to pay a use tax for what was purchased across the border? A customer came to me because he was penalized for the last two years for this and paid a hefty sum of money to the state that he runs his business in, the customer says it wasn't for use tax it was just because he didn't fill out the sales and use tax form for his state so they penalized him. The bill was for around 10k, seems like a large sum for just penalties. Has anybody have any insight into this I have never dealt with this before and was thinking he would still owe a use tax for bringing these goods into the country and selling them (even though he is selling them to resellers)

Thanks

Brad

[jainen]

>>the customer says... <<

What does the letter from the state say?

[Catherine]

I think this one depends on state law. If he was buying and then selling to sellers who would charge sales tax, then there's no issue; sales tax gets collected on sale to consumer. Selling to tax-exempt entities opens a whole new can of worms. Even TE-ent's have to charge, collect, and remit sales tax if they're selling items to raise funds (the support group that sells books and CDs to raise funds, etc.). If they use items (and don't re-sell them), then you have to look at what the state involved wants.

Does the state involved have a sales and use tax department that you could call and ask for information (referral to state docs/guidelines)?

The cross-border issue comes in, I should think, only when looking at possible customs duties on importation.

Catherine

[jlewis]

Without letter of explanation from state, a simple explanation involves a situation I'm familiar with where company's sales (made to resellers) were assessed tax/penalties on sales to any of the resellers that they did not have a properly filled out state exemption certificate for each reseller in their files. Since they were missing quite a few, the amount was significant.

[ILLMAS]

I know for fact, the state of IL, if you are selling resale, wholesale or a tax exempt entity you must have them fill out a certificate of resale and just for assurance request of a copy of their IL business registration certificate. What happens if you fail to get a certificate of resale? The state converts all those sales into taxable and you the owner of the business has to pay the sales tax plus penalties and interest. What happens if a business does not want to provide a certificate of resale? You would have to collect sales tax and report it to the state.

[Trnr395]

Thanks for the info guys! Now he paid over 10k and wants to deduct this expense? I know the penalties and fees aren't deductible but how about the tax that was paid, not sure how I feel about this one.

[Trnr395]

Does anybody have any advice on how to handle this issue. I am at a loss here.

[Lion EA]

Read the letter from the state.