Taxability: A Sales Tax Hot Spot
Learn about taxability, a sales tax hot spot, from Michael J. Fleming of Peisner Johnson.
The next step after determining if you should register to collect and remit sales tax is to determine if what you sell is taxable. Generally, there are products sold, services sold, or a combination of the two.
Items that can be seen, touched, tasted, or smelled are both taxable or exempt based upon product type, entity type or use.
According to an article from SalesTaxSupport.com, “An example of an exemption based on product type are groceries. It is important to note that while some states don’t tax groceries at all, some states tax them at a reduced rate and some at the full rate. An example of an entity based exemption is where certain non-profits are exempt from paying sales tax on certain purchases and an example of a use based exemption is a sale for resale.”
Per the article, “Services are are generally exempt unless they are specifically named in the statute as taxable.”
Michael J. Fleming of Peisner Johnson offers words of caution, “While services generally need to be named in order to be taxable, sometimes it may not be clear that what you do falls under a named service. For example, in Texas there is a list of services that are taxable. Data processing is one of these services. Website design and hosting is not listed as a taxable service, however Texas has taken the position that website design and/or hosting are data processing services and are therefore taxable. States often stretch their interpretation of their taxable services to include more than what initially meets the eye.”
Then, there is a combination of products and services, often referred to as bundled services. If you mix a nontaxable service with a taxable product and charge a single price for the bundle, the whole price may become taxable.
As your product and/or service line grows, it can get confusing very quickly on whether or not there is a responsibility to collect and remit sales tax. See how Vertex SMB can work for you.
About Vertex SMB
Vertex SMB offers a cloud-based sales tax solution that is designed to save time, effort, and risk associated with calculation, return, remittance, and compliance for small to medium-sized businesses.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net.