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SALT TALK: Sales Tax Slip-Ups; Back to Basics in the Age of Wayfair

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Aug 6, 2018 11:30:00 AM
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Rightfully so, we have all been occupied with the U.S. Supreme Court decision in Wayfair, but that doesn’t mean we should forget about the basics of sales tax planning.  As has always been the case, a simple change in a transaction’s structure or the check of a box (or not) can either be a big money saver or a huge unexpected cost.

Case in point is a recent New York State Advisory Opinion[1]. The Petitioner asks the Department of Taxation and Finance whether the rental of a truck to a customer, where the customer is using the truck for a project performed for an organization that is exempt from sales tax, will require the Petitioner to collect the tax from its customer.  The customer provided the Petitioner with a Contractors Exempt Purchase Certificate and checked box “A” indicating tangible personal property (“TPP”) is purchased for use as part of a project for an organization exempt from tax.

On first blush, this certainly seems like the right thing to do.  The truck, after all, was used to perform services for an exempt organization. However, the law is clear in this area.  A contractor can only purchase TPP exempt from tax in these circumstances if the TPP purchased becomes an integral component part of a building, structure, or real property.  Accordingly, the Department held the rental was not exempt from tax.

What could have been done to save the tax?  Many possibilities exist, but certainly, the customer could have leased the truck as the agent for the exempt organization.  Only one truck rental was at issue, but just think of the ultimate cost savings when undertaking a large capital improvement project or even the construction of a new building.

Even though it is the exempt organization that is entitled to the savings, the reality is that any additional tax is a cost that is going to be passed along somewhere in the chain.  A little planning and focusing on the basics can go a long way in making sure the savings you are entitled to aren’t left on the table.

If I have raised questions for your particular circumstances, contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.

[1] TSB-A-18(2)S, June 5, 2018.

Topics: SALT TALK

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