Cliff's Notes

The Un-Seen Pain Maker – The Use Tax

Get ready because it is coming. In fact, it’s been around for a long time but never really enforced. As a private citizen the Use-Tax doesn’t have any impact on your life, you have a spending window of around $5k and most of us won’t need that. Those that do are in such small numbers that the State doesn’t care. However, a business registered with the State, in my case New Jersey, is responsible to report all tax liabilities on all goods and services pertaining to the business operation. Whether or not sales tax is collected the business, by law, must remit any shortfall directly to the State Treasury Department.

Who is Responsible for Collecting a State’s Sales Tax? …… If a company has physical presence in a state they are required to collect that states sales tax. Physical presence does not have to be brick & mortar, having employees on the ground and doing business qualifies. However, if contact is made through interstate commerce and goods are received through an ICC service (UPS, FedEx, etc.) the seller is not required to collect your state’s tax and the responsibility is yours.

What is the Use-Tax? …… The Use-Tax (in New Jersey) is the state sales tax. Nobody charges sale tax, including the dental office, you are just obligated to collect it and forward it to the state. If a NJ based business receives goods or services and NJ sales tax was not collected, the business is obligated to report that transaction to the State and pay the amount due. The law is very clear and if you have any questions, please consult your tax advisor.

What is a Taxable & Non-Taxable Liability? …… This is a very difficult question because every state has different rules. Tax is due in the state where you take possession. For example, if you live in NJ and go to New York to buy something you would pay a New York sales tax. New Jersey accepts that, but if you go to PA to buy something and the tax rate is lower, NJ will want you to report and remit the difference. Another issue that complicates the equation is that different states classify taxable items differently. In NJ, 40% of the clinical supplies used are non-taxable when in other states such as NY, 98% are considered taxable.

How will Non-Compliance Hurt? …… As technology advances, more business tax audits will be conducted. I went through one and it is not fun. The state was in the building for 4 days. The company was clean and we always played by the rules. But a $250.00 purchase of copy paper from an out of state stationary supply slipped through the cracks. We were able to negotiate a settlement. A $17.00 tax liability cost us $2500.00 in penalties and interest on top of 4 days of accounting fees. The State of NJ has no published list of non-taxable items, only a general rule and if you choose wrong, you pay. During our audit we spent over an hour arguing about retraction cord, is it taxable or not? We won that one, it was the auditor’s judgment. That would have cost $15k. Ask your tax advisor for more information, laws change…….

February 20, 2017 - Posted by Cliff's Notes Blog | Uncategorized