Cliff's Notes

The Change in State Sales Tax Law

“The U.S. Supreme Court, in a landmark 5-4 ruling, basically gave states the green light to have online retailers collect sales tax, just like any local retailer. The message of that decision for e-commerce players? They’ve grown so big that they can’t get any special breaks anymore, at least when it comes to collecting sales tax, regardless of whether they have any physical presence in a state”. … Forbes https://www.forbes.com/sites/andriacheng/2018/06/22/what-supreme-courts-internet-sales-tax-ruling-says-about-the-state-of-retail/#29618c791e9c

State sales tax laws are regulated by the individual states. In New York, the county governments add their piece What items are taxable are also decided by the states and it varies quite a bit. For example in my state, New Jersey, 35%-40% of dental clinical materials used are taxable, in New York it’s 95%. There is no published list, just an overall consumer tax concept so it is left to the discretion and interpretation of the state tax auditor.

State Tax Auditors … New Jersey just settled a state budget fight, the issue was what taxes to raise. The state also plans on more random audits of business to collect unreported USE tax. In healthcare, the auditor is not going to break down taxable and non-taxable items and out of state vendors will resist the obligation to collect tax. However, when requested, they will have to submit sales reports to any state that requests it.

The State Request … I strongly suggest that at the next quarterly meeting you have with your tax advisor you discuss your ability to provide information requested by the state should you be chosen to be audited. You will be asked to produce 3-5 years of invoices both payables and receivables, tax returns, bank statements, employment records, and schedule an on-sight visit. It’s not fun and you can’t win so be prepared. States are preparing to cash in on internet sales.

Internet Sales … Not all internet sellers will collect sales tax and it will be nearly impossible for a state to track internet sales directly from small vendors so audits will continue. On-line sellers eBay, Amazon, Wayfair, and others with a large web presence will turn over sales through their organizations when a state’s sales tax is not collected. The state will use technology and artificial intelligence to assimilate the data and send bills with interest and penalties. Repeated state billing will raise red flags and initiate a physical audit. Some of this scenario is personal speculation, but can you argue with it? States need revenue and with today’s technology, sales tax is low hanging fruit. There is an old saying “if you want to play, be prepared to pay”.

Play & Pay … You don’t want to be audited, it is an experience that could change your life. When you get that first letter asking you to contact (Mr./Ms.) from the State Division of Taxation you know you already lost. You will need to supply everything within 30 days and when you do, you will be asked for more or missing documentation. Every area of your dental practice will be examined and unfortunately nothing is perfect. If you cannot provide accurate information you will be penalized. Ask me, I know first hand.

Being prepared … I recently was asked to reproduce 3 years of invoices for a client that was under audit. The office was as clean an organized as possible but between accounting fees, USE tax violations, interest and penalties the bill was about $9k. The best way to avoid an audit is not to raise red flags. No one charges tax, we just collect it. Keep your business relationships only with organizations that recognize and participate in your state’s laws and regulations.

The Argument … I experienced a business state tax audit and the auditor was on-site for 4 days. There was an hour argument over “retraction cord” if it was taxable or not! We won that one but they did find a $17.00 error that cost us $2500.00. Do it right and you will minimize the damage. Be prepared! Consult with your tax advisor today and please feel free to contact me at any time with any questions or concerns.

July 1, 2018 - Posted by Cliff's Notes Blog | Uncategorized