Multi-State Sales and Use Tax Attorneys
Multi-State Sales and Use Tax Attorneys
Multi-State Sales and Use Tax Attorneys
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A recent Virginia ruling brings up a topic that comes up in our state and local tax practice constantly. If a contractor in State X purchases materials and uses the material in a real property contract in State or Country Y, does the contactor owe use tax on purchases in State X? The answer in most states is yes. Is this fair? Or, even further, is this constitutional?

This scenario was brought to light in a Virginia Letter Ruling, No 12-207, issued on December 13, 2012. In the ruling, the unfortunate requestor was a dealer in Virginia and sold materials to a customer who constructs US embassies overseas. The material purchases are shipped to the dealer’s consolidating receiving point (CRP) in Virginia. The materials are temporarily stored and prepared for overseas shipment.

The ruling started by addressing a Virginia construction company that improves real estate and furnishes tangible personal property to become real estate outside of Virginia. Like most states, Virginia takes the position that, in that scenario, the dealer is the end user of the TPP and owes use tax. However, Virginia has an exemption for contractors who purchase TPP “used solely in another state or in a foreign country.” Specifically, the contractor can obtain a certificate of exemption if certain criteria are met. Further, the Virginia Department of Revenue went out of its way to remind contractors that a resale exemption does not work in this scenario because the contractor is the end user of real property and is not a reseller of TPP.

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In my daily routine of reading state and local tax cases across the country, I recently inquired to the State of Florida for the status of an innovative sales tax case unique to the gasoline and petroleum industry this week. As many of you know, I have had the pleasure of growing up and assisting in my family’s petroleum business that has owned, operated, and distributed petroleum and gasoline in South Florida for over 30 years. Therefore, cases like Gate Fuel Services & Gate Petroleum, catch my attention and I really root for innovative and aggressive taxpayers like the one in these cases.

I brought this concept up to several gas station owners at the 2012 Florida Petroleum Marketers Association (“FPMA”) Fuel Expo and many met my suggestion with criticism or disbelief. It is still difficult for me to understand how a room full of dozens of Florida’s gas station owners, operators, and distributors, would rather discuss the latest developments with their beer vendors over a tall cold one, rather than sit and listen to me rant about Florida sales tax. For all of the naysayers out there, I have recently received word from the State of Florida, that the Gate cases were recently settled.

Many of you may recall, I wrote an article for my law firm’s blog in May 2012, about two companion sales and use tax cases. Both cases Gate Petroleum Co. v. Florida Department of Revenue, Case No. 12-CA-381 (2d Cir. Ct. 2012), andGate Fuel Service v. Florida Department of Revenue, 12-CA-379 (2d Cir. Ct. 2012),were filed in Leon County, home of the Florida Department of Revenue. The Gate cases centered around a refund denial for sales and use tax in the amounts of $160,935 and $ $45,071, respectively. In both cases, the Florida Department of Revenue (“DOR”) admittedly opposed the refund claims based essentially the same innovative theory of recovery.

For the uninformed, the retail gas station taxpayers in the cases alleged that they made certain equipment purchases that were exempt from Florida sales and use tax. Specifically, the Taxpayers argued that fuel storage equipment which holds regular and premium-grade fuel in underground tanks, mixes the two at the dispenser, and creates a mid-grade gasoline for sale at its retail locations. Being that this is the pump system at most modern gas stations, how come every gas station that has purchased taxable equipment in the last three years are not going for the refund? in short, they all should.
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It never ceases to amaze me as to the types of cases and industries that come up in our practice. In late 2012, a Taxpayer, or its representative, inquired to the Missouri Department of Revenue whether certain sales it made to its customers are subject to Missouri sales and use tax. As a state and local tax attorney and the proud recipient of a recent jawbone graft, this particular ruling caught my attention. Specifically, in LR 732, Mo. Dept. of Revenue (August 10, 2012), a dental supply and service distributor sold single patient use medical materials to its customers. The medical materials happened to be used for structural support for bone tissue during jaw bone grafting.

Jawbone Grafting.jpg

Like every one of the 45 states and the District of Colombia that has a sales and use tax regime, Missouri has a medical supply exemption. Medical exemptions are often popular ways for Legislatures to look popular by exempting items such as food and medicine that is necessary for people to survive. States take the position that taxpayers should not be burdened with state taxes for items that are essential.

At issue in LR 732, Mo. Dept. of Revenue (August 10, 2012) was Missouri’s exemption for “orthopedic devices” such as rigid or semi rigid leg, arm, back or neck braces that are used to support weak or deformed body, or restrict or eliminate motion in diseased or injured body parts. Sounds delicious, don’t it? In any event, the Taxpayer was curious if jawbone grafting materials fit within this gruesome sounding exemption.
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As a son to an owner of a family gas station business, I have heard every remark in the book of complaints for gas prices being too high. Next time you are looking to yell or criticize your gas station owner or distributor, remember the impact of taxes that contribute to overly increased gas prices. Below are some changes Florida made in the past year regarding gas prices. Gas pump.jpg

On November 12, 2012, the Florida Department of Revenue issued Tax Information Publication (“TIP”) No 12B05-01. The full TIP can be found here. In summary, the TIP adjusted motor fuel tax rates in Florida based on the National Consumer Price Index (“CPI”).

Specifically, motor fuel tax increased from 16.6 cents per gallon to 16.9 cents per gallon at the state level. In diesel fuel tax increased from 16.6 cents per gallon to 16.9 cents per gallon as well. In addition, the county tax increased from 13.9 cents per gallon to 14.1 cents. In total, diesel fuel tax went from 30.5 cents per gallon to 31 cents.

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Everyone has seen the clever IPhone commercials, which promote its applications (“Apps”) and states the famous phrase “there’s an app for that!” Some sources even boast that as of the end of 2012, there were some 750,000 apps available on the Iphone App Store. From useful apps like ESPN, Shazam, and Urbanspoon, to useless apps like Have2P Restroom Locator, Can I Drive Yet, and How to Text A Girl, there truly might be an app for everyone. There are even Apps like Bargain Bin which locates apps that are on sale.

App.jpgAttempting to cash in, many people and businesses have attempted to create their own apps to eventually sell to Apple. While most just think about hitting it big, the state and local tax attorney in me wonders where the sale of an app is taking place and if this type of transaction is subject to sales tax. Continue reading

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Few attorneys or accountants practice or ever even heard of lawyers that practice in the area of Native American Taxation. However, I have found this unexplored area of the law to be fascinating. Similar to many areas of state and local tax work, Native American Taxation is poorly developed and the rules are unclear and largely don’t make any sense. While it is common for multi-state SALT attorneys like me to live in a world with no clear answers, living in this gray area of the law is uncomfortable for most lawyers and professionals.

Over the past few months, there have been a few developments in the area of Native American Taxation that have caught my eye. At the core of most state taxation issues involving Native American Tribes, is the struggle of a state’s power to tax transactions on tribal reservations versus the Indian Commerce Clause. Almost every lawyer and tax professional has heard of the Commerce Clause. The Commerce Clause is the provision in the United States Constitution that gives Congress the power to regulate interstate commerce. Specifically, the Commerce Clause states in Article I, section 8, that Congress shall have the power, “To regulate Commerce with foreign Nation, and among the several states.” Most people are only taught or only remember that part of the Commerce Clause, but the Commerce Clause continues to read “and with the Indian Tribes.” It is this provision that has led to enormous debate and litigation in the world of state taxation with the regards to the Native Americans.

From the early days of our nation, in Cherokee Nation v. Georgia (1831) and Worcester v. Georgia (1832) it has been battled over whether and to what extent the Indian Reservations are foreign and discrete nations within the United States borders. Identical to most undeveloped state and local tax issues, the same problems remain in 2013.
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This week in February, 2013, the legendary Jerry Buss lost his battle with cancer. Sports fans, like myself, view Dr. Buss’s accomplishments unmatched in the sports world. For the uniformed, Dr. Buss owned several sports franchises in Los Angeles, most notably the L.A. Lakers of the NBA. During his tenure, Dr. Buss maintained high profile superstars in Los Angeles such as Kareem Abdul-Jabbar, Magic Johnson, Shaquille O’Neal, and Kobe Bryant. Further, his prized Lakers won an unfathomable 10 NBA Championships since his purchase of the franchise in 1979 for a then-record $67.5 million.

As a sports fan and a Laker fan, Dr. Buss will be sorely missed. However, as an estate planning professional, Dr. Buss has continued to teach us lessons even from the grave.

By way of background for the uninformed, talks of the fiscal cliff and the expiration of the estate tax exemptions and estate tax rates dominated the tax community at the end of 2012. Many estate tax professionals anticipated the estate tax exemption to be reduced from $5 million down to $1 million or $3 million at the absolute max. In addition, many estate planners believed the estate tax rate would increase from 35% back to the high 55% tax rates. In preparation for this dramatic change, many Americans worth more than $1 million frantically acted to take advantage of the gift tax to get their estates below the believed $1 million or $3 million threshold.
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McDonalds.jpgAs many of you are aware, today, February 18, 2013, is President’s Day. For many that means banks are closed and, more importantly, work is closed. For many others, like me, President’s Day really just feels like another day. However, this President’s Day is special thanks to McDonald’s.

Like most of the country, on my drive into work this morning, I heard about McDonald’s special President’s Day promotion. Specifically, if a customer purchases a Big Mac or Quarter Pounder, a second delicious sandwich can be purchased for a penny. Why did McDonald’s charge a penny, rather than just giving it away for free? Perhaps, the corporate executives at McDonald have read my riveting state and local tax blog last week.

For the few of you that did not read my blog I did last week, I wrote about the power of the sale for resale exemption offered by most states in their sales and use tax regime. In a nutshell, this means that when a business purchases something it does not pay tax but rather charges tax to its customer when the item is resold.

The policy behind the sale for resale exemption is that sales and use tax attempts to tax consumption by adding a tax to purchases made by the end consumer of a good or service. While each state varies as to exactly what is and is not taxable, every state that I am aware of has a sale for resale exemption. Conversely, if the business is the end user on items it purchases it owes a use tax on those items. The sale for resale exemption can be a very powerful multi-state sales tax technique if used correctly.
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Anytime I go out to eat or to a fast food restaurant, my mind automatically thinks in terms of ways a company can save wasteful state tax dollars in its operation. Whether I am at a restaurant that hands out silverware, a fast-food chain that offers plastic silverware, or a restaurant that gives away items, the use tax issues can likely be avoided if the company practiced careful sales and use tax planning techniques.

Over the past few years, a couple of cases in Alabama showcase the ongoing dilemma. The first case involved Logan’s Roadhouse. Many of us have been to a Logan’s across the country and enjoy the ability to eat peanuts and throw the shells all over the floor. But how many of us, aside from me, actually analyze the sales and use tax implications of this practice? Peanut Shells.jpgAre the peanuts being purchased by Logan’s and resold to its customers? Or is Logan’s purchasing the peanuts for its own use as a giveaway to its customers?

In a similar case, Kelly’s Food Concepts (KFC, Popeye’s, and Church’s Chicken) illustrates a common restaurant problem that has been litigated since the creation of the sales tax. Are items purchased by a restaurant such as napkins, utensils, straws, stirrers, trays, kitchen supplies, ketchup, salt and pepper, toilet paper, and other items on the table, for the restaurants use or resold to the customer for its use?

Without immediately diving into the cases, it seems appropriate to explain a common problem faced by the state and local tax professional. Most states (45) have a state sales tax regime. The sales tax attempts to tax consumption by adding a tax to the end-user of tangible personal property (“TPP”). While each state various as to exactly what is and is not taxable, every state that I am aware of has a sale for resale exemption. That means that when a business purchases something it does not pay tax but rather charges tax to its customer when the item is resold. Conversely, the business is the end user on items it purchases for its own use (items not for resale) and it owes a use tax on those items. While it seems obvious whether an item is an exempt sale for resale, as shown by a couple simple examples above, this inquiry can become quite complicated.

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As many of my readers know, I have been a regular author for the FPMA over the past year. I have spent the better part of that period discussing the onslaught of convenience stores by the Florida Department of Revenue. While our firm has been successful in reducing many assessments against dozens of C-stores throughout the state, I found it appropriate to discuss something in a positive light.

Last year in 2012, I discussed a case known as Micjo. In Micjo, the crux of the case was whether the Department could charge tobacco tax on shipping charges and excise taxes. Specifically, Florida Law imposes taxes of about 85% on other tobacco products (“OTP Tax”), based on the so-called “wholesale sales price” as defined in section 210.25, Florida Statutes (“F.S.”). Under Florida Law, the “wholesale sales price” means “the established price for which a manufacturer sells a tobacco product to the distributor.”

While this seems like a fairly straightforward analysis, the Division of Alcohol and Tobacco (“ABT”), believed the “wholesale sales price” was the total amount on the invoice, which included the amount the wholesaler paid for the tobacco, shipping, and federal excise taxes. Like many agencies tend to do, ABT “reminded” the court that the court owed it deference in statutory interpretation. Taking the contrary position, the court agreed with Micjo in that the “wholesale sales price” was clear in that it meant the price of the tobacco only.

While it appeared to be a fairly straightforward opinion, our state and local tax firm has seen in practice over the past year that in many counties (outside of the second district), ABT has “shockingly” ignored the opinion. Can it do this? Of course! It is the all-mighty agency.
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