The State of State Taxes

Minimizing Your State Taxes – Are You Paying Too Much Sales Tax?

jonwellington — Wed, 18 Aug 2010 21:17:28 +0000

As companies continue to search for ways to cut costs, they be missing a golden opportunity to not only cut costs, but to receive cash from state governments. I am talking about a hidden expense that is part of nearly every purchase a company makes – sales tax. In certain situations, some of which are very common, companies overlook opportunities to reduce their sales tax liability by maximizing exemptions and requiring vendor invoices to separately state taxable goods and services and nontaxable goods and services.

Maximizing exemptions

Texas, and all other states imposing sales tax, offers a wide variety of exemptions from sales tax. The most common exemption is the resale exemption, which exempts purchases of tangible personal property that is purchased for resale. Companies generally do a good job of utilizing the resale exemption, but often fail to take full advantage of other available exemptions. Even if a company’s CFO or controller is aware that certain purchases should qualify for an exemption, that knowledge may not always be conveyed to the purchasing manager or business development personnel who actually receive and pay the relevant invoices.

For example, Texas offers an exemption for property used or consumed in, and essential to, the manufacturing, processing or fabrication of property for sale. The manufacturing exemption applies in many situations, some of which may not be obvious at first. For example, exempt manufacturing equipment includes computers used to write computer programs and microwave ovens used by restaurants. Companies do not have the time or technical expertise to identify all the occasions where the manufacturing exemption (or other lesser known exemptions) could apply. Further, any subsequent repair or maintenance services, which would otherwise be taxable, would be exempt if performed on exempt equipment.

Separating taxable and nontaxable goods and services

Companies will often be purchasing both goods and services from vendors and contractors. Where a single charge is made for taxable goods and services as well as nontaxable goods and services, the entire charge becomes subject to sales tax. The amount of sales tax due could easily be reduced by requesting invoices that break out taxable and nontaxable items.

Conclusion

With a sales tax rate over 8% in Texas, overpayments of sales tax could prove to be substantial. Fortunately, Texas offers a 4-year statute of limitations during which taxpayers can request refunds of overpaid tax, along with interest. By performing a review of its purchase invoices and internal sales tax procedures, a company could recognize significant future savings and recover overpaid taxes for the prior 4 years.

DISCLAIMER: The materials available in this blog post are for informational purposes only and do not constitute tax or legal advice.

One week until Texas franchise tax reports are due!

jonwellington — Mon, 10 May 2010 19:35:32 +0000

May 15^th is the due date for Texas franchise tax reports (although reports are not due until the next business day – Monday, May 17^th). The Comptroller recently hosted a webinar discussing common mistakes from last year’s filing season as well as changes for the 2010 filing season. For your convenience, I have attached the link to her webinar below. If you have any questions or concerns about your company’s Texas franchise tax report, or any other tax questions, please feel free to contact me.

http://www.cpa.state.tx.us/taxinfo/franchise/webinars10_course_mat.html

2010 Texas Margin Tax UTCLE

jonwellington — Mon, 01 Mar 2010 23:08:32 +0000

I recently attended a seminar on the Texas margin tax that was very enlightening. The main takeaways for taxpayers should be that audits are coming soon, thanks to a host of newly-trained auditors, and that taxpayers are missing opportunities to reduce their margin tax liability. Of course, they also insisted that it not be called the margin tax, but that is one battle the Comptroller’s Office seems to be losing.

Welcome to the Firm Blog

jonwellington — Mon, 22 Feb 2010 17:22:31 +0000

Due to the ever-changing nature of state taxation, the Firm will try to use this blog to communicate interesting developments, comments, or useful Internet resources relating to the world of state taxation. I hope you find it useful and I encourage you to comment about anything you wish to add.