A use tax is a tax on the use, storage or consumption of taxable property or a taxable service.  It is often thought of as a complement to a sales tax.  In general it’s purpose is to substitute for sales taxes which, for some reason, were not collected on a particular transaction.

Businesses are responsible for accruing and paying use taxes on their purchases of all taxable equipment, supplies, furniture and other business assets if sales taxes were not charged, or the wrong sales taxes were charged by the vendor.  One example that is often overlooked in Colorado is that businesses are liable for use tax on food that is brought into their office for their employees.  That is very common because sales taxes are usually not charged on food at grocery stores.

If a businesses property if moved from one jurisdiction to another, the business my owe use taxes to the new jurisdiction.  That can occur when the use tax rate at the new location is higher than the sales tax rate at the old location.  The business will owe use taxes equal to the purchase prices times the difference between the two rates.

Just like most other aspects of sales and use taxes, the use tax side of the equation is equally as complicated as the sales tax side.  So don’t forget to consider use taxes when moving your office, your equipment, or feeding your employees!  If we can help in any way, please call us in advance so that we can help you minimize your tax obligations.

Posted by Keith Crichton, MBA, MT, CPA

DISLAIMER

The information contained in this blog is general in nature and is not intended, and must not be construed by the reader as legal, accounting, tax advice or opinion, provided by Crichton Consulting Services, LLC or any person referenced herein. The reader is also cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs. More importantly the reader must consider any effects on taxes other than sales and use taxes, as well as financial and personal considerations other than taxes, before actions are taken. The reader should contact his or her tax  and legal advisors prior to taking any action based upon this information or information discussed in prior blogs.  Crichton Consulting Services, LLC assumes no responsibility for loss incurred by any person acting, or refraining from action, as a result of any material provided in this or future blogs, nor by prior blogs to which this blog may refer.

Specifically, Nexus is the legal term used to describe the level of activity and presence maintained by a business within a tax jurisdiction that allows the jurisdiction to impose upon that business the responsibility of collecting and remitting sales taxes, along with the associated tax return filing requirements.

There are many ways in which a business can directly create Nexus for itself, or indirectly have Nexus created for it by another company.  It can acquire Nexus indirectly because if another Company (Company B) has a common ownership with Company A, and Company B acquires Nexus in a particular jurisdiction, that may also create Nexus for Company A in that jurisdiction.  (In other words, Nexus can be contagious.)

The rules regarding what creates Nexus are different in every location, so it is easy for a business to create Nexus for itself (or have Nexus created for it) without realizing it.  Some of the ways a business can create Nexus for itself include:

• opening an office, having equipment, inventory or employees located in a jurisdiction
• leasing or renting equipment to a customer in another jurisdiction
• making deliveries to customers in a jurisdiction with its own trucks
• sending repair or maintenance employees to a customer’s place of business, or have contractors perform work on their behalf
• selling items from catalogs or over the internet, then accept returns at brick and mortar retail locations
• using sales personnel to take orders at the customer location, whether those personnel are employees, agents or contractors
• licensing software for use in the jurisdiction
• advertising in certain ways in some jurisdictions (such as with billboards in some states) will do the trick
• being a partner (including a limited partner) in a partnership doing business in another jurisdiction

However, the rules are changing almost monthly.  So if your company is going to be doing a significant amount of business with a customer in a new geographic area, it would be wise to have me do some research to see if you would be creating Nexus in that new area.

If in doubt, register with the jurisdiction(s), and collect the taxes from your customer so that you will not be liable for them yourself.  If your customer objects, call me and I will investigate so as to protect your interests, and at the same time help you maintain a good relationship with your customer.

Posted by Keith Crichton, MBA, MT, CPA

DISLAIMER

The information contained in this blog is general in nature and is not intended, and must not be construed, as legal, accounting or tax, advice or opinion provided by Keith Crichton or any associates, to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs. More importantly the reader may require consideration of other tax implications beyond sales and use taxes, as well as other financial and personal considerations other than taxes, before action is to be contemplated. The reader should contact his or her tax and/or legal professional prior to taking any action based upon this information.  Keith Crichton assumes no responsibility for loss incurred by any person acting, or refraining from action, as a result of any material provided in this or future blogs, nor by prior blogs to which this blog may refer.

I would also like to use it to answer questions anyone may have about sales tax issues that arise around the country.  I encourage people to contact me with their questions by using the contact page of this site.

In addition, Colorado has some of the most complicated sales taxes in the country, so I welcome questions from those outside Colorado.  I have access to some of the premier legal, accounting and university resources in the state, and am happy to help.

Finally, if anyone has other constructive suggestions, I welcome those too.

Posted by Keith Crichton, MBA, MT, CPA