Is It Worth Fighting?

Increasingly businesses are unaware that they have nexus, and are therefore required to collect sales taxes and file returns.  Consequently they are being assessed for the uncollected taxes, interest and penalties.  However businesses that file can generally be audited for only the prior 36 months, and audit assessments that are challenged result in reductions 99% of the time.  In some cases an audit by one jurisdiction can trigger subsequent audits by others.

 

What's the Line In The Sand that Determines Nexus?

Nexus is the legal term used to describe the point at which a business has established sufficient physical presence in a tax jurisdiction for that jurisdiction to require the business to collect and remit its sales taxes, and file its tax returns.  The rules regarding what creates nexus are different in virtually every location – each state is different, and in Colorado each home rule city is different.

 

There are many ways in which a business can directly or indirectly create nexus for itself, whether they realize it or not.  Some of the ways a business can create nexus 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 another

   jurisdiction using its own vehicles

• installing its products in another jurisdiction

• sending repair or maintenance personnel to a

   customer’s location in another jurisdiction, or hiring

   contractors to do the work

• paying commissions to an agent or affiliate in

   another jurisdiction

• selling items from catalogs or over the internet, then

   accepting returns at “brick and mortar” retail

   locations

• licensing software for use in other jurisdictions

• advertising in certain ways (such as with billboards)

   in some states

• attending trade shows, especially if sales are made or

   orders are taken

• being a partner (including limited partner) in a

   partnership doing business in another jurisdiction

 

The rules change almost monthly.  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 us check the nexus rules for you in that location.

 

Why Crichton Consulting Services?

 

Business Owners: Get in front of sales and use tax issues before you encounter any precarious situations.  Find out what you don’t know that can hurt you!

 

 CFO’s:  Protect your company in this volatile and rapidly evolving tax environment.  Can you really afford to find out after the fact that you didn’t really know what could hurt you?  (But it was your responsibility….)

 

 CPA Firms:  Crichton Consulting Services can be a subject matter expert for your firm.  We do not provide other tax or accounting services, so we do not compete with you, but want to enhance the level of services you provide to your clients.

 

So, What Are Use Taxes?

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 business moves its tangible personal property from one jurisdiction to another, the business may owe use taxes to the new jurisdiction.  That can occur when the use tax rate at the new location is higher than the sales/use tax rate at the old location.  The business will owe use tax equal to the purchase price of all taxable property times the difference between the two tax 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.