As more states seek a bigger piece of the tax base pie, businesses are quickly discovering that every state has its own little quirks. Sales taxes are often the worst. Everything from the taxability of services to exemptions vary from state to state. Some states have tricky rules that make it difficult to determine where taxes should actually be paid. For example, if you have materials for real property improvements shipped to Florida and then incorporate those materials into construction in another state, both states expect use taxes on those materials. There are many sales tax oddities that make interstate commerce confusing. There are also rules you may not be aware of here in Florida.
Tax Pro Today lists a few interesting sales tax oddities from various states. For example, in California artificial snow is subject to sales tax. Regardless of its short life-span, or the fact that it is basically frozen water, snow is considered a tangible asset rather than a service. Has California tried to audit God yet? Not that I’m aware of, but I wouldn’t put it past them.
Alaska has a sales tax exemption for any item of tangible personal property that has been launched into space. It doesn’t matter whether those items have returned from space or not. This could be the loophole of the future!
A marijuana plant may be legal in Washington State, but it is not considered an agricultural item. The drug therefore misses out on any Washington State tax exemptions.
Here in Florida, one of the biggest pitfalls we’ve seen is people getting caught on commercial self-rentals. In other words, the business owner owns the property the business operates out of, and the business pays rent to the owner. If the business also pays things like property taxes, that is considered by the Department of Revenue to be part of the annual taxable rent. Many businesses fail to include those expenses on their sales tax returns.
Another sticky area in Florida is repair of tangible personal property. In some states if an invoice breaks out tangible property and labor on a repair or installation, then only the tangible personal property portion is taxable. In Florida, there are many cases where once tangible property is added to a repair or installation, the entire amount becomes taxable.
As companies become more mobile and broaden their customer base, interstate taxes continue to become more of a small business problem. GunnChamberlain files taxes for clients in all 50 states. If you have state tax questions, please don’t hesitate to reach out to us.