17 replies to this topic

[promoman1]

Is this going to be yet another burden on us?


This story was featured is the 10-7-08 ASI Promo Gram:

NEWS
Tennessee Tax Rankles Industry Firms
The state of Tennessee has begun enforcing a sales and use tax regulation that promises to keep distributors' and suppliers' bookkeepers up at night. In simplest terms: If an out-of-state distributor places an order where a Tennessee supplier ships product within state lines, the supplier is required to charge the out-of-state distributor sales tax.
Typically, it is up to the end-user to pay a "use tax" for the items they have received and then that is the end of the story. In Tennessee, however, suppliers are being asked to collect the tax from the distributor. The same holds true for California. This gives the distributor three unseemly choices: 1. Eat the tax; 2. Build the tax into the invoice; 3. Invoice the end-user for the tax for the cost of the item and then allow the end-user to pay the difference, via their use tax, based on the final price.

The problem with the third scenario is the fact that the end-user will then be able to easily figure out the distributors' cost based on Tennessee's sales tax (which ranges from 7% to 9.75% depending on the county). "Then the whole thing unravels. How are we supposed to stay competitive if everyone knows our cost? You can't understand the nightmares this is causing," says Mike Calhoon, CFO of Madden Inc. (asi/259280), which first noticed the problem when it began getting billed by Bic Graphic (asi/40480) in June. Bic has a distribution center in Tennessee and the Lakeland, FL-based Madden Inc. has a client whose recipients live in Tennessee. He's no stranger to this phenomenon as he is already also getting billed from three vendors in California for sales taxes owed.

John Harvey of Tennessee's taxpayer and vehicle services division says, "The reason is that ownership/possession never transfers outside Tennessee, making the transaction subject to Tennessee tax. The supplier must satisfy the tax requirement. Because the supplier bills the out-of-state distributor and not the Tennessee consumer, the Tennessee supplier has no option but to bill the tax to the out-of-state distributor." (see http://state.tn.us/r...salesanduse.htm)


The overarching ramifications of such regulations are disturbing to Calhoon. "Distributors are not going to get out of paying it," he says. "One of my suppliers got nailed with an audit and then he started charging me. Can you imagine if all 50 states charged? And believe me they are all looking for revenue now."

[kristiy]

I just finished emailing this to someone. I had several clients in the Memphis area, but looks like I moved back to TN just in time to not have to mess with this. As an in-state distributor, it won't affect me.

There are a LOT of big suppliers in TN, too-- I may leave some out here, but Gold Bond, World Wide Line, Samco/Sanders Mfg/ Shelbyville, Cata Mundi, Amer-I-Can Calendars, Brentwood Sourcing, Black Knight Press, Alladin Plastics, and more--
and then you have those suppliers with products that have an FOB:TN, such as the mood bottles from Aakron, a NY supplier..which I order a lot of!

[epicemb]

This is not a new tax - they are just stepping up enforcement on something that has been on the books for years. States have been trying to enforce this better for years - I belive that CA has become extremely aggressive collecting sales and use taxes and here in Mass they have gone so far as to add a line on the state income tax form for both small biz and individuals for use tax.

Quote

If an out-of-state distributor places an order where a Tennessee supplier ships product within state lines, the supplier is required to charge the out-of-state distributor sales tax.

This is what just about every state does and has done for months or years - dear God - why does ASI think that this is news worthy - someone posted a thread on this a few weeks back. Jeffery, this has nothing to do with you as you are just pointing out something that you found newsworthy and helpful.

promoman1 said:

Is this going to be yet another burden on us?


This story was featured is the 10-7-08 ASI Promo Gram:

NEWS
Tennessee Tax Rankles Industry Firms
The state of Tennessee has begun enforcing a sales and use tax regulation that promises to keep distributors' and suppliers' bookkeepers up at night. In simplest terms: If an out-of-state distributor places an order where a Tennessee supplier ships product within state lines, the supplier is required to charge the out-of-state distributor sales tax.
Typically, it is up to the end-user to pay a "use tax" for the items they have received and then that is the end of the story. In Tennessee, however, suppliers are being asked to collect the tax from the distributor. The same holds true for California. This gives the distributor three unseemly choices: 1. Eat the tax; 2. Build the tax into the invoice; 3. Invoice the end-user for the tax for the cost of the item and then allow the end-user to pay the difference, via their use tax, based on the final price.

The problem with the third scenario is the fact that the end-user will then be able to easily figure out the distributors' cost based on Tennessee's sales tax (which ranges from 7% to 9.75% depending on the county). "Then the whole thing unravels. How are we supposed to stay competitive if everyone knows our cost? You can't understand the nightmares this is causing," says Mike Calhoon, CFO of Madden Inc. (asi/259280), which first noticed the problem when it began getting billed by Bic Graphic (asi/40480) in June. Bic has a distribution center in Tennessee and the Lakeland, FL-based Madden Inc. has a client whose recipients live in Tennessee. He's no stranger to this phenomenon as he is already also getting billed from three vendors in California for sales taxes owed.

John Harvey of Tennessee's taxpayer and vehicle services division says, "The reason is that ownership/possession never transfers outside Tennessee, making the transaction subject to Tennessee tax. The supplier must satisfy the tax requirement. Because the supplier bills the out-of-state distributor and not the Tennessee consumer, the Tennessee supplier has no option but to bill the tax to the out-of-state distributor." (see http://state.tn.us/r...salesanduse.htm)


The overarching ramifications of such regulations are disturbing to Calhoon. "Distributors are not going to get out of paying it," he says. "One of my suppliers got nailed with an audit and then he started charging me. Can you imagine if all 50 states charged? And believe me they are all looking for revenue now."

[epicemb]

sorry, somehow I wound up double posting.

[BarbC]

Hi All,

Did you know here in NJ we have to collect sales tax on freight? It is hard to explain that to clients and some get really upset about it. Just another way to get in more money.

Kristi - Thanks for the list of suppliers.

Take Care.

Barbara

[epicemb]

Barbara- At least here in Mass freight is not taxed, but handling is - that makes things even trickier - if you have 2 line items you are OK, but if it is listed on the invoice as shipping & handling then it is all taxable.

BarbC said:

Hi All,

Did you know here in NJ we have to collect sales tax on freight? It is hard to explain that to clients and some get really upset about it. Just another way to get in more money.

Kristi - Thanks for the list of suppliers.

Take Care.

Barbara

[BarbC]

Gosh I did not know they could do something like that. What I mess that would be with my books.

All the best,

Barbara

[ProPrinters]

sales tax on freight. If you ship a non taxable item such as clothing then you don't have to charge tax on the shipping. However if you ship mugs which are taxable then the UPS charges are taxable. The reason being is that people could skirt the charging sales tax on shipment of non taxable good by building the freight into a non taxable item.

[BarbC]

Derek,

Not sure where you got your info. from?? I worked with my accountant on this and all freight in NJ is taxed. The apparel goods are not taxed but the freight is. Show me where you got your info. so I can look it over. I tried to find the regulation about your statement on the tax site but cannot find it. It looks like all freight is taxed.

Thank you.

Barbara

[ProPrinters]

my cpa gave me this information. Think about it if that was the case, then I no longer charge for freight, it will all be built into the hats and shirts.

[ProPrinters]

How long have you been charging your customer's sale tax on shipping of hats and shirts since the law went into affect? I called right away as soon as this was passed into legislation.

[BarbC]

Hi Derek,

I found it. I am safe as all of my apparel this year has been for schools, non profits and out of state clients. No tax charged to these clients they have tax exempt status paperwork on file.

Have a good nite.

Barbara



NJ Charges Sales Tax on Delivery Charges
Taken from: www.state.nj.us/treasury/taxation/

“Delivery charges” (e.g., shipping, postage, packing, handling) imposed by a seller for preparation and delivery of goods to the purchaser are now taxable (if the sale of the goods is taxable).

The law modifies the exemption for delivery charges that are separately stated from the purchase price of an item on the invoice, bill or similar document given to the purchaser. The law provides for the taxation of delivery charges on taxable items and retains the exemption for delivery charges on nontaxable items like clothing.

The law defines “Delivery Charges” as charges by the seller for preparation and delivery to a location designated by the purchaser of personal property or services including, but not limited to, transportation, shipping, postage, handling, crating, and packing. If a shipment includes both exempt and taxable property, the seller should allocate the delivery charge by using: (1) a percentage based on the total sales price of the taxable property compared to the total sales

[rjswave]

If any suppliers are reading this, move your operations to Delaware or another tax free state. Think of all the distributors you'd be helping and you would be helping yourselves as well.;)

[royster13]

Robert it really does not matter where the supplier is located as far as California, Florida, etc. is concerned....The tax is due on goods used by companies in those states and the state will get it some how....Just because you and/or your supplier may not be liable to add it on your invoices does not absolve the end user from paying it......

[rjswave]

You're correct, the end user does have to pay....I was talking about saving us distributors extra paperwork.

[Skip Mays]

OK, now let me toss another grenade into the room. A subsidiary distributor of ours routinely drop-ships BIC products to Federal Government agencies in TN. Bic insists we pay sales tax. The Feds don't use "Exemption Certificates" like the rest of the world and they get all worked up when we respectfully ask them to write a letter explaining to Bic that they are the Federal Government and they don't pay ANY taxes. Bic's Accounting weenies don't want want to hear about it. They insist on a sales tax "Exemption Certificate" because their "policy" requires it.
We refuse to pay Bic for the sales taxes applied to US Government orders and they are not very happy with us. It might be nice to have someone at Bic who shows some interest at resoponding nthe issue, but so far that's not been the case.
Skip Mays

[ScottH]

I was thinking about this. It's no different than it's been since I can remember (15+ years). Product doens't cross state lines, tax is due. No matter where the distributor is, becasue technically, the distributor never takes possession of the item. We've always charged tax in a situation where the factory and client happen to be in the same state where we aren't.

[biggerfish]

promoman1 said:

John Harvey of Tennessee's taxpayer and vehicle services division says, "The reason is that ownership/possession never transfers outside Tennessee, making the transaction subject to Tennessee tax. The supplier must satisfy the tax requirement. Because the supplier bills the out-of-state distributor and not the Tennessee consumer, the Tennessee supplier has no option but to bill the tax to the out-of-state distributor."

I've been charged tax by a supplier in CA before, who shipped to my customer in CA - Same with FL orders from Bic to my customers in FL. I just build the cost of tax into the cost of the goods, and nobody is the wiser.

But what about this?

Gold Bond puts my order on a UPS truck, and runs my card. At that point in time I (here in Texas) OWN THE GOODS. How does Gold Bond know what route UPS will take to get to Knoxville? They could head down to see Jim K in Olive Branch, MS, crossing state lines, before getting to my customer in Memphis.

I guess we all have to pay sooner or later, but it sure sucks.