What’s a Sales-Taxable Event?
Of course, the problem is knowing what qualifies as a sales-taxable event in your state. Purchasing a product at your local store is easy―the register figures it out for you and puts sales tax on the receipt. But what if you order supplies from an out-of-state vendor who feels it’s not necessary to charge sales tax to out-of-state customers? Suddenly, you become the CPA who has to figure out whether your vendor is right. The larger national vendors know this information, and it’s safe to say that if you ask once, you can rely on their answer. But what if you’re ordering from a smaller, less sophisticated company?
For example, let’s say you hired a vendor to install cylinder locks on 500 storage doors. The act of making these changes may be considered a service, and thus a sales-taxable event in your state. The company you hired didn’t charge sales tax because it’s from another state, or sales tax is not indicated on the bill. This is likely because the vendor doesn’t want to file 50 sales-tax returns every year.
In some states now, if your taxing authority crosschecks your 1099 with the company’s bill and fails to see a sales tax, you could be held liable for it. By the way, if this happens, it’s a personal liability, not a business liability. Simply closing up the business or filing bankruptcy doesn’t necessarily make it go away.
I warn you of this because, although the federal requirements are not necessarily in effect until 2012, you have to begin gathering the 1099s in 2011 to get used to the requirements and make a 2012 filing. This is a good time to check with your accountant and understand the specific requirements in your state and under the federal law.
Also discuss with your tax advisor the sales-tax issue and how your state commissioner may be interpreting the law as it pertains to sales-taxable events. Make sure you have all the necessary paperwork in place before you make your 2011/2012 tax filings.
Jeffrey J. Greenberger is a partner with the law firm of Katz Greenberger & Norton LLP in Cincinnati and is licensed to practice in Kentucky and Ohio. Mr. Greenberger primarily represents the owners and operators of commercial real estate, including self-storage owners and operators. To reach him, call 513.721.5151; visit www.selfstoragelegal.com .