Disregarded Entities

Sales Tax and Disregarded Entities: Who is the Taxpayer?

Does your company's corporate or legal entity structure cause confusion when it comes to the sales tax area? Meaning, does your structure involve various "pass-through" or "disregarded" entities?

"Pass-through" or "disregarded entities" are generally considered divisions or a part of their owner for federal tax purposes. Hence, they are not taxed separately from their owner. However, for state and local sales tax purposes, most states treat each "pass-through" or "disregarded entity" as a separate taxable entity. Therefore, it is very important when making a purchase for a specific project or filing for a business license, that the correct entity’s name and other identification is used. This issue arises especially in states where your company has multiple entities conducting business.

"Resale Certificates" and "Direct Pay Permits" Confusion

Another situation in which the issue arises is when "resale certificates" or "direct pay permits" are utilized by multiple entities. Resale certificates and direct pay permits are generally issued to a specific legal entity and cannot be transferred or utilized by other entities. Hence, it is very important that vendors have the correct information in their records, and your invoices, contracts, etc. reflect the actual entity that is involved in the transaction.