Resale Certificates

Middle Market Companies Fight State Tax Surprises

As a CFO, controller or finance executive in a middle market company, you have a wide range of responsibilities to manage.  State and local tax matters can pop up when you least expect it and cause compliance and financial burdens.

Some of those state tax surprises could be (regardless of industry):

  1. State tax registration requirements - when should you register?  If you register, will that create tax filing obligations?  When can you withdraw your registration?
  2. State income tax apportionment - when can your company allocate income instead of apportion income?
  3. Sales taxability of digital goods, licenses, subscriptions, computer hardware, software, cloud computing, etc.
  4. Sales tax audits and appeals
  5. Choosing sales tax codes for your sales and purchases to correctly utilize your sales tax compliance/decision software with your ERP system
  6. Knowing when your company has a filing obligation in a state
  7. Filing Voluntary Disclosure Agreements to mitigate prior year tax exposure
  8. Determining sales tax consequences of "bundled transactions" or "mixed transactions" (transactions that include taxable items with non-taxable items)
  9. Determining sales and use tax consequences for entities that conduct transactions with governmental entities.  When does the exemption apply?  What does the exemption apply to? 
  10. If my company is a service provider, is my company paying use tax on purchases?

Several of my clients have had these issues recently.  Do any of the above items sound familiar to you?  

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.