Intro to Sales/Use Tax

Question 1

What are the four types of sales tax?

Answer 1

1. Seller Privilege
2. Consumer Levy
3. Transaction Tax
4. Gross Receipts

Question 2

What are the nomad states?

Answer 2

• New Hampshire
• Oregon
• Montana
• Alaska
• Delaware

Question 3

Define Seller Privilege Tax.

Answer 3

• Tax imposed on the seller for the privilege of doing business in the state.

Question 4

3 things to know about Seller Privilege Tax: Seller’s Privilege Tax is imposed on the…. , not the…., the customer could be liable for it via….., and the customer can’t be assessed in their own audit for the tax unless they…..

Answer 4

seller, customer, shifting, gave the seller an exemption certificate saying that the seller isn’t responsible for the tax.

Question 5

What are the 3 ways that tax can be shifted from the seller to the customer?

Answer 5

1. The seller can change the language of the contract to state that the customer is liable for it.
2. The seller can decrease the quantity of goods sold at the same price as the original quantity. (Ex. 5 fig newtons in a package, compared to originally selling 6 in a package)
3. The seller can increase the price of goods sold. (This is called “absorption”)

Question 6

Define Consumer Levy Tax.

Answer 6

• Tax imposed on the customer, and collected by the seller.

Question 7

3 things to know about Consumer Levy Tax: Consumer Levy tax is required to be collected by the….., it is the liability of….., and the customer can request a refund of the tax directly from…..

Answer 7

seller, both the seller and the customer, the state.

Question 8

Define Transaction Tax

Answer 8

A type of sales tax in which the transaction, rather than the buyer or the seller, is subject to tax.

Question 9

4 things to know about Transaction Tax: 1) Transaction tax is the liability of…., 2) tax is likely to be collected twice if not….., 3) it is similar to seller privilege tax, but has fewer….., and 4) it can be charged on top of….. in certain states and for transactions that involve….

Answer 9

either the seller or the customer, challenged during audit, exemptions (seller privilege tax is considered to be more business-friendly, giving more exemptions to businesses for their operations), another tax (Ex. WA adds it on to sales tax, CA adds it on to use tax), certain products (Ex. NY charges GRT on top of their gasoline tax)

Question 10

Define Gross Receipts Tax

Answer 10

A tax that’s imposed on the gross receipts derived from taxable transactions.

Question 11

Which 2 tax types allow for absorption?

Answer 11

• Seller Privilege
• Gross receipts

Question 12

Which 2 tax types require separation?

Answer 12

• Consumer Levy
• Transaction Tax

Question 13

It is best to assume that every_____, every___, and all ________ are taxable unless a specific exemption applies.

Answer 13

everything, everyone, all receipts

Question 14

Services are usually non-taxable, except in states that impose…… tax.

Answer 14

gross receipts

Question 15

Which 10 things are usually included in the tax measure (the amount that is taxed)?

Answer 15

1. Selling price of TPP (including fabrication, assembly, freight, and installation)
2. Selling price of a taxable service (including related travel expenses)
3. Consideration received for the sale (cash, credit, barters, etc)
4. Leases and rental (both TPP and real property)
5. All or part of the selling price of real property (RP repair/remodel (labor vs repair), Commercial rents)
6. Amount of excise tax imposed
7. All or part of a sale of a business (bulk sale)
8. Sale of re-possessed property
9. Bad debt write-offs
10. Credit for return of goods

Question 16

What are the two definitions of “Exclusion”?

Answer 16

• A transaction outside the general scope of tax statutes (real estate, stocks, bonds, most services)
• An amount that is not included in the tax measure. (Discounts, freight charges, installation)

Question 17

Define “Exemption”.

Answer 17

A transaction that is within the general scope of tax statutes, but is the subject of special provisions that remove it from taxation.

Question 18

Define “Real Property”.

Answer 18

Land and land improvements, including TPP that is incorporated into it

Question 19

Documentation is essential to _______ protection. Provide 5 common examples of important documentation.

Answer 19

1. Contracts/POs/Sales Orders
2. Exemption Certificates
3. Direct Pay Permit
4. Invoices
5. Bills of Lading/Shipping Documents

Question 20

Define “Reciprocity”.

Answer 20

A jurisdiction’s willingness to acknowledge tax paid to another jurisdiction on the same transaction.

Question 21

Reciprocity covers tax paid less than and equal to….

Answer 21

the tax that’s due.

Question 22

Define “Nexus”.

Answer 22

An entity’s connection to a jurisdiction in which if certain criteria are met, the entity will be required to collect and remit tax as well as follow other applicable laws.

Question 23

What are 4 ways that states measure use tax liability on converted property? (property converted from an exempt to taxable use)

Answer 23

1. Material cost (the actual cost of materials only)
2. Inventory/Standard cost (cost of materials + cost of what it takes to put it into inventory)(materials, fabrication, overhead, etc)
3. FMV (price of the property + profit)
4. Rental value

Question 24

Define “True Object Test”.

Answer 24

A test to determine what the essence of a transaction is to determine if it is subject to tax.

Question 25

Which 2 taxes can the vendor get a discount from the state for if they collect and remit it themselves?

Answer 25

• Consumer Levy tax
• Transaction tax