Intro to the Taxation of Services

Question 1

What are 8 common tapes of taxed services?

Answer 1

1. Services to TPP
2. Services on real property
3. Business Services
4. Professional services
5. Amusement services
6. Personal services
7. Digital & Information Services
8. When the service is provided as part of the sale of TPP

Question 2

FOB (Freight on Board) Origin transportation charges are usually …… (taxable/exempt) and FOB Destination charges are usually …… (taxable/exempt).

Answer 2

Exempt, Taxable

Question 3

What is the difference between FOB Origin and Destination?

Answer 3

• FOB Origin: The customer takes ownership at the seller’s location. The sale is complete once the product is picked up by the customer.
• FOB Destination: The seller is responsible for delivering the product to the customer. The sale occurs at the time of delivery.

Question 4

True/False: Bundling taxable and nontaxable charges may cause the entire invoice to be taxable.

Answer 4

True

Question 5

What is the True Object Test and what are 2 other names for it?

Answer 5

• A test to determine what was ultimately provided, rather than on how the seller characterized the transaction (substance over form)
• “Essence of the Transaction” or “Dominant purpose test”

Question 6

What is a telecomm service?

Answer 6

Any service transmitted by wire or cable

Question 7

If a service is necessary for the completion of a sale of TPP, that service will likely be …… (taxable/nontaxable)

Question 8

What are the 2 acronyms for FOB and what is it?

Answer 8

• “Free on Board” or “Freight on Board”
• The point at which the seller’s obligation ends.

Question 9

What are the 2 acronyms for FOB and what is it?

Answer 9

• “Free on Board” or “Freight on Board”
• The point at which the seller’s obligation ends.

Question 10

True or False: The person performing a taxable service is the consumer of the machinery, equipment and supplies used in performing said service and will usually owe tax on said items.

Answer 10

True

Question 11

What 3 things will happen if more and more services become taxable?

Answer 11

• The tax base will get bigger.
• The tax rates will be lower.
• The tax revenue will either increase or remain the same.

Question 12

Personal services are easier to tax because the taxpayers are ….., and business services are harder to tax due to a stronger business lobby.

Answer 12

individuals and do not successfully unite into a recognizable group.

Question 13

The current trend shows that (more/less) services will be taxed in the future.

Answer 13

more

Question 14

What are 6 common types of real property services?

Answer 14

1. Landscaping
2. Janitorial
3. Pest control
4. Security
5. Painting
6. Repairs (Building, maintenance, plumbing, etc)

Question 15

What are 4 common types of services related to TPP?

Answer 15

1. Assembly/Fabrication
2. Installation
3. Repair and Maintenance
4. Painting/Refurbishing

Question 16

What are 6 common types of professional services that can be taxed?

Answer 16

1. Printing/Graphic design
2. Credit reporting
3. Temporary labor
4. Lobyists
5. Accounting
6. Business Mgmt/Consulting

Question 17

What are 5 common types of digital and information services?

Answer 17

1. Website access and design
2. Database access and sales
3. Digital downloads
4. Cloud computing
5. Data warehousing

Question 18

…… refers to computational resources on demand via a computer network where the user’s computer contains minimal software or data and requires a subscription for online access.

Answer 18

Cloud computing

Question 19

What are the 3 conditions that are looked at when applying the two-out-of-three rule to a tax imposed on a telephone call? (does NOT apply to mobile calls since mobile calls can occur over multiple state lines during a single call)

Answer 19

1. Did the call originate in the taxing state?
2. Was the call terminated in the taxing state?
3. Was the price of the call charged to a service address in the taxing state?