Sales & Use Tax BORDER TAX ISSUES
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BORDER TAX ISSUES Sales & Use Tax 2014 This PowerPoint handout is used for training purposes in conjunction with the oral presentation given by Departmental training staff. It is not intended to be a stand-alone document. It is not an information guide, nor does it carry regulatory or statutory authority. All users of this presentation are responsible for keeping informed about changes in tax laws and regulations. COURSE OBJECTIVES Requirements to register in SD and IA Major differences between South Dakota and Iowa tax laws How these differences may affect your business Practical tips to manage sales and use tax obligations for both states Resources STREAMLINED SALES TAX PROJECT Rate simplification Limit frequency of tax rate changes Simplify registration systems Uniform definitions Simplify filing and paying sales taxes Simplify exemption administration Uniform audit procedures, sourcing rules, and treatment of bad debts Full Member States: Arkansas Nebraska South Dakota Georgia Nevada Utah Indiana New Jersey Vermont Iowa North Carolina Washington Kansas North Dakota West Virginia Kentucky Ohio Wisconsin Michigan Oklahoma Wyoming Minnesota Rhode Island Associate Member State: Tennessee WHO NEEDS A TAX LICENSE? SOUTH DAKOTA Iowa Business with physical presence (Nexus) in SD Business with physical Sell, rent, lease tangible presence (Nexus) in IA personal property or transfer products electronically Make taxable sales in IA Sell any kind of service Perform or receive payment Purchase products or services for a realty improvement subject to use tax project in SD Purchase products or services that may be subject to use tax A physical presence in South Dakota or Iowa permanent temporary This includes any retailer that has an: Office, distribution center, sales house Sample room location Warehouse or other place of business Owned directly or by a subsidiary Permanent or Temporary Basis Representatives/sales people Canvasser/solicitor Delivery with their own vehicles Provides taxable services Leasing products in a state Repair activity Construction site REGISTRATION DIFFERENCES One business, multiple locations SOUTH DAKOTA IOWA Permit for each business Permit for each business location location in Iowa Statewide Permit may May apply for a be granted consolidated permit and File Consolidated file consolidated return Returns REQUIREMENTS FOR STATEWIDE PERMIT Identical ownership Same Federal Identification Number (FEIN) Same Standard Industrial Classification (SIC) Number Same license type Records stored at one location Show sales for each location reported Sales and Use Tax applies to the sale of tangible personal property. South Dakota Iowa Sales and Use Tax Exemption is the rule also applies to most for services – unless services. listed as taxable in Iowa Law. STATE SALES TAX RATES South Dakota IOWA 4% General Rate 6% General Rate Applies to gross receipts Applies to all sales of the retail sales, lease, subject to sales or or rental of: use tax tangible personal property products transferred electronically services WHAT ARE GROSS RECEIPTS/SALES? All taxable and non-taxable sales Difference is in the Allowable Deductions/Exemptions Sales tax is calculated on taxable sales. Sales tax is not included in Gross Receipts. GROSS RECEIPTS (line 1 on the return) Includes: Does not include: Taxable and Nontaxable Sales Sales tax collected Special Jurisdiction Sales Trade-ins Barters Late charge for overdue accounts Delivery Charges (shipping, handling, crating, etc.) Bad debt fees Reimbursable Expenses Cash discounts (except for accountants and Luxury tax attorneys) Lottery Receipts GROSS SALES & EXEMPTIONS Gross Sales (line 1): All sales are reported on line 1 Both taxable and exempt sales Exemptions (line 4): All nontaxable sales reported on line 1 are reported as exemptions on line 4 Additional schedule must be completed showing exempt sales by category POINT OF TAXATION Tangible Personal Property Receipt or Point of Purchase or Delivery Applies Services Where service is performed or where potential first use of serviced item occurs Sales tax applies where the customer receives the product. Picked up by the customer at retailer’s business: sales tax at location Delivered by store or delivery company: sales tax at delivery address Delivered, but retailer does not have access to delivery address: sales tax at customer’s address POINT OF TAXATION Tangible Personal Property Point of Delivery Services Where service is performed, or where potential first use of serviced item occurs This money is collected by the Department and returned to each jurisdiction for their use. SOUTH DAKOTA IOWA Municipal Tax Local Option Sales Tax (LOST) Can tax up to 2% Additional 1% sales tax that Applies to all products and can be imposed by cities and services subject to state sales counties or use tax Generally applies to same Applies when product or sales subject to state sales service is used, stored, or tax consumed within a city that Applies to taxable goods and imposes a tax services MUNICIPAL TAX RATES Only Change Jan. 1st & July 1st Refer to Municipal Tax Information Bulletin http://dor.sd.gov/Taxes/Business_Taxes/Publications/Municipal_Tax.aspx City Sales Tax Rates (one rate per city) Separate code for Municipal Gross Receipts Tax If taxable at the state level, taxable at the city level MUNICIPAL GROSS RECEIPTS TAX (BED, BOARD & BOOZE TAX) Optional 1% (in addition to general rate)municipal gross receipts tax on any or all of the following: . Alcoholic beverages . Eating establishments . Lodging . Ticket sales or admissions to places of amusement, athletic, and cultural events TOURISM TAX Applies to gross receipts of: Hotels and places of lodging Campgrounds Recreational equipment rental Recreational services Spectator events Visitor attractions Visitor-intensive businesses EXAMPLE OF GROSS RECEIPTS Customer purchases canned software Iowa seller travels to customer’s location in Sioux Falls to install the software Invoice Example Computer $ 5,000.00 Installation $ 1,500.00 Lodging/Meals $ 500.00 Sub Total $ 7,000.00 Sales Tax $_______? What tax is due, if any in South Dakota? On what amount? $420 (6% -- 4% state + 2% city) on full amount $7,000.00 $7,000.00 $280.00 Sioux Falls 330-2 $7,000.00 2% $140.00 $140.00 $420.00 $420.00 How Do I Know if a Jurisdiction Has LOST? See our website for LOST jurisdictions https://tax.iowa.gov When Do I Need to Collect LOST on Sales of Tangible Goods? LOST applies when taxable goods are delivered in a jurisdiction imposing the tax. When Do I Need to Collect LOST on Sales of Taxable Services? LOST applies when the first use of taxable services occurs, or potentially could occur, in a jurisdiction imposing the tax. Can LOST be Imposed When State Sales Tax Isn’t? No. There is one exception: LOST can be imposed on residential energy where Sales Tax the state sales tax has been phased out, but where LOST still applies. What About Utilities? Subject to LOST if billing address of the subscriber is located in a LOST jurisdiction: Gas Electricity Heat Water Communication Pay-Television Iowa State & Local Hotel/Motel Tax State hotel/motel tax 5% on the rental of sleeping rooms for 31 consecutive days or less. Local hotel/motel tax May not exceed 7%. This is in addition to the state tax rate of 5%. 6% state sales tax and local option sales tax do not apply Iowa Automobile Rental Tax Excise tax on the rental of passenger vehicles designed to carry nine or fewer passengers, that are rented for a period of 60 days or less. Not imposed on delivery trucks, motorcycles, and motorized bicycles. Tax Rate: 5% In addition to the state sales/use tax and local option tax, if any. USE TAX Tax on the use of taxable products or services when sales tax is not paid at time of purchase Applies to selling/purchase price (SD – includes freight or delivery charges) Exempt from sales tax, also exempt from use tax SD: same rate as state and municipal sales tax IA: 6% - LOST does not apply to use tax Only owe sales or use tax – NOT BOTH USE TAX Normally incurred on: Items taken from inventory for business or personal use Items purchased without sales tax Items purchased from out-of-state suppliers or mail order companies Rental charges on equipment brought in from another state Items removed from inventory for use in another state Purchase of promotional items Iowa Consumer’s Use Tax Typically due when purchases are made from an out-of-state seller. Internet Mail order catalogs Magazine subscriptions 800 numbers Untaxed purchases made in another state and shipped/brought to Iowa. RECIPROCITY Credit is allowed for sales or use tax legally due and paid to another state against the sales or use tax due your state if the other state provides for like credit. RECIPROCITY EXAMPLE A computer is purchased in Sioux Falls, SD. 4% state and 2% municipal tax was paid to the SD retailer at the time of the purchase. The computer is brought to Sioux City, IA, for use in an office. Iowa gives credit only for STATE tax paid. How much Iowa tax is due? 6% (IA tax) – 4% (SD state tax) = 2% IA tax due RECIPROCITY EXAMPLE A computer is purchased in Sioux City, IA. 6% state and 1% local sales tax was paid to the retailer at the time of purchase. The computer is brought to Vermillion, SD, for use in an office. Use tax due in SD = 6% (4% state, 2% municipal) . Less tax paid in IA = 7% . Balance due SD = 0% SERVICES South Dakota Iowa Most services taxed Services