Discussion:Sales tax on reimbursed items
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| 11 May 2008 | |
| My company has an office in SD and one of the service contractors charges us for state sales tax on the travel & expense reimbursements we make to him. In addition to his services (which are delivered to our SD office and for which he correctly charges sales tax), we also remiburse him for any direct out-of-pocket expenses. For example, last month he picked up and paid for about $700 worth of printing, paid for it and delivered to our SD office. The printing company had already added 6% sales tax and our contractor then added another 6% when he sumbitted his expenses to us. We also pay him per diem and mileage at federal rate for any travel he does on our behalf. Again, even though SD sales tax was already paid by him when he paid for his food, lodging, etc., he adds another 6% to the expense report. When I asked him about this, he said his bookkeeper said it is required in that state. This doesn't seem right to me, since we are essentially paying double sales tax. Anyone have experience with this? Is this normal for states that charge sales tax? | |
| 11 May 2008 | |
| Why don't you ask your accountant this question? Or better yet - contact the state sales tax department?
This is a board for tax practitioners to consult and confer with one another on daily practice issues. Since this is a nationwide board and we mainly discuss Federal tax issues - coming here and asking state specific questions - is really inappropriate. | |
TheTinCook (talk|edits) said: | 11 May 2008 |
| Bullplop, state specific questions are always fair game.
Based on the facts you provided, the printing could meet the requirements and if so, you need not have been charged the additional sales tax on that. The travel expenses would not and the costs (including the sales tax charged by the hotel etc) are correctly included in the sales tax calculation. It's considered part of the price of the service he provides. | |
Death&Taxes (talk|edits) said: | 11 May 2008 |
| I wonder why the contractor does not provide the printer with a Resale Exemption certificate. | |
TheTinCook (talk|edits) said: | 11 May 2008 |
| Well, if he had, he'd still need charge the OP sales tax, no? | |
Death&Taxes (talk|edits) said: | 11 May 2008 |
| Theory is that Sales Tax is paid by the end user, or so I was taught, so if an item passes through three or four people along that way, each is exempt from Sales Tax until the final user is determined, and even then if that user is exempt [a charity, e.g.] no sales tax is ever charged on the item. So I suppose the OP would pay tax if the transaction is taxable. | |
| 12 May 2008 | |
| I think the contractor didn't give the printer a resale certificate because he wasn't purchasing the product for resale to the OP; he was just picking up the material on behalf of the OP and advancing payment of the printing cost. He should not have charged sales tax on the reimbursement because the amount he advanced was the legal obligation of the OP.
I agree with TinCook's analysis. | |
TheTinCook (talk|edits) said: | 12 May 2008 |
| D&T- If he used an exemption certificate and gave the stuff to a charity, he'd owe use tax, but not sales tax. | |
| 12 May 2008 | |
| Agree again, TinCook.
The point is that the sale of printed material should have been subject to sales (or use) tax once, not twice. The travel expense reimbursements, however, are subject to SD sales tax, even though the consultant may have paid sales or use tax on his original purchases. Logic would allow the consultant to give a resale certificate to the provider of the lodging, meals, car rentals, air fares, whatever. However, the SD regulations allow a service provider (the consultant) to give a resale certificate for a purchased service only if the service is purchased for or on behalf of a current customer; the purchaser of the service does not use the service at all; and the service is delivered or resold to the customer without being altered or changed. [ S.D. Admin. R. ยง64:06:01:08.03 .] The consultant's travel expenses wouldn't meet the second or third prongs of that test, so in effect those expenses are taxed twice. Ah, the complexities of taxing services! Many states are considering broad-based sales/use taxes on services similar to South Dakota's to fill budget shortfalls. | |
