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Contact one
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Thomas E. Mazurek, Jr.
CPA, Senior Manager
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Tax Tips – February 2011
State Amnesty Programs At-a-Glance
| State |
Amnesty Period |
Benefits |
| City of Cincinnati |
Feb. 1 to March 31, 2011 1 |
Interest & Penalties waived |
| Michigan |
May 15 to June 30, 2011 |
Penalties waived |
| Washington |
Feb. 1 to April 30, 2011 2 |
Interest & Penalties waived |
(1) Limited to City of Cincinnati income tax.
(2) Taxpayers have until April 18, 2011 to submit their amnesty application and file any outstanding returns and amended returns for which amnesty is requested.
Streamlined Sales Tax
FL, HI
 
Two states are proposing legislation to conform their sales & use tax laws with the provisions of the Streamlined Sales and Use Tax Agreement. Florida H.B. 455 was introduced in the State House of Representatives on January 25, 2011 while Hawaii H.B. 1265 and S.B. 1355 were introduced in the Hawaiian State House of Representatives and State Senate on that day as well. The Florida legislation would be effective January 1, 2012 while the Hawaii legislation would only become effective if and when the State is approved for SST membership. States typically need to conform their definitions, sourcing rules as well as revise exemptions and other provisions to match the provisions of the SST Agreement. This is where Kansas, Ohio (sourcing rules) and other states have hit potholes on their drive toward SST membership. We will see in the coming months whether either of these states will be the next member following Georgia (2009) into SST.
ID
Legislation has also been introduced in Idaho House of Representatives (H.B. 57) authorizing the Idaho State Tax Commission to participate in discussions regarding the terms of the Streamlined Sales and Use Tax Agreement. The Bill also authorizes the Commission to prepare draft legislation to conform Idaho’s sales & use tax laws to the provisions of the SST Agreement. Idaho is currently one of two states (the other being Pennsylvania) that are considered non-advisory project states and do not participate in discussions regarding the application and possible revisions to the SST Agreement.
Amazon Developments
TX
Amazon.com is closing its distribution center outside Dallas, Texas and is discontinuing plans to expand their operations in the State as the Company continues its ongoing dispute with the Texas Comptroller over a $269 million tax bill the Company received last year for uncollected sales tax. This distribution center was one of 52 locations that Amazon.com has across the country. The Company is facing increasing challenges from states that are attempting to asset nexus over Amazon.com via the activities of its affiliates who are doing business in their jurisdictions. Amazon.com is currently tackling state tax issues with New York, North Carolina and Rhode Island and can expect additional adversaries as a number of state legislatures are currently debating proposed click-through and affiliate nexus legislation in efforts to collect millions of dollars of estimated sales tax revenue they are currently losing out on.
When “Good Faith” Is Freudian, There’s No Good Faith
The Kentucky Board of Tax Appeals considered whether Whayne Supply Company, a heavy equipment dealer, had accepted, in good faith, exemption certificates for machinery for new and expanded industry. At stake was $890,870.59 in sales tax plus interest. The Board of Tax Appeals noted that, in the documentation provided, both Whayne Supply and the Department of Revenue “always placed good faith in quotes as ‘good faith.’ It appears to be Freudian.”
It is possible that the Board found some Freudian irony in Whayne Supply’s use of the words “good faith” because “Whayne Supply encouraged purchasers to submit exemption certificates in instances for which the machinery purchases would not meet the exemption and in many cases Whayne’s staff prepared the exemption certificate for the customer to sign.”
So what does Good Faith mean?
The Board advises us that good faith means good faith. Pace Membership Warehouse, Inc v. Revenue Cabinet, Com. of Ky. (Ky.App. 1991) 808 S.W.2d 353. “In this case Whayne Supply wishes to argue that it accepted the signatures of its customers on exemption certificates in “good faith”, even though it involved situations where machinery had been placed in multiple physical plants across several states. Each time, Whayne Supply urged that it was acting in good faith when, in fact, its own record showed rather something else.” As a result, Whayne Supply was liable for the sales tax assessed on all the machinery during the audit period, with interest.
A signed exemption certificate may not substantiate an exempt sale
Whayne Supply illustrates that having a signed exemption certificate is not enough to substantiate an exempt sale. The certificate must be accepted in good faith, and absent good faith, the related sale(s) may be considered taxable under audit. In an era, when states are in desperate need of cash, but reluctant to stifle a recovering economy with additional taxes, audit scrutiny of “exempt” sales may be the next top audit issue. Consider a self audit of your organization’s exemption certificates this year and evaluate whether they’ve been accepted in “good faith” (Freudian) or genuine good faith.
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