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Tax Tips – May 2011
State Amnesty Programs At-a-Glance
| State |
Amnesty Period |
Benefits |
| Arizona |
Sept. 1 to Oct. 1, 2011 |
Penalties waived |
| Michigan |
May 15 to June 30, 2011 |
Penalties waived |
How Do You Know When the Price is Right?
USA
States continue to grapple with the definition of the taxable “sales price” particularly when the customer pays the seller along with some other party in connection with the same transaction.
On April 6th, Idaho’s Governor signed legislation amending the state’s definition of “sales price” to clarify that sales price shall not include a gratuity or tip received when paid to the service provider for a meal whether the tip is voluntary or mandatory. Idaho Code Section 63-3613(f). But the Connecticut Supreme Court had a different point of view. It held that that automobile registration renewal fees paid by Honda lessees directly to the state were part of the sales price attributable to the lease and were subject to sales tax. HVT, Inc. v. Law, Connecticut Supreme Court, No. SC 18296, April 19, 2011.
The HVT decision was not unanimous. While the majority reasoned that a lessee's payment of the renewal fees inures to the benefit of the plaintiff as the owner and lessor of leased motor vehicles, the dissenting justice, Eveliegh, concluded that even if the plaintiff benefited, those fees were not payable—or, in other words, due and owing — to the plaintiff in its capacity as a lessor of motor vehicles. “Rather . . . lessees remit renewal fees to the department as the state agency to which the renewal fees are payable.” Justice Eveliegh noted that General Statutes § 12–407(a) “does not define the phrase “due and owing” contained in the definition of gross receipts, nor does any provision of the General Statutes governing taxation, and this court has not analyzed the statutory phrase “due and owing to the retailer.”
The “true object” doctrine also influenced Justice Eveleigh. Considering the principles of AirKaman, Inc., he concluded “that the “true object of the transaction” at issue was the plaintiff's renting of a leased vehicle to the lessees . . . and the consideration for that sale was the lessees' remittance of monthly lease payments. Accordingly, “the lessees' payment of the renewal fees directly to the department was the “mere transfer of expenses between parties” . . . not taxable to the plaintiff as gross receipts.”
Clearly the determination of taxable “sales price” can be controversial when multiple parties are paid in connection with the same transaction. This may be true whether the payment is related to something as simple as a meal or as complex as an automobile lease. It would be prudent to examine whether an analogous situation exists with respect to your own business and evaluate the respective state taxing authorities for guidance (or where guidance is lacking, request a ruling) to minimize the risk of a significant assessment, penalties and interest.
Budget Passes with Multiple Sales Tax Provisions
CT
On May 4, Connecticut Governor Dannel Malloy signed the FY 2012/13 budget bill passed by the state legislature earlier in the week. The budget contains several noteworthy sales & use tax provisions, including the following:
The general sales & use tax rate will increase from 6% to 6.35% and a new luxury goods tax (7%) will be imposed on purchases of luxury items (i.e., cars, vessels, jewelry, etc.) over certain dollar thresholds. A number of sales & use tax exemptions are being eliminated, including exemptions for clothing and footwear that costs less than $50 and nonprescription drugs and medicines. Additionally, the definition of taxable “services” will be amended to include among others: motor vehicle storage services, motor vehicle towing and road services, pet grooming and certain personal services including services in connection with a cosmetic medical procedure, spa services and manicure, pedicure and all other nail services. Adoption of “click-through nexus” or Amazon.com tax provisions whereby the definition of "retailer" will be amended to include every person making sales of tangible personal property or services through an independent contractor or other representative who is a Connecticut resident. The provision would impose nexus on such retailers if:
(1) The retailer enters into an agreement with the resident under which the resident, for a commission or other consideration, directly or indirectly refers potential customers to the retailer, whether by a link on an Internet website or otherwise; and
(2) The cumulative gross receipts from sales by the retailer to Connecticut customers who are referred to the retailer by all residents with this type of agreement with the retailer are in excess of $2,000 during the preceding four quarterly periods ending on the last day of March, June, September, and December.
The retailer could rebut the presumption by proving that the resident with whom the retailer has an agreement did not engage in any solicitation in Connecticut on behalf of the retailer that would satisfy the nexus requirement of the U.S. Constitution during such four quarterly periods.
These changes are effective July 1, 2011 and are applicable to sales that occur on and after that date.
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