Sales Tax FAQs #4
Michael J. Fleming is the founder and president of Sales Tax and More, a full-service consulting and solutions firm with a passion for state tax. He is one of the country's leading authorities on sales tax issues such as consulting and research, registrations, returns, nexus, drop-shipping, eCommerce, and service providers.
Michael is a renowned writer and speaker, and he regularly presents on webinars. He is also the host of the Sales Tax and More Podcast, where he shares his wisdom and learnings with his audience in order to help them navigate the tricky world of taxes.
In this episode…
Mike Fleming and Ellie Moffat answer some of your frequently asked questions about sales tax.
Here’s a glimpse of what you’ll learn:
Alaska Registration & VDA
Why would you do a historic registration instead of a VDA?
Can free items from a vendor be subject to use tax in a state?
Can certain exemption certificates be dated retroactively?
Connect with Michael
Episode Transcript - Audio Version
[00:00:00] Welcome to Sales Tax and More your go-to resource for all things state tax related. Now here is your host, Michael Fleming.
Michael Fleming: Mike Fleming here, founder of Sales Tax and More and today's co-host of the Sales Tax and More Podcast where we talk about everybody's favorite topic, which is of course sales tax. Now today we're gonna go over some of the questions we've been asked during our webinars.
These are frequently asked questions. But before we do, let me introduce you to my co-host, Ellie Moffat.
Ellie Moffat: Hey everyone, it's really great to be here. We're glad to have you here too. Please do not forget to like and subscribe to our podcast and I
[00:01:00] will do our introduction here. So we are Sales Tax and More.
We are a full service consulting and solutions firm, and we have a really great team of experienced tax professionals who are very dedicated to fulfilling any of your state tax or related needs. So we do a lot of sales tax returns, sales tax registrations, consultations, research, and like our name states more.
So without further ado, let's jump right into these questions. Mike, can you talk about the Alaska registration and VDA?
Michael Fleming: Yeah, absolutely. A lot of people think that Alaska is one of the nomad states. The nomad is an acronym for states that don't have a sales tax. It stands for New Hampshire, Oregon, Montana, Alaska, and Delaware.
But, Alaska, while it does not have a state tax, actually has it's a home rule state. The local jurisdictions, the boroughs and municipalities do have the
[00:02:00] ability to charge taxes. And a lot of these, most of these local jurisdictions have banded together and they have formed the Alaska Municipal League.
And the Alaska Municipal League actually administers the collection of sales tax, their sales tax programs. So when Alaska first rolled this out. Their thresholds were 200 transactions or a hundred thousand dollars. And as of January 1st of this year, they did away with the 200 transactions.
So now it's just a hundred thousand dollars. So if you've been selling remotely into Alaska, and if you are over a hundred thousand dollars, you're supposed to be collecting and remitting the sales tax. So a VDA is a voluntary disclosure agreement. You have five years of exposure in Alaska.
You may want to take advantage of a VDA. And as a reward for participating in the VDA, they're gonna
[00:03:00] limit your look back period, and they're going to waive the penalty for that period. Yes you can do a VDA in Alaska. Now if your exposure is not that great, then you may wanna do what's called a historic registration, which is use the actual date that the nexus was crossed and just file the back returns and then ask Alaska for a penalty waiver.
They're not gonna do an interest waiver, but they generally are going to do a penalty waiver. You can register I forget the exact name of this. It's the Alaska Remote Seller something commission. And that's who you would register through in order to collect and remit tax and be in Alaska as well as who you would submit the VDA through.
Or you can come to someone like us and we can help you get registered or, and or do a VDA. If you're doing a VDA in just about most states out there, the registration process is
[00:04:00] included in the VDA. In some states like California, you need to register first and then in within 30 days, let them know that you want to do a VDA.
But generally it's the other way around. Generally, the registration is included as part of the VDA process.
Ellie Moffat: All right. Thank you so much, Mike. Let's jump right into the next question also about a VDA. Why would you do a historic registration instead of a VDA?
Michael Fleming: The cost is one of the big things.
A VDA is a very formalized process and there's a lot more work involved than a historic registration. Depending on how many VDAs you do, our fees are gonna be anywhere between $2,400 per VDA and I think $3,700 per VDA for a single VDA. Don't hold me to that. The prices change all the time but that's gonna be in the ballpark.
So if you only owe $500 worth of back tax, does it make sense to do a VDA? Why in the world would you pay
[00:05:00] us even $2,400 to remit $500 of tax on your behalf? Just doesn't make sense. Now, we're gonna tell you that so long as we know what your exposure is. We do have a program, it's called the VDA Cost Benefit Analysis.
But there are other companies out there. I'm gonna pick on Avalara. Avalara's gonna tell you, "Hey, if you owe more than $500, you need to do a VDA. And by the way, our cost is". This is based on a little bit older information, if anything their prices are higher, but it was 3,500 and they didn't give you a break based upon the number of VDAs that you were doing.
So people would come to us owing maybe $50,000 and having, bills or invoices from Avalara for $120,000. Absolutely ludicrous. So no matter who you're going to for the VDA, rule of thumb is you want to save at least as much money by doing the VDA
[00:06:00] as the cost of the VDA. So if you're not gonna be saving $3,500 and you can't do that, if you only owe $500, then you want to try another method to take care of this past liability.
And that's a historic registration. And a historic registration is when you use the actual date that your nexus began. They're gonna want back taxes. They're gonna want penalty, they're gonna want interest, but it's a lot cheaper to do that in general than it is to do a VDA. So you still get compliant with the state.
You always want to ask for a penalty waiver when doing a historic registration. Most of the states are gonna work with you on some, if not all of the penalty. Very few of them are gonna work with you on the I don't know of any that are gonna work with you on the interest. If you're doing a VDA, there are about seven states that work with you on the interest but on historical returns, it's gotta take an act of God to get that interest waived.
Ellie Moffat:
[00:07:00] All right. Thank you so much, Mike. And a reminder to everyone, these are questions that have come from webinars. So this question is a little bit, it's more personal to someone, but I think applicable as well. So if I as a vendor gave away free items, can those be viewed by states as subject to use tax?
Michael Fleming: What's my favorite answer?
Ellie Moffat: I'm gonna take a wild guess in the dark here and say, it depends.
Michael Fleming: Yes. Winner, winner, winner. Chicken dinner. Yes. It depends. Now, very fact specific here. So if you have purchased something for resale. In other words, you didn't pay any tax when you purchased it, and now you decide to give it away.
And in some states even if you give it to charity, then that's a personal use. The company itself has used it. So therefore, it is subject to a use tax. So in that instance, yes. Now I just did a research project for a company out there
[00:08:00] and they were getting free items from their manufacturers and vendors, and they were giving it away for free.
They were passing these items on to their customers. So there was no cost paid. No money received. Use tax is usually based upon the cost of the items. Since you didn't pay anything for these items, you just passed through the gift. In that instance, no use tax would be due. As always, it's gonna be very fact specific.
But if you did buy something and didn't pay tax at the time of the purchase, then a use tax is generally gonna be due if it's given away.
Ellie Moffat: Alright, thank you so much, Mike. And last question we have for this episode here. Can certain exemption certificates be dated retroactively? For example, seeking refunds, if someone's seeking refunds for a client?
Michael Fleming: What's my favorite answer again?
Ellie Moffat: I think it's the one that we keep that
[00:09:00] keeps coming up for some of these questions. So it depends, eh?
Michael Fleming: Yeah it, it depends. It's gonna depend on the state. It's gonna depend on the auditor who's working with you, the person reviewing the refunds. Sometimes, it's a hard and fast state rule that you can't do it. What can be done though sometimes is if someone was actually registered during that period, you get a current certificate and they'll look at whether that transaction occurred when the person was registered.
So if the certificate is valid today and it was valid at the time of the transaction, sometimes it does not have to be backdated. In an audit, that's very prevalent. Some auditors, as I was mentioning, will let you backdate it. Sometimes, it's not needed to be backdated because since it wasn't available at the time of the audit it's subject to additional verification anyway.
So that's something that the auditor is going to do is see if it's a a valid
[00:10:00] exemption at the time of the transaction. Answer is, it depends. As always, it depends on the specific facts and circumstances. Another answer besides it depends, is maybe. Depends on the state. But you don't always need to do it because if you have a valid certificate today we can ask the auditor or ask whoever's reviewing the refunds to just make sure that they were actually registered at that time with no gaps in between.
Ellie Moffat: All right. Thank you so much Mike, and thank you for answering these questions here and you know if anyone has any additional questions, please send them in. You can send them to me directly at emoffat, that's E-M-O-F-F-A-T at salestaxandmore.com. You can also visit our website salestaxandmore.com. And we have a series of free webinars you can attend that offer CPE credit. We have resources on our website as well. And if your question's a little bit more complicated, we offer consultation. So
[00:11:00] Mike thank you so much.
Michael Fleming: Thank you Ellie. And thank you everyone for listening in to today's episode of the Sales Tax and More Podcast.
And we hope to see you on the next episode. Bye-bye.