Avoiding Tax on New Tractor??

chuck1975 · May 25, 2006

Guys this is unbelievable timing to see this question. I'm in the middle of a state audit. 2 days down and tomorrow will finish, I hope. What is the state looking for? Money! Large purchases where the sales tax is not collected or shown to be paid. All out of state vendors that I do business with. Next and final kicker all internet sales. If I don't pay sales tax then I'm suppose to report all of these items and amount of purchase and pay "use" tax on them which amounts to the same as sales tax here.
When I got the letter notifying me of the audit and what they wanted I contacted the CPA and we started putting everything together. Yep we missed a few, the audit caught them and I'm sure I'll be paying for it. Missed on purpose? No, honest mistake and auditor has said that they're even working with the CPA to minimize the penalties. They just want their money. If it is due them I have no problem paying it, I just hate the penalties.
My CPA has had several clients in the last few years get audited. The states are broke and they're looking for easy money. That means you and I. They know the coraporate world has all the CPAs and lwyers to keep them at bay so the individual and small business owners are the primary targets.
Good luck with your purchase and keep all receipts,
chuck

chuck1975 · May 25, 2006

Guys this is unbelievable timing to see this question. I'm in the middle of a state audit. 2 days down and tomorrow will finish, I hope. What is the state looking for? Money! Large purchases where the sales tax is not collected or shown to be paid. All out of state vendors that I do business with. Next and final kicker all internet sales. If I don't pay sales tax then I'm suppose to report all of these items and amount of purchase and pay "use" tax on them which amounts to the same as sales tax here.
When I got the letter notifying me of the audit and what they wanted I contacted the CPA and we started putting everything together. Yep we missed a few, the audit caught them and I'm sure I'll be paying for it. Missed on purpose? No, honest mistake and auditor has said that they're even working with the CPA to minimize the penalties. They just want their money. If it is due them I have no problem paying it, I just hate the penalties.
My CPA has had several clients in the last few years get audited. The states are broke and they're looking for easy money. That means you and I. They know the coraporate world has all the CPAs and lwyers to keep them at bay so the individual and small business owners are the primary targets.
Good luck with your purchase and keep all receipts,
chuck

Bob_Skurka · May 25, 2006

huckie wrote:
do i have this right? if i go to a state that does not have a state tax, finance a tractor though whoever, when i bring it back i will prodably have to pay even though i don't have to register it or anything? so if i buy a pair of shoes while their i still own my state! 

Actually, no you are not correct. You are very likely required, by your home state, to pay tax on both the tractor and the shoes! It is called 'use tax' and there is a line on your income taxes to fill out. The likelyhood of getting caught not paying on the shoes is very low, unless you get audited. And not paying home state 'use' tax on a tractor purchased out of state may trigger an audit, at which time the IRS may go back through 7 years of your tax returns.

AndyMA wrote: 
Online sales are currently tax exempt by federal statue unless the business you are buying from has a physical presence in the state you are shipping into. I've set up several internet stores and am pretty familiar with these regulations. Many Bricks & Mortar retailers and tax agencies are trying to get this code changed.

In New England several states have recrepical arrangements to collect each others sales tax. My dealer in Conn has been audited by the Mass tax folks.

Andy, you are correct that internet sales are exempt from having to collect tax (unless they have a destination state physical presence). However, it seems that you are implying that sales tax is not due. That is false. Sales tax is still due to the state that the goods are shipped into. The liability burden shifts from the seller to the buyer. The tax name also shifts from 'sales' to 'use' tax, but it is the same thing in every state I am aware of. The buyer is responsible for paying it, unless (like New Hampshire) the state has no sales or use tax.

The fact that states converted the liability to a "use" tax means that internet sales are NOT tax free. But they are "sales" tax free. It is semantics, but the net effect is the same, you owe the tax.

MOPAULY wrote:

Good timing for this thread. I can go to Delaware from PA and save $1000 in tax by buying a tractor there....however based on this thread I'm thinking that's not such a hot idea. So in essence I'd have to find a dealer with a $1000 better deal + some for the gas in towing. Sounds like less hassle to just pay the tax. 

You understand the situation basically correctly, however the only way the seller can sell it without collecting the tax is if he ships you the goods. If you show up with your own trailer, then by statute, he must charge you his state's sales tax. Out of state dealers, dealers on the internet, and Ebay sellers often tout that you save BIG $$$ because you don't have to pay tax IF THEY SHIP IT TO YOU, this is where the ICC and the Federal Government step in and is what AndyMA referred to as Tax Exempt, in fact that is a misnomer or misleading statement. In fact, you still have to pay tax, but you don't pay tax to the guy who sold you the goods. You pay tax directly to your state, the state calls it "use" tax when they collect it from the buyer, they call it "sales" tax when they collect it from the "seller."

chuck1975 wrote:
Guys this is unbelievable timing to see this question. I'm in the middle of a state audit. 2 days down and tomorrow will finish, I hope. What is the state looking for? Money! Large purchases where the sales tax is not collected or shown to be paid. All out of state vendors that I do business with. Next and final kicker all internet sales. If I don't pay sales tax then I'm suppose to report all of these items and amount of purchase and pay "use" tax on them which amounts to the same as sales tax here. 

That is why I warn people about this. Wait until they hit you with the interest and penalty fees too /forums/images/graemlins/frown.gif

DISCLAIMER: I am not an accountant, financial planner or tax planner, however am regularly called as an expert witness in the midwest states to tesitfy on excise taxes, cross border tax evasion and similar topics. I've testified in several states on behalf of various organizations, and at the request of legistators. I've also been deposed as an expert witness in federal court trials for multinational corporations on related topics.

Bob_Skurka · May 25, 2006

huckie wrote:
do i have this right? if i go to a state that does not have a state tax, finance a tractor though whoever, when i bring it back i will prodably have to pay even though i don't have to register it or anything? so if i buy a pair of shoes while their i still own my state! 

Actually, no you are not correct. You are very likely required, by your home state, to pay tax on both the tractor and the shoes! It is called 'use tax' and there is a line on your income taxes to fill out. The likelyhood of getting caught not paying on the shoes is very low, unless you get audited. And not paying home state 'use' tax on a tractor purchased out of state may trigger an audit, at which time the IRS may go back through 7 years of your tax returns.

AndyMA wrote: 
Online sales are currently tax exempt by federal statue unless the business you are buying from has a physical presence in the state you are shipping into. I've set up several internet stores and am pretty familiar with these regulations. Many Bricks & Mortar retailers and tax agencies are trying to get this code changed.

In New England several states have recrepical arrangements to collect each others sales tax. My dealer in Conn has been audited by the Mass tax folks.

Andy, you are correct that internet sales are exempt from having to collect tax (unless they have a destination state physical presence). However, it seems that you are implying that sales tax is not due. That is false. Sales tax is still due to the state that the goods are shipped into. The liability burden shifts from the seller to the buyer. The tax name also shifts from 'sales' to 'use' tax, but it is the same thing in every state I am aware of. The buyer is responsible for paying it, unless (like New Hampshire) the state has no sales or use tax.

The fact that states converted the liability to a "use" tax means that internet sales are NOT tax free. But they are "sales" tax free. It is semantics, but the net effect is the same, you owe the tax.

MOPAULY wrote:

Good timing for this thread. I can go to Delaware from PA and save $1000 in tax by buying a tractor there....however based on this thread I'm thinking that's not such a hot idea. So in essence I'd have to find a dealer with a $1000 better deal + some for the gas in towing. Sounds like less hassle to just pay the tax. 

You understand the situation basically correctly, however the only way the seller can sell it without collecting the tax is if he ships you the goods. If you show up with your own trailer, then by statute, he must charge you his state's sales tax. Out of state dealers, dealers on the internet, and Ebay sellers often tout that you save BIG $$$ because you don't have to pay tax IF THEY SHIP IT TO YOU, this is where the ICC and the Federal Government step in and is what AndyMA referred to as Tax Exempt, in fact that is a misnomer or misleading statement. In fact, you still have to pay tax, but you don't pay tax to the guy who sold you the goods. You pay tax directly to your state, the state calls it "use" tax when they collect it from the buyer, they call it "sales" tax when they collect it from the "seller."

chuck1975 wrote:
Guys this is unbelievable timing to see this question. I'm in the middle of a state audit. 2 days down and tomorrow will finish, I hope. What is the state looking for? Money! Large purchases where the sales tax is not collected or shown to be paid. All out of state vendors that I do business with. Next and final kicker all internet sales. If I don't pay sales tax then I'm suppose to report all of these items and amount of purchase and pay "use" tax on them which amounts to the same as sales tax here. 

That is why I warn people about this. Wait until they hit you with the interest and penalty fees too /forums/images/graemlins/frown.gif

DISCLAIMER: I am not an accountant, financial planner or tax planner, however am regularly called as an expert witness in the midwest states to tesitfy on excise taxes, cross border tax evasion and similar topics. I've testified in several states on behalf of various organizations, and at the request of legistators. I've also been deposed as an expert witness in federal court trials for multinational corporations on related topics.

KiotiJohn · May 25, 2006

( And not paying home state 'use' tax on a tractor purchased out of state may trigger an audit, at which time the IRS may go back through 7 years of your tax returns. )
The IRS doesn't do State Income Tax audits that I know of.
John

KiotiJohn · May 25, 2006

( And not paying home state 'use' tax on a tractor purchased out of state may trigger an audit, at which time the IRS may go back through 7 years of your tax returns. )
The IRS doesn't do State Income Tax audits that I know of.
John

Bob_Skurka · May 25, 2006

And not paying home state 'use' tax on a tractor purchased out of state may trigger an audit, at which time the IRS may go back through 7 years of your tax returns. 
The IRS doesn't do State Income Tax audits that I know of.
John 

John, every state has a state version of the IRS, may not be called something like a Dept of Revenue, Revenue Agency, Revenue Department or other such moniker, as determined by the individual states, but each state has some version of this department, it is under the states control and not part of the federal IRS. It is the agency that will do the audit, it has the right to go back and check your prior years, it has the authority to levy fines, penalties, sieze property, and collect interest. In most states, it has the authority to do so without 'proof of guilt' leaving the individual with the burden of the 'proof of innocence.' I confused you by not specifying it was the state agency, but as we were discussing state taxes it was implied.

Bob_Skurka · May 25, 2006

And not paying home state 'use' tax on a tractor purchased out of state may trigger an audit, at which time the IRS may go back through 7 years of your tax returns. 
The IRS doesn't do State Income Tax audits that I know of.
John 

John, every state has a state version of the IRS, may not be called something like a Dept of Revenue, Revenue Agency, Revenue Department or other such moniker, as determined by the individual states, but each state has some version of this department, it is under the states control and not part of the federal IRS. It is the agency that will do the audit, it has the right to go back and check your prior years, it has the authority to levy fines, penalties, sieze property, and collect interest. In most states, it has the authority to do so without 'proof of guilt' leaving the individual with the burden of the 'proof of innocence.' I confused you by not specifying it was the state agency, but as we were discussing state taxes it was implied.

KiotiJohn · May 25, 2006

( John, every state has a state version of the IRS, )
Bob, you're more reliable than any pushbutton machine I've ever used! /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif
John

KiotiJohn · May 25, 2006

( John, every state has a state version of the IRS, )
Bob, you're more reliable than any pushbutton machine I've ever used! /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif
John