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It could happen to you, too...
A repair shop owner didn't give a second thought to not collecting sales tax from a customer whose trailer he serviced and inspected since the customer had presented a signed Sales Tax Exemption Certificate. Imagine the owner's surprise and chagrin several years later when, after a sales tax audit, he was presented a $64,000 tax bill for back-taxes and interest on the job in question.
Ouch!
At first glance, it seems that a properly completed and signed exemption certificate, Form REV-1220, will keep vendors from having to collect sales tax when it is presented to them by their customers. The repair shop owner accepted the manufacturer's exemption certificate in "good faith" assuming he did not have to collect sales tax for the services he provided.
But an auditor later determined the trailer was not directly involved in the manufacturing process, and therefore it was not exempt from sales tax for the services performed by the repair shop. According to the fine print on the exemption certificate, the repair shop is now responsible for payment of back taxes that came to light during the audit. Since the transaction took place several years ago, the bill and accrued interest totaled much more than the original transaction was worth. To make matters worse, the manufacturer will now be audited and will have to pay the sales tax. And the repair shop may loose a customer.
Business owners and managers are advised to know their business and to know what is and is not taxable. According to the Pennsylvania Sales and Use Tax Guide, "A seller or lessor is presumed to be familiar with the law and regulations regarding the property in which he deals. Where a seller or lessor has accepted a blanket exemption certificate, each transaction between the parties is considered a separate claim for exemption thereunder, and the seller or lessor shall, therefore, exercise good faith in each such transaction, in order to avoid liability for the tax."
In Pennsylvania, it is the responsibility of the person selling the service to know what taxes should be collected.
More information about the sales and use tax can be found at this Internet link.
| If you have questions about sales tax exemptions, you may contact Senior Accountant Juanita Aubel at 717-757-6999 or 717-800-745-8233 or email her by using the form below. |
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
IRS Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that any US tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.
Securities and advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC. Geneos Wealth Management, Inc is not affiliated with Stambaugh Ness. |
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