Sales Tax - Sales Tax Avoidance

Sales Tax Avoidance

Businesses can reduce the impact of sales tax for themselves and their customers by planning for the tax consequences of all activities. Sales tax avoidance often includes the following:

• Designing invoices to reduce the taxable portion of a sale transaction. In Maryland, for example, a delivery charge is exempt from the tax when stated separately from handling and other taxable charges.
• New facilities. Jurisdictions with no sales tax or broad exemptions for certain types of business operations would be an obvious consideration in selecting a site for a new manufacturing plant, warehouse or administrative office.
• Delivery location. For a businesses operating in several jurisdictions, choosing the best location in which to take delivery can reduce or eliminate the sales tax liability. This is particularly important for an item to be sold or used in another jurisdiction with a lower tax rate or an exemption for that item. Businesses should consider whether a temporary storage exemption applies to merchandise initially accepted in a jurisdiction with a higher tax rate.
• Review of company purchases to determine whether tax was paid in error for equipment and supplies qualifying for exemptions, especially in jurisdictions with broad manufacturing exemptions. Some jurisdictions allow refunds as long as three or even four years after the tax was paid.
• Periodic review of record-keeping procedures related to sales and use tax. Proper supporting detail, including exemption and resale certificates, invoices and other records must be available to defend the company in the event of a sales and use tax audit. Without proper documentation, a seller can be held liable for tax not collected from a buyer.

In the United States, online retailers who have no physical presence in a given state can ship goods to customers there without collecting that state's sales tax, because as of 2011, there is no federal sales tax. Amazon.com has been criticized for not collecting sales tax, and has intentionally disaffiliated itself from businesses in certain states to continue doing so legally.