3 Sales tax myths- Don't believe them.

Myth.1:

Labelling a transaction as a “service” on a contract or invoice does not determine its tax treatment.

States look beyond the labelling, and focus only on what benefit the customer gets, the type of benefit and the way it is delivered….all these provide the basis for determining whether the benefit provided is a product or service or a combination of both. Tax has to be applied accordingly.

Myth-2:

Bundling of physical product & service in the expectation that tax will not be charged on service.

When software, implementation, maintenance, and training are offered as a package on a single contract/invoice, such transactions are viewed as bundled sale, where the total value of material and services are totalled and taxed as per prevailing rates.

Myth-3:

Exemptions once announced stay forever is a myth. Rules change constantly. Tax payer should be conversant with overall sales tax changes in all the states where they do business, and also the status of the exemptions which they were hitherto enjoying. Not keeping track is a risk , which may invite backdated taxes, penalties , fines and interest.

Abridged article from sales tax institute blog pages.