Centurion Newsletter

VOL. 8, NO. 8 May 18, 2009

Shipping Sales Out of State: What You Need To Know

This edition of The Centurion What Jewelers Really Think Newsletter originated when a Centurion retailer had to deal with serious liabilities from shipping high-end jewelry and watches to customers out of state. He worked with Wade Downey, Downey, Smith & Fier (shown below) to reduce his exposure and learned so much from the experience he wanted other jewelers to know about this area of potentially major pitfalls. Wade provides his extensive expertise in a piece we are sure you will find of interest. Feel free to comment at the end of the article. Shipping Sales Out Of State Wade Downey, Downey, Smith & Fier The phone call announcing that you are about to be audited can often be an unsettling one, even if you have everything in order. Wade Downey, tax expert from Downey, Smith & Fier, offered tips and advice to Centurion attendees on how to avoid a troublesome situation if you are audited, specifically with regard to shipping sales out of state. First, said Downey, make sure you have all of your information ready: --Was the tax collected remitted? --For every claimed exempt sale, do you have a resale certificate or shipping documentation, and customer statements regarding use? --Is there information maintained by you that could result in additional questions or scrutiny of claimed exempt interstate commerce sales? (Customer profiles, which address is maintained? shipping address information). “Make sure that you get all the documentation to support a claimed exemption at the time the customer is standing in front of you,” said Downey. “After the fact, it becomes extremely difficult to get support.” Downey discussed state and local excise taxes (sales and use tax), administration of tax (taxable presumption, exemptions, sales for resale and interstate sales -- in-state verses out-of-state customers). Downey noted that taxes should not be a cost, but an administrative burden. “Sales and use tax should be a customer cost,” he emphasized. “If you do it wrong, it becomes an operating cost of the business.” Downey also spoke specifically about sales in interstate commerce. He gave an overview and requirements of exemption: For example, if a customer requests physical shipment of property to another state or country, the exemption is based on goods being place in continuous stream of commerce. Delivery to a customer in-store is taxable even if it is exported by the customer. Holding the property after Title Passage may nullify exemption. For exemption support, Downey said: --Sales ust be supported by shipping documents (Fedex or UPS shipper copy may not be sufficient, yet provides retailer ability to get shipping confirmation). --Customer’s residency may impose additional requirements (Customer statement that property will be used out-of-state may be required) Downey also gave some examples of common audit questions to prepare for: --Is insurance sufficient to cover value of property that was shipped? (Purchased insurance from carrier or Sellers general policy; Lack of Insurance creates additional scrutiny) --Why is delivered to name different from purchaser? --Why is property being shipped to temporary location, such as a hotel or resort? --Is customer a resident of origin state (purchaser known to be resident)? --On face of invoice, what address or phone number is noted? --What is customer's address in customer database or profile? Downey concluded his presentation with his final points: anyone who stands to be audited needs to understand the specific requirements of their state, as each state and local jurisdiction is different; be aware that states hold the retailer responsible for tax not collected from customers; exemptions must be supported by documentation, the larger the transaction the more scrutiny and the bigger the cost if you do it wrong; and understand the risks. The bottom line, he said, is that if you do it right, sales tax continues to be your customer’s cost. If you do it wrong, sales tax becomes your cost, in addition to interest and penalties. Click below for Wade Downey's Centurion session presentation and handout: DowneyHandout.pdf DowneyPresentation.pdf Wade Downey: Wade Downey, a founding partner of DSF, has over 16 years of experience serving client’s state & local tax needs. At DSF, he is responsible for leadership and management of all sales and use tax recovery projects. He has extensive training and experience in methods used by States to audit. Wade began his career as a tax auditor for the California State Board of Equalization. He is a California Certified Public Accountant and member of the AICPA and California Society of CPAs.