KEN KIRSCHENBAUM, ESQ ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE You can read all of our articles on our website. Having trouble getting our emails? Change your spam controls and white list ken@kirschenbaumesq.com ******************************* Laws on collecting sales tax / Webinar Notice July 4, 2019 ********************* See webinar notice below: cyber security – protect yourself and make money ********************** Laws on collecting sales tax ********************* Ken I just read an article in Security business magazine regarding new laws related to collecting state sales tax. Seems there was a Supreme Court Ruling in South Dakota v. Wayfair. regarding the requirement to collect sales tax from customers in other states. I thought maybe you'd like to comment or have one of the Accountants on your Exchange comment and perhaps review when sales tax should be collected and when it isn't required. Looks like those who are now considering getting into the DIY business have to collect sales tax in every state they sell in. The following may vary per state but I'm sure ever one could stand a review of : * If and/or when it should and shouldn't be collected for an installation * Is a hardwired installation a capital improvement and a wireless installation not? Is a required fire alarm installation different from a non-conforming (Not Required) fire installation. Then one has to consider is a required fire alarm that is a wireless installation sales taxable? * If and when sales tax should and shouldn't be collected for a service call? What if the alarm company pays sales tax when they purchases the equipment used in a service call? Is labor only for a service call ---- sales taxable? I'm sure others will add to this list. Gene Reliable Alarm ********************** Response *********************** I asked tax expert Mitch Reitman to respond to this. Here is his response: ******* Ken, I saw the article in Security Business Magazine and, while the author is correct, it is a good example of a professional who knows a topic, but doesn’t have a thorough understanding of our industry. The article (and Gene) discusses the implications of the recent Supreme Court Case, South Dakota vs. Wayfair (the Wayfair decision). You may be familiar with Wayfair, it is a mail order company that sells ready to assemble furniture, towels, and things for your home, on the internet. Wayfair, as did many internet sellers, relied on a 1967 Supreme Court ruling that the Commerce Clause and the Due Process Clause prohibit states from taxing remote sellers without a physical presence within a state. In 1992, the Court affirmed its earlier ruling in Quill v. North Dakota. In Quil it reiterated its earlier position but it based it only on the Commerce Clause, and invited Congress – which has the power under the Constitution to regulate interstate commerce – to intervene and write the rules for how and under what circumstances states can tax remote sellers (don’t hold your breath). Of course in 1992 the internet was just a way for nerds to communicate. Fast forward a quarter of a century and internet sales are a $500 billion industry. The State of South Dakota required Wayfair to collect and remit sales taxes despite the fact that Wayfair had no physical presence in the State. It is important to note that the items that Wayfair was selling were already taxable in South Dakota, the issue was that Wayfair wasn’t collecting the tax from its customers. Sales taxes are actually sales and usetaxes in that the tax is applied to a sale of a good or service to an end user. Theoretically, if a Seller doesn’t collect and remit the tax, the end user is responsible for its payment. Many business owners find out about this the hard way when, during a State Sales (and Use) tax audit, the auditor wanders around their building looking for items that they may have purchased online, asks for proof of use tax payment, and, dings them for failure to pay. Non-business consumers are also responsible for paying use tax on items that they purchase online, but very few do. This was the point of the South Dakota law and what landed both parties in the Supreme Court. The Supreme Court ruled in favor of South Dakota stating that the physical presence rule creates cross-border “distortions” because it discourages out-of-state sellers from having an in-state physical presence and encourages customers to buy from out-of-state vendors. So, what does that mean to a security company? First, keep in mind that Wayfair doesn’t make anything taxable that wasn’t already taxable in South Dakota, or in any other state. The Security Business article discusses the taxation of “remote sales of goods and services.” I don’t believe that the author truly understands a traditional security company. With the exception of the sale of equipment online in a DIY scenario, security companies typically physically install parts and equipment at the customers location. The fact that a technician (sub-contractor or employee) is actually in the state at the customer’s location and installing the equipment, gives your company a presence in the state. Monitoring is a bit different, some states tax monitoring, others don’t. If monitoring isn’t taxable in the state, Wayfair doesn’t make it taxable. If monitoring istaxable in the state, and your company has no presence (i.e. the equipment just installed itself and you never have to make a service call) you may be able to make an argument that you aren’t required to collect and remit the tax. If the State requires you to collect and remit the tax, Wayfair does affirm this requirement. Keep in mind though, that the service is still taxable, and, if you don’t collect and remit the tax, your customer would still be responsible for it. The other factor is that most states’ licensing regulations require that the licensee have a physical presence in the state (whether you have a office or not). If your alarm license requires a physical presence, then you have a physical presence, and you have to collect and remit sales and use tax if the underlying goods and services are taxable. Don’t go into a new state without being thoroughly aware of that state’s, sales, use, ad valorem, employment, franchise, gross receipts, income, and other taxes. Most state taxing authorities maintain audit and enforcement offices in other states to collect taxes from out of state companies. Many state tax codes allow the local taxing authority to enforce a lien for taxes levied in another state. There have been a few cases in which companies selling “free” alarm, camera, and automation systems, for $65 a month on 72 month “monitoring agreements” have been challenged and lost. The result is that the state re-characterizes a huge chunk of the “monitoring fee” as an installment sale and levies sales and use tax on the alarm company. This is why it takes us hours to research sales tax for our clients entering new states. State tax codes are often vague (for example Texas taxes burglar alarm monitoring but not fire alarm monitoring), and case law can supersede tax codes. Mitch Reitman Reitman Consulting Group Fort Worth, TX 817 698 9999 www.reitman.us ********************** WEBINAR NOTICE: Title: What security integrators must know about cybersecurity Description: How to generate recurring revenue from cyber security and how to protect you and your customer from liability When: July 16, 2019 12 -1 PM EST Hosted By: Ken Kirschenbaum, Esq. Presented by: Darnell Washington dwashington@securexperts.com Who should attend: Alarm company owners and general managers Register here: https://attendee.gotowebinar.com/register/7433795216423628545 *********************** To order up to date Standard Form Alarm / Security / Fire and related forms, click here:www.alarmcontracts.com ************************* CONCIERGE LAWYER SERVICE FOR THE ALARM INDUSTRY PROGRAM You can check out the program and sign up here: https://www.kirschenbaumesq.com/page/concierge or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304. *********************** NOTICE: You can always read our Articles on our website at ww.kirschenbaumesq.com/page/alarm-articles *********************** THE ALARM EXCHANGE
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Ken Kirschenbaum,Esq Kirschenbaum & Kirschenbaum PC Attorneys at Law 200 Garden City Plaza Garden City, NY 11530 516 747 6700 x 301 ken@kirschenbaumesq.com www.KirschenbaumEsq.com
