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Tag Archive for Sales/Use Tax

How to Speak the Language of Sales Tax and Value Added Tax

TaxConnections Blogger Diane Yetter posts about Value Added Taxes Both Sales Tax and Value Added Tax (VAT) can present a number of challenges to tax practitioners who are well versed in one, but not the other. To begin, the basic structures of how sales tax and VAT are imposed are largely different. But once you delve a little further into each one, you may notice that the terminology used looks foreign and unfamiliar. Sales tax and VAT have different terms for essentially similar concepts, but sometimes the concepts themselves are handled altogether differently. We’ll take a look at some of the language and terms used in sales tax and VAT, how they’re similar and what makes them different.

Nexus vs. Permanent Establishment

In the U.S., nexus is the basic concept of whether a company has sufficient presence in a state which then requires them to collect sales or use tax.  Nexus refers to links, connections, or contacts between a political jurisdiction and a taxpayer. If a taxpayer has sufficient nexus with a state, it is deemed to be “doing business” in that state and will be liable for the state taxes.  In VAT countries, a permanent establishment for VAT purposes is a factual inquiry.  It could include: having a facility located in the country, bookkeeping facilities located in the country, and the ability to Read more

Taxing the Cloud – What Are The Issues For Sellers And Purchasers?

TaxConnections Picture - Connecting To Cloud ConceptIt is likely that most businesses today are using a cloud platform in one way or another.  Most commonly, they are doing this via remote access to software and/or hardware. There are a number of benefits to using cloud platforms.  However, cloud computing provides vendors and purchasers alike with a variety of taxability issues.  As cloud computing is a relatively new phenomenon, it has eclipsed outdated sales and use tax laws, resulting in uncertainty on how to tax such products. In this blog post, we’ll cover a few of the general issues that arise when determining the tax treatment of cloud computing.

The biggest hurdle in taxing the cloud is that there is not much legal clarity on the subject.  In looking at the precedent set by states, tax authorities have generally not provided enough guidance to aid tax professionals in determining the proper tax treatment.

One area that creates challenges is the sourcing of cloud transactions.  When determining how to source and characterize a cloud transaction for sales and use tax purposes, states will generally take one of two different approaches.  They will either source the transaction to the location of the cloud provider’s server or to the location of the end-user which they consider where the benefit is received.  From a sales tax perspective, the concepts of destination and benefit are not easily applied to digital items.  A seller of cloud products and services may have no idea where the receipt takes place, or where the item is used. From a purchaser perspective, location of use may not always be known – or may be from multiple locations.  For an example, consider electronically delivered software.  Is “use” of the product at the server location or at the user’s location(s)? Read more