State Taxes Deductibility

[Yoda]

This will be obvious to all those who are knowledgeable about our outdated and confusing tax code. I went to see my accountant for preparation of my 1040 and received some unexpected and welcome news. As many might recall, I have waged an unsuccessful battle against paying state income tax to AHs on charges imposed where I am not resident, ie. any state but Florida. This has been principally directed towards one predominant AH in Texas. i have been stonewalled at every turn.

Anyhow, I learned that I can deduct state taxes as part of acquisition cost, which I had not realized prior. This should save me some tax dollars...most welcome.

I also have to wonder if these taxes paid in the past have gone into an escrow account and sent to Florida or ended up in general operating funds.

[D. Bergin]

You mean "Sales Tax" I assume?

[Leon]

RE: sales tax. I am sure he does. I always have included it in my cost basis, along with shipping. I use my landed cost for my valuations.

and a card that was a BST purchase a few years back...
.

[Yoda]

Leon, sure, I meant sales tax. Just got a little excited about the possibility of saving a few bucks and mad at myself for not recognizing their deductibility sooner.
Florida does indeed impose a 6% sales tax but, of course, nothing for out of state transactions, as they shouldn't. The AH in question has an office here in Palm Beach, but that shouldn't matter since the point of sale has been in Texas.

And I sure hope that Florida received all the sales tax I have been charged over many years.

[D. Bergin]

As of a couple years ago or so, point of sale doesn't much matter anymore for a company the size of Heritage.

[BobC]

Originally Posted by Yoda

This will be obvious to all those who are knowledgeable about our outdated and confusing tax code. I went to see my accountant for preparation of my 1040 and received some unexpected and welcome news. As many might recall, I have waged an unsuccessful battle against paying state income tax to AHs on charges imposed where I am not resident, ie. any state but Florida. This has been principally directed towards one predominant AH in Texas. i have been stonewalled at every turn.

Anyhow, I learned that I can deduct state taxes as part of acquisition cost, which I had not realized prior. This should save me some tax dollars...most welcome.

I also have to wonder if these taxes paid in the past have gone into an escrow account and sent to Florida or ended up in general operating funds.

John,

The Florida sales tax that Heritage has charged and collected from you in the past had better be getting sent to Florida for Heritage's sake. If it was discovered that Heritage was charging you sales taxes which they then just kept to use and pay their own bills, Florida, as well as any other states they were supposed to be remitting sales taxes to, would not look upon that very kindly once such a practice was discovered. You yourself have no issues and concerns since you paid the sales tax that was due. Heritage however, operates in somewhat of a fiduciary capacity and it technically operates as an agent for those states in which it is required to charge, collect, and remit sales taxes. It is part of what they have to do in order to be permitted the right to operate in any particular state. That sales tax money is not Heritage's, or any AH that collects sales taxes, to just do with as they please.
At least not if they want to continue operating without any problems in that particular state.

[D. Bergin]

Heritage collecting Sales Tax is likely something they would rather not have to do. It's a money losing proposition. Likely cost them plenty on the accounting end, and any fees that any merchant processing company deducts from that portion of sales, is a direct loss, since you can't charge somebody a collection fee on top of the sales tax collection.

Unless (to get on my own soapbox ), you are Ebay, and you've figured out how to charge what's essentially a "Sellers Fee", on the entire sale, including Shipping and any collected Sales Tax. The higher a states sales tax rates are, the more money Ebay collects for itself, for that transaction.

[BobC]

Originally Posted by Yoda

Leon, sure, I meant sales tax. Just got a little excited about the possibility of saving a few bucks and mad at myself for not recognizing their deductibility sooner.
Florida does indeed impose a 6% sales tax but, of course, nothing for out of state transactions, as they shouldn't. The AH in question has an office here in Palm Beach, but that shouldn't matter since the point of sale has been in Texas.

And I sure hope that Florida received all the sales tax I have been charged over many years.

John,

I answered this for you before. Since the auction is handled remotely online, and the items are shipped to you at your Florida residence, the point of sale where you actually take possession of the items you won is at your house, where you opened your mail. It is not in Texas where Heritage is headquartered, and your items supposedly sent from.

That is also why no matter where you live, if you walk into a store and buy an item there, and take possession of it at that time, that store location becomes your point of sale. Not where you live, nor where the headquarters of the store you just bought an item from is located.

[BobC]

Originally Posted by D. Bergin

As of a couple years ago or so, point of sale doesn't much matter anymore for a company the size of Heritage.

Dave,

Point of sale absolutely matters, especially when it comes to sales taxes, and is generally considered to be where the transfer of possession/ownership actually takes place. When you walk into your local store to buy something, you take possession of it right then and there, and that is your point of sale. But when you buy something via mail order or online, it doesn't become yours where you take possession of it till it is actually delivered to you and you open the mail and have the item in hand.

This is exactly why having delivery of Ebay sales confirmed is such a big deal. A seller technically retains ownership and responsibility for an item until it is actually delivered to a buyer. And that is pretty much the general rule for ALL domestic US sales.

[D. Bergin]

Originally Posted by BobC

Dave,

Point of sale absolutely matters, especially when it comes to sales taxes, and is generally considered to be where the transfer of possession/ownership actually takes place. When you walk into your local store to buy something, you take possession of it right then and there, and that is your point of sale. But when you buy something via mail order or online, it doesn't become yours where you take possession of it till it is actually delivered to you and you open the mail and have the item in hand.

This is exactly why having delivery of Ebay sales confirmed is such a big deal. A seller technically retains ownership and responsibility for an item until it is actually delivered to a buyer. And that is pretty much the general rule for ALL domestic US sales.

Hi Bob,

Perhaps I miss-spoke. I probably meant to use "Nexus" rather then point of sale.

Point was, Heritage, as of about a couple years ago or so, because of the size of the company it is, likely has to collect sales tax no matter where you live (unless you live in a sales tax free state).

I think that was the gist of the beef the OP had with Heritage. That they were collecting sales tax from him while he was stationed in Florida, and they in Texas.

[BobC]

Originally Posted by D. Bergin

Heritage collecting Sales Tax is likely something they would rather not have to do. It's a money losing proposition. Likely cost them plenty on the accounting end, and any fees that any merchant processing company deducts from that portion of sales, is a direct loss, since you can't charge somebody a collection fee on top of the sales tax collection.

Unless (to get on my own soapbox ), you are Ebay, and you've figured out how to charge what's essentially a "Sellers Fee", on the entire sale, including Shipping and any collected Sales Tax. The higher a states sales tax rates are, the more money Ebay collects for itself, for that transaction.

It is technically not a loss, but a cost of doing business, just like paying the rent or an employee's salary. But you are correct in that probably no business wants the hassle of dealing with sales taxes if they had a choice. But they don't, and collecting and remitting sales taxes is a requirement they must perform in return for the right to operate and do business in various states.

And as for Ebay charging a fee to sellers for sales tax collected on their behalf, I'm sure they view that as a way to charge and recoup the costs the sellers would otherwise directly incur if Ebay wasn't doing this sales tax collection and remittance for them.

There is no specific law or rule anywhere that I'm aware of that would prohibit any auction house from also charging sellers, and even the buyers, a commission/fee on any sales tax collected as part of the auction as well. It's just that there is a lot of competition among AHs, and the first AH to do something like that would get negative publicity and likely lose some bidders and consignors. Ebay doesn't have anywhere near the volume or level of competition that AHs do, and can easily ignore everyone else and pretty much just do what they want.

[BobC]

Originally Posted by D. Bergin

Hi Bob,

Perhaps I miss-spoke. I probably meant to use "Nexus" rather then point of sale.

Point was, Heritage, as of about a couple years ago or so, because of the size of the company it is, likely has to collect sales tax no matter where you live (unless you live in a sales tax free state).

I think that was the gist of the beef the OP had with Heritage. That they were collecting sales tax from him while he was stationed in Florida, and they in Texas.

Hey Dave,

There is a definite difference between "nexus" and "point of sale". "Nexus" refers to a seller and whether or not they are even required to collect and remit sales taxes in a particular state, whereas "point of sale" refers to which state/locality a specific transaction is subject to having sales tax paid to. And if there is no seller that has "nexus" requiring they collect and remit sales tax on a particular transaction, the "point of sale" still determines what tax authority the buyer is then supposed to pay the "use tax" they now likely owe on their purchase to, and the sales/use tax rate they are supposed to base their payment on.

And in John's particular case, both "nexus" and "point of sale" are relevant. The fact that he was living in and received via mail/delivery items he won from Heritage clearly places the "point of sale" in Florida, not Texas. So, the only state entitled to sales tax from this particular sale/auction is Florida, period. Now the concept of "nexus" comes into play to determine if it is the seller, Heritage in this case, that is responsible for collecting and remitting the sales tax due to Florida on this particular sale/auction, and if not, that means it is then the buyer's (John's) responsibility to remit the sales tax that would have due to Florida himself, except it is now called a "use tax". And in this case, Heritage several years ago opened up an actual office in Florida, immediately giving them a physical presence in Florida. And having a physical presence in any state automatically gives that same company/seller a sales tax "nexus" in that state. So, in John's particular case, Florida is most definitely the state sales tax is owed to, and Heritage is just as definitely the party responsible for charging, collecting, and remitting to Florida the sales tax owed on what they sold to John.

[Exhibitman]

All this granular detail on nexus and localities is irrelevant. If you live in a state with a sales tax, you also live in a state with a use tax. The only difference is the mechanics: the seller collects a sales tax from you, versus you having to track, declare and remit a use tax. Either way you are supposed to pay it. I hardly have to remit any sales tax because my main selling venue is eBay and they collect the taxes on my sales, but I have to track my PC purchases and declare and remit the use tax. Whatever I pay then becomes part of my cost basis in the item. The main difference is that most people who do not have a resale permit simply ignore the use tax. Those folks are the ones aggrieved at having to 'suddenly' pay the sales tax. It is a completely incorrect analysis. Effectively, they are foaming at the mouth at going from tax cheats to taxpayers. Since I do pay my taxes, I am happy they no longer get a 10% advantage in bidding against me.

[Rhotchkiss]

"Anyhow, I learned that I can deduct state taxes as part of acquisition cost"..... "just got a little excited about the possibility of saving a few bucks and mad at myself for not recognizing their deductibility sooner."

To clarify, the state sales tax on items you buy at auction is NOT deductible. Rather, you may add to your cost, thus "tax basis", in the card and it may reduce the amount of gain (or increase the amount of loss) you recognize if/when you sell the card.

[Yoda]

At last I feel I have some clarity on what has been a confusing understanding on what seemed an opaque subject. Thank you, gentleman.

Bob, I couldn't agree more about Heritage's fiduciary responsibility of collecting and remitting sales tax to Florida. So, having paid such tax for years on multiple winning auctions, do I have any legal right to see evidence that Heritage has done the right thing and sent my payments, along with many other FL residents in similar circumstances, to the state?

[BobC]

Originally Posted by Yoda

At last I feel I have some clarity on what has been a confusing understanding on what seemed an opaque subject. Thank you, gentleman.

Bob, I couldn't agree more about Heritage's fiduciary responsibility of collecting and remitting sales tax to Florida. So, having paid such tax for years on multiple winning auctions, do I have any legal right to see evidence that Heritage has done the right thing and sent my payments, along with many other FL residents in similar circumstances, to the state?

LOL

Wonderful question John, but I'm afraid the answer is no. Heritage doesn't have to show you their specific books and records. As I mentioned before though, you yourself are clear and free of concerns since you paid the Florida sales tax to them, and should have records to prove it. If Heritage ended up not paying it in, rest assured Florida is not coming after you for it.

Now even though you don't have any right to legally force Heritage to prove to you that they paid your sales tax money to Florida, if you truly have some concerns that they may not be remitting your sales tax money to your state, as a Florida resident you can always contact Florida and raise your concerns to them. You want to go to the website for the "Florida Department of Revenue". Once there, click on the "General Tax" link button near the top of the page, right under the word "REVENUE". This will take you to the page regarding Florida sales and use taxes. Under the "Quick Links" heading on the left side of the page you'll see a "Contact Us" button, and at the bottom of the page you'll also find a "Questions and Answers" link. They will tell/show you how to contact them electronically, by phone, or by mail.

If you tell them you are concerned that Heritage is not paying them sales taxes they collected from you, I sincerely doubt Florida would tell you anything specific. However, it may prompt an agent to do a quick internal check to see if in fact they are receiving sales tax payments from them. And depending on what they find, could end up prompting further review of their account, and even lead to an audit. But again, I doubt Florida would share what they end up doing regarding Heritage with you.

And be careful if you do end up talking to someone in the Florida Department of Revenue. During a conversation you may get asked if you buy things from any other out of state AHs, and if so, who. You might then get asked if you got charged Florida sales tax on purchases from those other AHs as well. And if not, and you confirm that to the agent you're talking to, their next question may be if you paid the use tax you owed to Florida then. And if not, Florida may now be looking at you. So be careful what you say and do.

Have fun, be careful, and hope this helps.

[Yoda]

Bob, helps a lot, and now I can put this whole sales tax thing to bed. Tks again for your patience. John

[BobC]

Originally Posted by Exhibitman

All this granular detail on nexus and localities is irrelevant. If you live in a state with a sales tax, you also live in a state with a use tax. The only difference is the mechanics: the seller collects a sales tax from you, versus you having to track, declare and remit a use tax. Either way you are supposed to pay it. I hardly have to remit any sales tax because my main selling venue is eBay and they collect the taxes on my sales, but I have to track my PC purchases and declare and remit the use tax. Whatever I pay then becomes part of my cost basis in the item. The main difference is that most people who do not have a resale permit simply ignore the use tax. Those folks are the ones aggrieved at having to 'suddenly' pay the sales tax. It is a completely incorrect analysis. Effectively, they are foaming at the mouth at going from tax cheats to taxpayers. Since I do pay my taxes, I am happy they no longer get a 10% advantage in bidding against me.

Adam,

It really isn't irrelevant. I was just trying to demonstrate how the "point of sale" determines what state/local jurisdiction the sales tax is owed to, while the seller's sales tax "nexus" determines who is responsible for actually reporting and sending the sales/use tax money to the state.

If the seller has sales tax "nexus" in that state, they are responsible for charging and collecting the sales tax from the buyer, and then reporting and remitting it to the state. If the seller does not have "nexus" in that state, then it is the buyer's responsibility to report and send in to the state the sales tax on their purchases, except it is now referred to as a use tax and not a sales tax. Either way, the buyer is ultimately responsible for paying the sales/use to someone, be it the seller or the state.

I agree with you that many people don't even realize they may be personally responsible for a use tax when they buy something sent to them from out of state. I'm merely hoping to educate those people as to exactly what the sales tax rules are so they better understand and realize that they maybe shouldn't be complaining about enhanced sales tax collections. And as for those people that knew fully well they should have been paying a sales/use all along, and are now bitching because they can't so easily get away with being a tax cheat anymore because Ebay and others are now forced to collect sales tax on them, they really do need to learn to STFU. Keep bitching enough on a public forum like this and watch someone turn your names in to the state sales tax authorities where you live.

If paying state sales tax bothers you that much, PWCC and Goldin (and I guess now Ebay as well) offer "vault" services specifically designed to get you out of paying sales tax. And if that doesn't work for you, you can always claim to be a dealer in business and file for a resale exemption certificate you can then give to sellers so they don't charge you sales tax. But then don't come bitching to me if later on you end up selling/trading something you originally bought using that sales tax exemption certificate because the gain/profit you make on it is no longer capped at capital gains tax rates, but is taxed at potentially higher ordinary income tax rates instead. Oh, and it will also be subject to an additional Self-Employment tax of up to 15.3% of the profit from the sale/trade as well, on top of whatever income tax you ended up owing on the sale/trade already.

And Adam, none of these last paragraphs are directed at you obviously. You know exactly what I'm talking about. These are posts once again for the edification and enlightenment of many of our fellow forum members who don't fully know or understand how various tax law s can and do affect their hobby, investing, or dealer activities. If nothing else, at least they know what some of their options might be so they can better decide what they want to do for themselves.

[BobC]

Originally Posted by Yoda

Bob, helps a lot, and now I can put this whole sales tax thing to bed. Tks again for your patience. John

No problemo John, happy to help. Hey, next time you talk with your tax person, maybe you can impress them with your tax knowledge now. LOL

Have a good one.