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In this video, Interstate Tax Strategies of Atlanta, GA (770-985-9573) discusses why many companies overlook the savings that sales tax planning provides when applied to purchases that will be used in multiple states, large capital projects, and technology purchases. This video outlines some of the benefits of sales tax planning.

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When businesses think about tax planning and tax minimization, they primarily think about income taxes. However, the tax and cash flow savings associated with minimizing or even eliminating sales tax on selected transactions can be significant. In this video, I will outline the benefits associated with structuring certain large purchase transactions to legally minimize or even eliminate the sales tax your business pays. When businesses purchase property, it's generally presumed that the transaction is taxable unless the purchaser presents documentation that the transaction qualifies for a specific exemption. The most common exemption claimed by businesses is the purchase for resale exemption which applies to inventory intended to be resold to another party. However, the number of sales tax exemptions is very extensive and they vary by state. Property that is taxable in one state may be nontaxable at another and companies may erroneously pay tax on transactions when it could have been eliminated with some planning. In many cases, companies pay tax on property and then realize after the fact that the transaction was actually exempt. To recover the tax, the company must file our refund claim with the state, defend the claim under audit and then wait several months to get a refund or a credit.

One of the primary benefits of sales tax planning is that a tax benefit is captured upfront which eliminates the need to fight with the state to secure a refund after the tax has been paid. Sales tax planning is done to save tax on purchases by legally structuring the transaction in such a way to either pay a lower rate of sales tax or to eliminate the sales tax entirely.

For effective sales tax planning to occur, it has to happen in advance of the purchase taking place. Once the purchase occurs, it's too late to do any planning to minimize or eliminate the sales tax. Planning is especially powerful if property is purchased for use in multiple states over a period of time. Without planning, the sales tax may be paid in multiple states on the same property, which can create unexpected and unnecessary costs.

Technology purchases being deployed to multiple states is one category that should be evaluated for sales tax minimization before the transaction occurs, particularly with the software licenses that may be taxable in one state but exempt in another. Sales tax planning needs to be part of the purchasing process and must include good communication with the vendor. Tax planning cannot be done at the last minute once you see how much tax is going to be paid on the transaction or after the property has already been shipped.

When property is purchased in the United States for shipment and use in a foreign country, the process for sales tax elimination can be tricky, but it can be achieved if you know and follow the rules. In most cases, if you or an agent take possession of the property in the U.S., sales tax will apply, even if you ultimately shipped the property outside of the U.S. If the tax savings are significant enough it may be cost-effective to change the nature of the transaction to fit in existing sales-tax exemption related to export sales or some other type of arrangement where no U.S. sales tax is paid. Once again, the time for planning is before the sale occurs.
If your business plans to make large capital expenditures for use of multiple states or if you have significant transactions involving the shipment of non-inventory purchases into other states or other countries, then now is the time to evaluate and possibly implement various strategies to minimize or even eliminate the sales tax. In some cases, the same is may be modest and in other cases, they may be significant.

Unlike income tax that has a lot of temporary tax saving strategies, sales tax savings are permanent and can significantly increase your cash flow and profitability if properly planned and executed. Don't settle for a refund of tax many years after you have paid it when you may be able to eliminate the tax at the time of the transaction.

See our other videos:

   • What is Use Tax | Consumer Use Tax  
   • Voluntary Disclosure | Sales Tax Disclosure  
   • Sales Tax Risks | Sales Tax Errors  
   • Sales Tax Consultant | Tax Consulting Atlanta  
   • Understanding Multistate Sales Tax | Multi...  
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