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I mentioned the use tax in an earlier post. Here's a bit of information on the sales tax and how it might apply to your business as a process server.
Many process servers also provide some other services and it is important to know which, if any, are subject to sales tax.
For instance, if you obtain copies of documents for a client, and charge them for the copies, you must charge sales tax on the transaction. You then pay the collected tax to the state when you pay your B&O taxes. This applies even if you are only passing through the cost you paid (to the court perhaps) to obtain the copies.
In any given month this may not amount to a lot of money BUT, if you get audited by the Department of Revenue, they will go back 3 years and require you to pay the sales tax. EVEN IF YOU DIDN'T COLLECT IT! It is possible to go back to your clients and bill them for the tax but collecting it may be difficult. This will also absorb a lot of your time.
I know this from personal experience and it was not pleasant.
Don't assume that what you are doing is not subject to sales tax. Contact the Department and find out. Click here to visit their website.
Robin Mullins September 13th, 2009 11:18:31 PM
Robin,
You are correct, this is indeed a legal requirement. However, there is an exemption to the particular example you gave. The actual exemption can vary from state to state but basically it says the same thing: if the work product (the copies) is delivered electronically, then there is no tax event.
Robert - As you mention, things vary a lot from state to state. I went through an Washington State Department of Revenue audit a few years ago. Many of the items they hit with were copies of court files that I had delivered in an electronic format. Since some of the case went to thousands of pages the amount of sales tax was not insignificant. So if there is an exemption in Washington of the type you mention, I never found it. And believe me, I looked and I had my CPA look. My rule of thumb now is "When in doubt, charge sales tax."
Along this line, our legislature passed a new law this year which expands the sales tax to all electronic media. I think the basic idea is to get sales tax on software downloads and the like. I haven't looked at the law myself but have read reports on it. Apparently it is quite Byzantine in nature. I'm told It is so complicated that the Department of Revenue is having trouble writing the rules which will be used to enforce it. Gee, I wonder where that means us lay people?
Yes, just ask Amazon how much money they spend on tax compliance issues each year relating to electronic media. We had to go through this same exercise with our document retrieval business and it does cost a good amount of money to ensure business practices are aligned with finding the comfort zone of business risk. Unfortunately, the lay person ends up in harms way not even knowing it. With local, state and federal governments in a fevered search for revenue, I don't have much hope for things getting better.