States Share Information on Use Tax Evaders

There was this interesting article in Forbes magazine about the number of states that include a line on their individual state income tax form for people to voluntarily enter how much use tax they owe on their own purchases. The article discussed the various methods used to encourage voluntary compliance. In the end, though, even the most effective approach (which was to provide lookup tables for taxpayers) resulted in only 3% of taxpayers reporting any use tax. That's not very good. Now to quote from the article:
 

"So meanwhile, the states have begun to enforce their use-tax laws against consumers, particularly high-income purchasers of big-ticket items.

"Virginia, for example, routinely sends use-tax bills to residents who buy furniture in North Carolina and have it shipped home, Smith notes. How does Virginia know? North Carolina audits the furniture sellers and gets a list of tax-free sales to Virginia residents, which it shares with Virginia tax authorities. Such interstate tax sharing agreements are now common. "

Clients will frequently ask us how the states could possibly find them. This is a good example of how they do it.

Electricity Held to be Tangible Personal Property in CA

This recent CA appeals court case about coal purchased by a producer of electricity caught my eye. (Searles Valley Minerals Operations, Inc. v. State Board of Equalization, California Court of Appeal, Fourth Appellate District, No. D049905, February 26, 2008). The court held that coal doesn't become part of the final product and therefore cannot be purchased for resale in CA. That could have been expected. The interesting part to me was that they first went through an analysis of whether electricity is even "tangible personal property" for purposes of CA sales/use tax.

  As reported by CCH: "The term "tangible personal property" is defined in the sales and use tax laws as personal property that may be seen, weighed, measured, felt, or touched, or which is in any other manner perceptible to the senses. The evidence at trial established that electricity can be measured and felt and is perceptible to the senses. As such, electricity constitutes tangible personal property. Based on the unambiguous language of the applicable statute and the evidence presented, the court concluded that electricity is tangible personal property for purposes of the sales and use tax law." This is important because it might lead to other refunds being sought in CA, for example, plain old telephone service (POTS) is essentially an electric signal. Telephone companies spend a lot of money on electricity needed to generate telecommunications. So maybe telecommunications is tangible personal property and since the electricity purchased becomes a part of the ultimate item sold, maybe it's exempt in CA now? Or maybe, telecommunications is taxable as the sale of TPP in CA now?

Certain Conveyor Equipment Exempt in NY

Here's an interesting Advisory Opinion hot off the presses out of NY that actually favors the taxpayer.  Did you know that conveyors can be exempt in NY if they are used directly and predominantly in production activities? It's the truth, read on for some of the specific facts and some language from the Opinion.


If you'd like a full copy, let us know and we'll get it to you. Just keep in mind that in New York, an Advisory Opinion is limited to the facts set forth therein and is binding on the Department only with respect to the person or entity to whom it is issued and only if the person or entity fully and accurately describes all relevant facts.

The Issue

The issue raised by Petitioner is whether the conveyor used to move product outside of Petitioner's plant qualifies for the production exemption under section 1115(a)(12) of the Tax Law for equipment used directly and predominantly in the production process.

Opinion

Petitioner is in the business of producing various grades of concrete aggregate products. Petitioner uses aggregate conveyors to move products to conical stockpiles outside of the production plant.

Petitioner states that when the aggregate products are moved from within the plant to be stockpiled outside the plant, the products begin a dewatering process that continues until after the products are dropped in the stockpiles. The products cannot be loaded for delivery directly from the plant and are not ready for sale or delivery as they leave the plant on the conveyor system. In order to be ready for sale, the product must have a moisture content in a range below 5%. The process of drying a product or removing water from a product is considered to be a production activity. (See Matter of Albert H. Mast, St Tax Comm, September 3, 1982, TSB-H-82(97)S; Matter of National Fuel Distribution Corporation et. al., Dec Tax App Trib, March 14, 1991, DTA Nos. 801047 and 801048.) While Petitioner does not appear to "package" its products, based on the facts in this Opinion, the aggregate is not a finished product at the time it is placed on the conveyor and moved outside to the stockpile. Petitioner's conveyor system is used to transport the aggregate from the plant to the outside stockpile, during which time the drying process continues. Thus, the conveyor system is used directly and predominantly in production activities and qualifies for exemption from sales and use tax pursuant to section 1115(a)(12) of the Tax Law.