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Episode 021: Laying the Groundwork for Understanding Sales Tax

interview sales tax Dec 12, 2019

On this episode, I chat with Amy Monroe about the 101 on sales tax and how to get started understanding the rules as a creative small biz owner and entrepreneur.



Episode Transcript

Braden: (00:01)
Hello and welcome to episode 21 of the unfuck your vis podcast. As always, I am your host, Braden. Super excited to have you here. If you could see the setup we have right now, it would probably be funny, I'll should upload a screenshot to the show notes. Amy and I are like snuggled closely in my office because luckily we both work at the same office building so it makes recording really easy. Uh, what we're going to do today is Amy is a sales tax, just like master mind person. She knows all the things that are needed to know about sales tax. So she is going to walk us through this title episode, laying the groundwork for sales tax. So do a little bit more of a proper introduction. Amy Monroe is a partner or employee. I'm an employee, an employee, but like my boss would love it if I was a partner, but I'm not.

Braden: (00:56)
Yeah, but um, feel like you're probably pulling some strings into those types of guys. Do okay. Yeah. Okay, perfect. So Amy works for sat R, am I pronouncing that right? So tar and associates. And then she also has an online alias, the sales tax Yogi. So you can follow Amy personally on Instagram as well. Amy has been working in the sales tax compliance and consulting for 20 years. She started straight out of graduate school in 1998 and like most people in the sales tax arena, she sort of stumbled into it. None of us really grow up wanting to be experts in sales tags. No. And no one also probably even decides that in college. Yeah. Now, but what I always find is that the sometimes the most fun career as the career that you're most knowledgeable about

Amy: (01:43)
and that's what really matters. Yeah. Well and it's funny, I mean there's nothing that's quite like the buzz kill of cocktail party conversation and someone's like, Oh, what do you do? Well, I'm a sales tax expert and um, and they're like face, they either go, Oh, I'm sorry. Or, or their face like glazes over and looks at you like, what the heck is that? And um, but intellectually and like academically, absolutely fascinating. Especially in the last year since all the rules changed.

Braden: (02:11)
Yes. I get that a lot too. People are like, everything you do sounds awful. And I say, well if you knew what my day to day look like, I roll over the office like whatever I want. But usually by 8:00 AM and my Lulu lemon pants. Yeah. And then I talked to creatives do podcast. I get to create my own graphics cause I haven't been smart enough to outsource that yet. And then go to lunch with Amy whenever I want across the street I get a burrito, she gets salmon, like having every time, very different levels of health. Everyone there, those of us, that sort of thing.

Amy: (02:44)
I dunno. [inaudible] smoothie last time. That's counts for something.

Braden: (02:47)
Yeah. I mean a cup full of sugar was really what I was going for me again. So Amy, can you tell everyone what someone does when they're sold business sales tax? Like what does that look like? Who do you work with?

Amy: (03:00)
Okay. Um, yeah, so our firm does actually just focus on sales and use tax. I mean we do some business licenses and things like that, but really we're just experts in that space. And we work with folks like you guys when it comes to like tax law and income taxes and things like that. So, um, what do I do? I help businesses of all shapes and sizes navigate their sales news, tax compliance and consulting obligations across the country. Um, and lately that's even expanded into, uh, some U S territories like Puerto Rico and even up into Canada, um, and the, some that work in like the UK, but that's a whole different language quite literally. Um, but basically, you know, when a business is in the business of selling something, either in good or a service, um, chances are 99% of the time they have a sales tax filing obligation.

Amy: (03:50)
Um, and then our firm helps them understand, um, whether or not what they're selling is taxable, um, what the tax rates are, how the compliance process works. And then, um, most of that is actually done, uh, from our team up in LA, that compliance folks handle a lot of that kind of monthly day to day type stuff. Um, my team down here in San Diego handles most of the consulting stuff. So, uh, tax ability research, um, refund claims, audit defense. Some of the more [inaudible] less, I don't know, number crunchy parts. Gotcha. Okay. So more of the like the strategy and the research and all that kind of stuff. Yeah, and mostly helping people when they think they're in trouble.

Braden: (04:30)
Okay. Love that on the defense. So you guys don't worry. We are going to break this down is one Oh one as we can like an introductory level, the goal is to bring Amy back for a few more episodes where we're going to do deeper dives in a more specific issues. The point of this podcast, like we mentioned, the intro is really just to lay the groundwork. So when we have Amy on for episode 379 to talk about the specific nuanced area of the sales tax law, we can say go back and listen to episode 20 wines. You can understand what is happening.

Amy: (05:07)
So with that in mind, okay, where do we start? What's the first thing we need to know? Um, so it's funny you asked me like give me the one Oh one. And for me it's really easy to like totally peek out and give a sort of a semantic, so slow me down and like back it up if I get that way. So at the end of the day, sales tax is a consumptive tax. It's a consumer based tax, right? So a lot of times when we think of taxes as like a lay person, we think about income tax, that kind of thing. Or like, Oh that comes out of my pocket as a consumer, that's kind of true with sales tax as well. But as a business, you're really an agent on behalf of the States, right? Like those tax dollars don't belong to you. They belong to this date and, but the state uses you to collect those taxes from the consumers when they buy. It really just feels like bullshit to me. But well, it's kind of, it's kind of the path of least resistance. Right. And if you think about, um, your tax dollars at work, would you want to pay from your, like income taxes, your harder or tax dollars to pay a state agency to have enough people to then do the sales tax collection stuff? Or should they just leverage, uh, a system that already,

Braden: (06:18)
yeah, I get it. I mean, as a business owner I would stay, yeah, I would still rather my tax dollars actually do pay for them to do that. But I understand that the majority of the population is going to say, nah, let's have the business owners take care of it. So when Amy says that this is a consumptive tax, what she means is it's really kind of the obligation of the person buying the product. So your clients and customers, but the state's going to put it on the business owner to collect those taxes

Amy: (06:47)
and to pay them. Right? Yeah. And then, um, what tax rate you collect and how often you give it to the state and local government and which state and local governments you'd give it to. That's where my expertise comes in.

Braden: (07:00)
Okay. Beautiful. So quick synopsis there. Everyone basically every state is different. Yes. And then every locality can be different, right?

Amy: (07:13)
Yeah. So like in California, which I think is kind of the focus we're going to have today. Um, yes there are local tax rates, but the state collects everything. You file it all on one form and then it's up to the state based on how like what you put on that form to send those tax dollars to the local government.

Braden: (07:32)
Got it. Cause I know like San Diego, like Carlsbad and Oceanside can all three charge different sales tax rates,

Amy: (07:39)
state rate. I think in California, I should know this off the top of my head, I think it's like six and a quarter. And then when you talk on the County tax and the local tax here in San Diego, we're at like eight, eight and a half depending on, you know, what the latest rules are. But um, yeah. So each state and local combined rate can be different. Um, and that can even in some places like in Texas that goes down to even like your local transit district or security district, it's really quite nuanced. Then there are a handful of States that are called home rule States. So Colorado is one. Uh, Louisiana is one. Um, Alabama, uh, is one, although they're kind of shifting and changing. And Arizona used to be and that's where not only did the local governments have different tax rates, but they're actually their own separate tax authority and you have separate filing obligations with those cities. So those cities then collect the tax because the state still do. They do. And even in places like Denver, not only are the rates different and as the tax collection different, but the rules can be different. Denver is actually kind of notorious for that. Great. That's why I get paid. So yeah.

Braden: (08:45)
So follow up question on that in areas of the wall. So I'm an attorney if you didn't already know people. Um, and I can for whatever reason have a lot of knowledge, random knowledge on Colorado based laws, but I still technically should not be advising on them. Is what you do similar or can you work with anyone anywhere?

Amy: (09:04)
So we deal work with anyone anywhere. Um, however, I mean, if it really is coming down to it and we're just getting the run around from a, you know, a local tax authority or even a different state, we can certainly call it in those favors and reach out to people that we know in those areas. Um, and not for nothing but my team and I, we actually spend a lot of time just on the phone with the tax authorities themselves. I mean, that's part of what I get paid to do, um, is, is negotiate those things and ask those questions.

Braden: (09:29)
Okay. Love it. So that's good information. Now we know how sales taxes is different than income tax. We have kind of a general idea of how it's different state to state locality to locality. If a creative business owner or an online entrepreneur is like, okay, so where do I start? I don't even know if I need to be collecting sales tax. Right? And if I do need to be collecting it, what do I do? Where should they get started learning what they need to learn? Um,

Amy: (09:58)
yeah, that's a really great question. These days the States have gotten pretty good about putting out information that is easily digested and understood by your average business owner. Tax payer type person. Um, the CD TFA, the California department of tax and fee administration isn't that fantastic. Um, and they like just change their name. I know it used to be the board of equalization. It was so much easier, but it didn't really make sense to people. So yes, California department of tax and fee administration, um, they actually have a pretty good website and you can go and they have publications dedicated to pretty much any industry you can imagine. Not to be confused with you guys. The uh, FTV the franchise tax board, which collects income taxes, the CD

Braden: (10:41)
CFA collect sales taxes. I'll put a in the show notes, a little recap of these entities so that way you can, you know, jot it in your Trello account or on a notepad. And when you get hate mail from them, you'll release.

Amy: (10:56)
Right? Yeah. And, and that is a funny thing. Like, I call them nasty grams, not hate mail, but, um, and my husband jokes that I'm like the only person in the world that doesn't get nervous when we get a letter from the IRS because I know that chances are it's like a small little paperwork error or something and there's nothing that can't be handled. Um, and there's no reason to, uh, to, to panic until there's reason to panic. Right. Um, but part of the reason, if I can do a shameless little plug here for a second, part of the reason I created sales tax Yogi is because there are limited resources for people, especially since the rules changed last year. And I can talk about that in a few minutes. Um, so many small businesses have sales tax obligations that didn't used to have them. And there's not many places where you can get kind of like basic one-on-one information, um, and some handholding really to help navigate this space without paying a firm like the one that I work for on a regular, right, you know, hundreds of dollars an hour, kind of like legal services, um, to, to answer some fairly basic questions really.

Amy: (12:02)
So there are some online resources and they're even, um, some of the online tax engines like tax jar Avalera, those guys, they have some pretty decent blogs too. Um, they're not always perfect but [inaudible] and neither am I right. Like we all make mistakes and, and it's tough to keep up with the sort of rapid fire change in the sales tax arena right now. Cause honestly the Supreme court changed the rules back in July of 2018 and the States are kind of figuring it out as they go along. Um, in my not so humble opinion, it's not very well thought out legislation and, um, and it's just happening so fast and they're constantly making changes and adjustments. But anyway, if you are running a business, um, basically you want to go to the state tax website, uh, for where your business is located and see what the basic rules are.

Amy: (12:51)
Get yourself registered to get a seller's permit. Um, understand what your filing frequency is, um, and all that fun stuff. The States really do have decent guidance that will walk you through. Okay. I typically advise and let me know if I've been doing this right. If I tell people, if you know that you're not subject to any sales tax obligations pulled off on getting a seller's permit because otherwise you're going to get letters from the state taxing authority when you don't like really need to be doing anything. Yeah. In fact, California really hates it when you have a seller's permit and you don't need one. In fact, if you don't file, I mean maybe even shortened it out. Like if you go a whole year without filing, they'll send you a letter and it kind of looks like one of those nasty grants and they'll tell you to shut your account down.

Amy: (13:33)
They don't want to deal with chasing you around. If you don't have to file. So basically a seller's permit, uh, you get a seller's permit. Once you have transactions that are subject to sales tax in California, it's free to get or all States free to get yourself. Not at all, but it's nominal. I mean, you know, five bucks here, 25 bucks there. I think the most expensive one might be $200 that I've seen. Um, frankly, business licenses are more costly than, than seller's permit. Sorry. The one thing I will say in California or anywhere really even if what you are selling is not subject to sales tax, if things you are purchasing as a business should be subject to sales tax. But for whatever reason the vendor you bought them from did not charge you sales tax. There's the flip side of the sales techs coin.

Amy: (14:18)
It's evil twin if you will, um, which is use tax and you will have an obligation to self-report and remit those use tax dollars. And in order to do that, you need to have a seller's permit. Yeah. You guys use tax as kind of this whole other conundrum that took me awhile around my brain around and what I think would be great Amy is if we did a whole episode on use tax. Sure. And I would also love to do an episode on the new Supreme court ruling and really dive into that. And then for now let's kind of get to just kind

Braden: (14:52)
of the broad umbrellas. Oh sorry. I wanted to back up real quick. Sure. With the client base I work with use tax tends to be really huge with interior designers because you're buying furniture tax free and then you're technically reselling that to your clients. So just for like a brief overview, that's kind of what sales taxes and what we're talking about. I could see also working out with flow roles for graphic or for floral designers. Uh, I don't think a lot of my photography people, and they don't worry about it maybe with albums, but they typically are charged tax to the client and the graphic designers and like one-on-one service based business owners. You don't really need to worry about this.

Amy: (15:33)
Yeah. Especially in California because it's a very, uh, services friendly and digital goods friendly state, um, where most of those things aren't subject to tax. We love that.

Braden: (15:44)
Okay. So let's get to, we'll get, what I think will be really helpful to you guys is I know a lot of my audience is in California, but we also have people outside of California. So we're going to give the California rules, but then just maybe get some like examples of what to look for if you're not in California on how you are rules by, it'd be different but not dive into specific States. Yeah. So getting started in California, what as a blanket rule is subject

Amy: (16:11)
just sales tax, um, things that you can touch. Um, it's a term of art really. So we call it when you buy a good that right, like a thing in the sales techs world, we call it tangible personal property. Um, so, uh, there are certain things that are exempt that aren't like food and um, some basic necessities that the state has decided. Like, it's just better for society in general if you don't have to pay sales tax on those things. Um, but generally speaking like shoes, clothes, books, um, hardware, the hardware store, like if you can touch it, feel it, use it, right. It's subject to sales tax.

Braden: (16:48)
Yeah. So I was explained, uh, Amy did a great job explaining the tangible part and then in the mall we differentiate personal property from real property. And I always thought real property was the most bizarre name for it. But real property basically needs real estate, so land and houses. So when we talk about personal property, it's literally everything else. So we turned sales tax on tangible, personal

Amy: (17:12)
property. And I know this is a California kind of one-on-one discussion, but tangible personal property shifts gears into the real property realm when it is a fixed two real estate. And if the removal of it what caused damage to the thing that it's attached to, which is actually kind of a cool like sales tax strategy.

Braden: (17:33)
Okay. That's fine. Yeah. We call those fixtures. Yeah. Okay, perfect. Yeah, we're not going to get it.

Amy: (17:39)
No, that's [inaudible] this is why what we do is fun, right? I mean to some people [inaudible] okay.

Braden: (17:50)
All right. Sorry. Anyhow guys, we're going to keep in mind that most of you are not in real estate. If you are. Thanks for tuning in. Um, but I won't have a lot of specific advice.

Amy: (18:00)
So getting to the basics, I'm combining both like California rules and then also like just the, the nuts and bolts of sales tax. So if you, if you, you know, back in the day a little bit, right? Like main street USA, you walk into a store in your local town and you buy something, it's pretty clear and obvious who the buyer is. It's pretty clear, obvious who the seller is. It's pretty clear and obvious what was purchased. Um, and that's where most of the sales tax rules have stayed for a long, long time. And if you really are just a small business in California with a brick and mortar location and, and that's, you know, how you conduct business, then that's really where it's at. Um, the only thing you need to worry about is what's the combined state and local tax rate, where your business is located and is the thing that you're selling taxable. And it really is as simple as that.

Braden: (18:47)
Yeah. And I think to really give some like concrete context when we were talking earlier about how it's the business owner's job to collect the tax, it makes a lot of sense. Like in the storefront example, because if you run a convenience store, you know the candy bar as the dollar, but you're going to charge them a dollar an eight and a half cents. Yep. So that eight and a half cents you collected on the dollar, it goes into your cash register, but then it's your responsibility to

Amy: (19:11)
send that to the state. Right. And, and that's, um, if you look in the outline that we put together for this at the, at the end of it, one of the things I outlined is like these, the areas where you can get in trouble. And one of the things that small businesses especially because you know, margins are thin and, and anytime you've got cash in your cash register, you know you're using it for some sort of business expense, but you have to be careful with those sales tax dollars. They do not belong to you. You are an agent on behalf of the state and of all the little things that can kind of get you in trouble as um, as a business in the sales tax world, the biggest, no, no. And the thing that like you can get thrown in jail for is if you collect those tax dollars and then don't give them to the state, like it's,

Braden: (19:50)
you're probably better off not collecting sales tax and then just paying the back taxes you owe then collecting it and spending it on your own person. Probably. Definitely, definitely. I didn't want to be [inaudible] I don't know the exact rule. No idea.

Amy: (20:05)
Yeah, no, I mean if it's like accidental or inadvertent or whatever, you know, there's forgiveness for mistakes, but no, no, no. Like that's tax fraud.

Braden: (20:13)
Yeah. Okay. So we're not committing tax fraud here. You guys, maybe you need to be collecting sales tax. I'm sure there are great ways you can automate savings. So I teach people how to automate their quarterly tax savings. Every time money hits their bank account, you can probably do something

Amy: (20:27)
shit with your sales tax. Well, yeah, and I mean we certainly advocate for separate bookkeeping, right? If you're using QuickBooks or whatever accounting mechanism you're using, like have a separate ledger for your sales tax dollars collected, that money's not yours. And if you, it's kind of like a personal savings trick, right? Like if you automatically deduct that from your paycheck, you never see those tax dollars, right? They don't belong to you. And then if you can, I mean keep a separate bank account and just set those funds aside. And then every quarter when they're due that money sitting there, you are at the check and everybody's happy.

Braden: (20:56)
So you guys, I recorded back in episode five my introduction to the profit first system. If you're curious about these kind of tips and strategies, go back and listen to that because it would be very easy to open another bank account per sales tax or even use the same app automations that I recommend for quarterly taxes. Yeah, absolutely. So with that said, um, tangible personal property is subject to tax. Yes. I know there are some exceptions. Let's kind of touch on those in California. Okay. And then talk about if the rule is different in other States.

Amy: (21:31)
Um, yeah, I mean, the biggest thing that I can think of in terms of exemptions for the tangible personal property in California is food. Um, in a lot of States, uh, they'll kind of classify food at a different buckets. You know, there's like food that's quote unquote good for you and food that's not in California's kind of agnostic candy bars and all that stuff. Like they're not really subject to tax any differently than, you know, spinach and the producers.

Braden: (21:54)
So how about, how about things that are not tangible personal property that aren't subject to tax in calc? Like, do we do we M okay. So, yeah, that was my big question. Do we ever tax services or digital goods and then walk on?

Amy: (22:07)
Yeah. So, um, California is relatively generous when it comes to both of those categories and you'll find it's about 50, 50, actually across the States. Um, there, there are two schools of thought. Either services are not subject to sales tax unless expressly enumerated as taxable or services are subject to tax unless expressly enumerated as exempt. So California falls into the bucket of most things aren't taxable unless we say they are. That's helpful. Okay. So then let's talk about what services are taxable in California and then we'll talk about those other States briefly. Um, yeah, and that's kind of putting me on the spot. But um, well we'll bring up the one. So you and I had lost the other day and you were asking about Flores and I was like, well, generally speaking, services aren't really taxable, so I would be surprised if they were substance attacks.

Amy: (22:56)
And then I went back and looked at it and went, Holy crap. Floral services are totally subject to tax. Um, and I was really surprised by that though. The only part of a florist's services that aren't actually, um, are the actual installation part. Um, but when it comes to like floral arrangement design and, and things like that, or even like the planning of what a floral layout will be at an event or something like that, um, those are subject to tax of having owned a catering company once upon a time. I was kind of surprised to find out that catering services are subject to tax that I think has more to do with the fact that I was just saying that food isn't taxable in California except when it's hot prepared food ready to eat. And I think that's why the catering services kind of all get along together.

Amy: (23:42)
Interesting. Okay. So let's go to our floral design. So basically the way that it works is you would think orals are going to be subject attacks, tax hours themselves, the flowers themselves, cause that's tangible stuff. But then when it comes to the service, okay, the planning is subject and then also like I would call it the main labor where you're actually creating the bouquets, the center pieces, all that, all of that's taxable as well. But then not the installation. Yes. Yeah. Okay. Well one of the funny examples that I saw, cause I, I sent you a link to the, um, the different regulations that California has outlined in California. Again, like I was saying before at this, the website is actually quite good at outlining the different industries and even different circumstances and scenarios. And they'll, they'll tell you like, okay, this part is taxable.

Amy: (24:31)
This part's not. And I was surprised to find out, let's say that as a like a floral service that you visit somebody's house regularly and, um, part of your responsibilities to like trim flowers and whatnot from their own garden and um, and then make arrangements in the house and, you know, set up beautiful arrangements in the house on a weekly basis, whatever. Um, I was, even though if you are buying and selling flowers right through a retail outlet or your floral shop, those would be subject to sales tax. But because you grabbed those flowers like out of the garden, those aren't, um, but the service of actually making the floral floral arrangements and whatnot and setting them in the house, that part is technical. Crazy. I know, right? It's weird. So once, what's, let's stick into this question cause I get this one a lot, a lot of, I know a lot of floral designers will end up just charging sales tax on their attire contract because frankly it's easier.

Amy: (25:26)
Yeah. But you don't necessarily need to do that. Um, because it so, so really what we're boiling down to is all I'll give what I think the answer is and then you can correct me if I'm wrong. Sure. So what I usually advise is you just want to itemize your proposal and your invoices. Yep. So knowing the only installation is not subject to sales tax. You had state installation, $1,000 floral design and arrangement, $1,000 cost of goods or cost of florals, $1,000 and then you're going to collect sales tax on 2000 and not on 1000 right? Yeah. And that comes down to a, a concept in sales tax world. It's separately stated, um, versus like lump sum. Um, so if you are someone that provides goods and services where a portion of what you do is taxable and a portion of what you do is not taxable, if you separately state them, then you can also separate the tax treatment.

Amy: (26:23)
Um, however, if he charged one lump sum price for all of those things, if any portion of it is taxable, the whole thing, it's called a bundle transaction and everything becomes taxable. And the one thing I want to kind of highlight from what you said though was you talked about proposals and invoices and just because you stated on the invoice as those three separate line items, if in the contract it's all lumped together, a savvy state auditor might try to dig a little deeper and look at that and say, well, you didn't actually separately state those things when you contract it for network.

Braden: (26:59)
Okay, that's great information. And with that, what I'm going to do, I'm going to come in and make myself an action item this week to go in and update my contract templates or for old design and photography services that you all can buy off my website, but I'll make sure I make that bit of information very clear in there. I'll also add, maybe I'll add a little lesson in my cool contracts course on that as well. So the other example that I get questions about all the time is photography services. When you sell photo albums, that's basically the same thing, right? So the, I feel like this is even trickier, but why don't you give us what the kind of the rundown is. If you provide a photo album to the client. Yeah. How are you impacted by sales tax?

Amy: (27:46)
So, um, hopefully when you bought, if it's a physical album, right, and not just digital download it, right? If you, when you bought that photo album that you're going to put all those gorgeous photos into, hopefully you bought them with a resale certificate and did not pay sales tax to the vendor that you bought them from. Um, because then you're going to turn that around, add to it all of your creative Austin this, and then resell it to your client and charge sales tax for that photo album. Um, and this one's a weird one where to me, the floral and photography B rules kind of contradict each other. But again, you kinda, you just have to go to what the state's rules are. And at some point in time when they wrote that piece of legislation, there was rationale to it. Um, and, but again, it really comes down to making sure that the creative services, the photography part or editing the photos, that kind of thing, like that part is separately contracted for and separately invoiced or separately stated at least on your invoice from the tangible thing that

Braden: (28:43)
right here. So this is a huge deal because especially if you're a wedding photographer and you're charging $4,000 for a wedding and then $200 for the photo album, that's a big deal for your client to be charging sales tax on the full $4,200. Did I say how much did I say for the album anyway? Right. Um, the, the good part is, is when I first started practicing, I thought this was like doomsday because I thought it would really negative LA impact my clients if they were having to charge sales tax. I learned that's not really the problem because your client is the one eating the cost for the sales tax, you're going to charge them. But at the same time, if you could invoice your client for $4,224 as opposed to 200 or 2,400 because you're turning sales tax on everything, you know, you're saving your client a couple of hundred bucks and they're going to appreciate that.

Braden: (29:35)
But ultimately it's your client that's going to pay it. You're going to save it and then you're going to send it to the state and that's how you need to be at this. And that leads down to um, you know, earlier in this chat I've mentioned one of the things that our office does is refund claims and sometimes businesses realize they've been over collecting the sales tax. And so we help get those tax dollars back from the state. And then the trick of that is that tax dollars still don't belong to you. So we help you secure that refund and you might benefit from like the interest that's accrued during the fact, but fine. But the tax dollars you have to get back to your customers and the state will actually make you prove that you've done that before. They'll give you your money. Interesting.

Braden: (30:13)
Yeah. Okay. One more clarification question. Let's go back to that photo album example, because what you said that you should buy it with a, what did you say? Oh, resales resale certificate. Now we're getting kind of back into use tax like we mentioned earlier, right? So if we buy the, let's say you buy the photo album for five for $50 okay. Actual album. Okay. And you're going to do all the labor, so you're going to turn around and resell it to your client for 200 now you're charging sales tax on $200 not 50 right, right. Okay. So that's the important thing to know here. And then can you give us an example of how it would operate if you did pay tax on the photo album and you went to 50 bucks? Yeah. California is one of those States where you can actually get credit for taxes paid.

Braden: (31:01)
So you collect that $200 I never admit that on your return, but there is like a deduction line item that says I paid sales tax on this thing that I probably shouldn't have. And so you kind of net it out. Not all States have that. Okay. So to um, like make it more concrete again, let's say you resell it for 200. Yep. You collect 8% sales tax, which is $16, but you already paid $4 in sales tax when you bought the photo album, you deduct that. So now you're going to send them $12 for the sales tax. Yes. Okay, that's super helpful. Um, okay, so I think we did a really good job of breaking down kind of the rules and core exceptions for California. Let's talk about those States that you mentioned. Um, real quick, we're going to spend like five minutes on this and wrap up guys.

Braden: (31:48)
So don't worry, it's not going to drag on forever. But let's talk about those States where you said that services are assumed to be taxable and must [inaudible]. What is the, unless exception in those States? Um, well, accounting and legal services often are excluded from that. Um, in installation labor, uh, often is not subject to tax. Um, but funny enough like warranty and repair labor usually is subject to tax. So that guy can go whole different like don't even, so it sounds like, it sounds like in those States it's more of like industries or specifically exempt or like specific types of services, which brings about a really good point. Like, I mean I'm sure you see this with income tax too, but I always tell people like 98% of tax laws written for social purpose, right? Like there's a lobbying effort behind it. There's a fault. It's all

Amy: (32:40)
politics and policy. And so not only that, but I mean you can look at, um, this is kind of a random thing and yes, we will wrap up. But like admissions, when you buy concert tickets or you know, a bat and go to a basketball game or something like that, um, in a lot of States, believe it or not, that is subject to sales tax. But if you look in the rules like where they've held a Superbowl or a really large sporting event, like an NCAA tournament or something like that, you will actually see in the tax law, codified a specific carve out for that venue, that location, that date, that event, where that thing is not subject to sales tax and that that's the lobbying effort. Yeah. That's awesome.

Braden: (33:18)
Okay, so my like mine tangible takeaway for you all is figure out if your state generally taxes services or does not tax services. If your state does tax services, then do a search to see if your industry happens to be exempted or your type of service. If you're in a state that does not tax services, ask yourself if there are any pieces of your business is she'll still should be subject to sales tax. Yeah, like the floral and the photography examples we gave. That'll give you like a good framework on how to get started and then you can start your own research and it should be pretty clear to you at that's research that you are capable of executing on your own or if you require professional guidance, use your own judgment there. Guys. Uh, one more topic I want to just briefly brush over sir is we talked about services and physical goods, but we didn't really touch very much on digital goods. So I know this is different state to state as well, but when we talk digital goods guys, we're talking, you know, if you're a graphic designer and you sell show at templates or Canva templates for I myself sell digital contracts and digital courses, what's the landscape as far as that goes?

Amy: (34:38)
In California, you're pretty much off the hook. Um, other States not so much and that is rapidly expanding. Um, one of the things I always say is that legislation is slow to keep up with the evolution of commerce, um, and in no spaces that more true than digital goods, especially in this day and age of, um, streaming content and downloadable content. And all that stuff and eBooks and that kind of thing. Um, there's actually a really fascinating case working its way through where Chicago has gone so far that admissions and amusement tax I was mentioning a few minutes ago, they've gotten so far as to say that, um, your Netflix streaming subscription is subject to that amusement tax in Chicago. Chicago, man, fuck off. Well, Netflix is losing and Chicago is winning and it's at the appellate level, so we'll see where that goes. But yeah, they're now calling that the Chicago Netflix tax. But that's, I mean, and that's, that's not just Chicago in Tennessee. Um, Amazon prime, Netflix, that kind of stuff. Uh, digital goods and that stuff's already

Braden: (35:38)
subject to sales tax. Okay. Fascinating. So that's crazy. So we'll kind of, we'll kind of wrap it up there. Um, I do want to just to really kind of harp on that like framework we went through a few minutes ago because the, this area of the law, like it can get really overwhelming really fast. But whenever Amy and I do these episodes and when you read stuff online, I want you to be very, very focused on what's important for you to know. So you can get nerdy like us and learned rules for different States if you want to. But if you're starting to feel overwhelmed, just say, I'm in Tennessee, what's the general rule in Tennessee? Are there exceptions for my industry? And then completely zero in on that and disregard any other information you're reading about sales tax whatsoever. That's my tip to you. That's how we learn how to handle things in law school.

Braden: (36:30)
So put on your lawyer hat and get that one bite at a time, right? I mean that's, that's all you can do. Yes. So you know what? I'm actually going to give us a Pat on the back because I was a little nervous to do this episode. To be really Frank. I thought it could get too complicated, too fast, and I think we did a really good job of getting to the core of the issue. I'll give you credit for that. It's really easy for me. No, seriously. I, I, I, it's difficult for me sometimes to, to remember to keep things in layman's terms and yeah, to stay focused on just the question that I was like, just that's, that's a lawyer thing, right? Like just answer the question you were asked. Yes. The same thing for me when I talk about other topics, especially when I can on the Enneagram and stuff like that.

Braden: (37:14)
But um, okay. I didn't need to get too self-congratulatory but I think that was fine. You guys let us know if you have any questions. I talk about this all the time, especially on my Tuesdays. It's Epic Tuesday episodes, but most of you should know. I do have a Facebook group called at Brayden's besties, B. R. a. D. E. N. so make sure you join. I'm going to make sure that Amy joins. And what I would like for you to do is when you join the group, you will be prompted to answer my required questions. Question number one is tell me a tax or legal question you have in your business. I take those questions and I answer that every Tuesday. I answer the ones that I am competent to answer, the ones that I cannot handle on my own. That is basically fuel for my guest expert episodes.

Braden: (37:58)
So if you have sales tax questions, post them in there. Just because I can't answer it doesn't mean that you shouldn't post it. I'll save them for when we have Amy back on the show if she's willing to come on and talk to me more about sales tax and then, um, if Amy wants to and around free time she can pop in and out of the group and answer some sales tax questions. I would ask that you not tagged her like every day. Um, but we can loop her in from time to time. So thanks so much for coming on. Thanks for having me. Super great. Um, you guys can look for another sales tax episode. Probably. This is episode 21, probably somewhere between 30 and 35 maybe by episode 40. We'll try to get some content out to you every month or two on this topic. So I hope you enjoy. If you have any questions, let us know. And as always, don't forget to subscribe and leave a review and I will be back in your earbuds next Tuesday. Thanks.

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