How "Bundled Transactions" Cause Sales Tax Problems (Service Companies Beware)
"Bundled transactions," or "mixed-transactions" as they are sometimes called, is when a business sells items that are taxable with items that are non-taxable (from a sales tax perspective). When a company sells taxable and non-taxable items together and does not separately state them on the invoice, but "bundles" them together, what happens? How is the transaction or invoice taxed?
Separately State (Unbundle)?
In most states, when a taxable item is bundled together with a non-taxable item, the whole transaction becomes taxable. Ouch! If you didn't know that, you need to take action now to "unbundle" your transactions and only charge tax on the taxable items. This is general guidance. You should consult the state's laws for the state in which your transaction takes place to reach a final conclusion, as each state is different.
Impacts Services and Tangible Personal Property
This not only impacts sales of tangible personal property, but also services. You could have a taxable service bundled with a non-taxable service. You could also have taxable tangible personal property bundled with a non-taxable service.
Don't wait until the auditor arrives to review your transactions and correct this. Act now and mitigate your exposure.
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
You can reach Brian at firstname.lastname@example.org.
Because state and local taxes are deceptively simple and endlessly complicated.