Seven State Sales & Use Tax Exemptions You Should Know About
by Babs Verbrick
Businesses across the United States save several billion dollars annually thanks to individual state enacted sales and use tax exemptions. The majority of states offer various sales and use tax exemptions centered around the manufacturing and agriculture industries as well as for non-profit organizations. But, there are many other little-known exemptions that could mean big savings for your business or your clients. Grab a cup of coffee, lean back in your chair and enjoy our sampling of the states seven little-known but budget-enhancing exemptions.
Arizona: Service Businesses
If you have ever done any business in or with the state of Arizona, you are probably familiar with their Transaction Privilege Tax (TPT) on retail sales, a form of sales tax. The TPT is a tax on the privilege of doing business in Arizona, which the seller is ultimately responsible for. Any business that sells tangible personal property is liable for this tax, which varies by city and county. However, if you operate a service-oriented business such as a CPA firm and only make casual and infrequent sales, income from that firm is exempt from the TPT. For example, if Accounting Associates, Inc. sells an occasional manual or book to a customer those sales are exempt from TPT. Only if Accounting Associates makes regular sales, maintains an inventory and/or engages in retail sales are they subject to the TPT.
California: Digital Software Sales
In accordance with California Regulation 1502, in California the sale or lease of a prewritten software program is not taxable if the software is transferred by remote telecommunications from the sellers place of business, to or through the purchaser’s computer and the purchaser does not obtain possession of any tangible personal property through the transaction, such as storage media or documentation. Say that ABC Company purchases software from Enterprise Software, Inc. and Enterprise Software transfers their purchased software to ABC Company through the Internet, that means that the sale to ABC Company is exempt from sales tax. California has one of the highest state sales tax rates in the nation at 7.25% so on a $5,000 purchase of a software title that is a $362.50 savings. Not a huge amount itself but if you add it up over time it could be significant.
Florida: Exported Goods
Here is a huge incentive for companies to do business in the sunshine state. In the state of Florida, goods manufactured or produced within the state for export outside of Florida are exempt from sales and use tax. Florida’s current sales tax rate is 6%. For instance, if Rubber, Inc. produces $1,000,000 worth of tires and intends to sell them to Car Maker Corp. in Illinois, the sale is not subject to sales and use tax and the sales tax exemption alone amounts to $60,000.
Mississippi: New Businesses
Similar to Florida’s business incentive, Mississippi has an even better incentive. Businesses who are transferring or establishing a national or reqional company headquarters in Mississippi and will be creating a minimum of thirty-five jobs at the new headquarters are entitled to an exemption on all sales and use taxes. This could add up to huge savings for any type of business.
Missouri: Computer Equipment
Most companies need the latest computer technology to operate efficiently and effectively and as a result, much of companies current expenditures today are on computer equipment. The state of Missouri recognizes this and as a result, computers, computer software and computer security systems purchased for use by architectural or engineering firms headquartered in Missouri are exempt from state sales tax. On a $5,000 computer purchase at Missouri’s 4.225% state sales tax rate, you are looking at a $211.25 savings. At the incredibly fast rate technology changes, if you or your client qualify for this exemption, you can earn a large exemption.
Ohio: Equipment for Research & Development
This exemption may be the reason why thousands of manufacturers and other development-intensive companies call Ohio their corporate headquarters. Like a few other states, in the state of Ohio, equipment purchased for Research and Development is exempt from state and county sales tax. It goes without saying that much of the equipment used in Research and Development can be costly. With the exemption, on a $100,000 equipment purchase the 5% state sales tax would amount to $5,000 in savings.
A handful of states currently provide a sales tax exemption for advertising. Oklahoma takes it a step further by offering a broader advertising exemption, which can amount to millions of dollars annually. Through this exemption, the gross proceeds from the sale of advertising through the internet and the broadcast media, including radio, television and cable television, are exempt from tax. The sale of advertising space in newspapers, periodicals, and on billboards is also exempt.
With current state tax revenue decline and budget deficits, many states are considering repealing some of their exemptions and in some cases, have even introduced bills aimed at doing so. In the meantime, you or your client could save a great deal of money by taking a closer look at the many exemptions available in any state in which you do business. For eligibility requirements or further information about the exemptions mentioned in this article contact the appropriate state revenue department.
Babs Verbrick is a recognized expert in the accounting and tax software industries with over 20 years of experience. She is founder and president of eDocSolutions, the leader in automated corporate tax document management and the developer of eNable! for Sales Tax Exemption Certificates. For more information visit www.edocsolutions.com