Category Archives: Sales and Use Tax

EPISODE 3: Starting Your First Business in Texas – State and Federal Tax Obligations and the Upcoming FinCEN BOI Reports

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Coleman Jackson, P.C. | Transcript of Legal Thoughts
Published December 26, 2022

Overview:  

Legal Thoughts is an audiocast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, contract litigation, and immigration legal matters.

This episode of Legal Thoughts is an audiocast where the Attorney, Coleman Jackson is being interviewed by Alexis Brewer, Tax Legal Assistant of Coleman Jackson, P.C. The topic of discussion is “Starting Your First Business in Texas – State and Federal Tax Obligations and the Upcoming FinCEN BOI Reports.” You can listen to this podcast by clicking here:

If you enjoy this podcast, make sure to stay tuned for more episodes from the taxation, litigation, and immigration Law Firm of Coleman Jackson, P.C. Be sure to subscribe. Visit the taxation, litigation and immigration law firm of Coleman Jackson, P.C. online at www.cjacksonlaw.com.

 

TRANSCRIPT:

ATTORNEY: Coleman Jackson

LEGAL THOUGHTS

COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

 

ATTORNEY: Coleman Jackson

Welcome to Legal Thoughts

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, contract litigation and immigration law firm based in Dallas, Texas.

In addition to myself, we have Alexis Brewer – Tax Legal Assistant, Leiliane Godeiro – Litigation Legal Assistant, and Johanna Powell – Tax Legal Assistant.

On today’s “Legal Thoughts” podcast, our Tax Legal Assistant, Alexis Brewer, will be interviewing me on the important topic of: Starting Your First Business in Texas. This is a series of podcasts, and today’s episode will focus on: “State and Federal Tax Obligations and the Upcoming FinCEN BOI Reports”

 

INTERVIEWER: Alexis Brewer, Tax Legal Assistant

Hi everyone, my name is Alexis Brewer and I am a Tax Legal Assistant at the tax, contract litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas.

Good afternoon, Attorney; thank you for agreeing to sit with me as I interview you with respect to this hot tax topic: “Starting Your First Business in Texas – State and Federal Tax Obligations and the Upcoming FinCEN BOI Reports.”

Let’s jump right in,

Question 1: Attorney could you give us a quick picture of the type of taxes imposed in state of Texas?

 

Attorney Answer – Question 1:

Hello Alexis.

First and foremost, everyone needs to understand that the State of Texas imposes a series of taxes on individuals and businesses, but there are no income taxes in Texas.  Also, folks, individuals and businesses need to understand that property taxes are levied by local governments, such as, city, county, school districts and etc. throughout the State of Texas.  The law of local property taxes is fairly straight forward and our law firm does not practice this area of law.

  1. So, let me name several of the significant taxes imposed on individuals and businesses. Texas imposed the following taxes, among others:
  2. Limited Sales, Use and Excise Taxes are imposed on individuals and businesses;
  3. Texas Franchise Taxes are imposed on certain types of businesses;
  4. Estate and Generation-Skipping Taxes are imposed on estates;
  5. Unemployment Compensation Taxes are imposed on employers in Texas with employees;
  6. Alcoholic Beverages Taxes are imposed on establishments with such licenses to sell or distribute alcoholic products;
  7. Insurance taxes;
  8. Hotel taxes are imposed on guess of hotels, motels and similar establishments;
  9. Motor fuel taxes

This is just a list of eight types of taxes imposed by the State of Texas which generates the most revenue for the state.  There are a number of other types of taxes that Texas imposes on individuals and businesses operating within the State of Texas.  Anyone wishing to discuss these taxes can contact us with any specifics or follow our Blogs at www.cjacksonlaw.com; or follow our Legal Thoughts Podcasts; or follow our Law Watch videos on our You-Tube Channel where we frequently discuss various topics dealing with taxation, contracts, litigation and immigration matters those folks ought to know about.

 

INTERVIEWER: Alexis Brewer, Tax Legal Assistant

That leads me right into my next question, Attorney –

Question 2: What is the number one type of tax imposed by the State of Texas that everyone in Texas needs to know about?

 

Attorney Answer – Question 2:

Well Alexis, property taxes that are imposed by local governments is clearly a tax everyone in Texas should be aware of since Texas is one of the highest property tax states in the nation.  Property Taxes are taxes imposed by local governments throughout the State of Texas.  All people residing in Texas need to know about the property tax system because this is how public schools are financed as well as public hospitals and health services and a number of other major local and municipal services.

Alexis with that said, the number one type of tax imposed by the state that everyone needs to be aware of is the Texas Limited Sales, Use and Excise tax which is applies to most purchases of goods and some services.

Remember, as I previously stated; Texas does not have a state income tax.  So, our listeners should be asking themselves; so how does the State of Texas pay its bills?   The Limited Sales, Use & Excise Tax is; by far, the biggest tax revenue generator for the State of Texas.  The Limited Sales, Use, & Excise Tax generates about 58% of Texas’ tax revenues annually. This is the first major tax imposed by the State of Texas that everyone in Texas must be aware of.  Anyone operating a business or thinking about starting a business in Texas must do their due diligence with respect to whether their products, goods and services are subject to the Limited Sales, Use, & Excise Tax. If their products and services are subject to this tax; the business-owner is a trustee for the State of Texas and must obtain a sales tax permit, collect the appropriate sales taxes from each transaction and report and submit the monies to Texas Comptroller of Public Accounts, who is the chief tax collector for the State of Texas.  Business owners and other responsible parties can become personally liable for messing with Texas with respect to these sales, use and excise tax matters.

Texas imposes a 6.25% sales and use tax on sales, leases and rentals of touchable movable property (“tangible property”) and on certain specified services in Texas Tax Code Section 151.  Localities are also allowed to impose up to a maximum of 2% sales and use tax with respect to transactions within their jurisdictions.  The maximum limited sales, excise and use tax permitted in the Texas Tax Code is 8.25% of the gross taxable sales amount.

The sales and use tax are complimentary which means that Texas only gets to collect the tax as a sales tax paid by the purchaser at the time of the sale, or as a use tax paid by the merchant in the event the sales tax was not paid by the purchaser at the time of the sale.  Bottom line, the tax should only be paid once either as a sales tax or as a use tax.  Merchants in Texas are required under the Texas Tax Code to collect the tax as a trustee for the state of Texas.  Since the United States Supreme Court’s Wayfair decision, a couple of years ago, out of state merchants selling customers in the state of Texas could be subject to the same Texas Tax Code obligations as brick and mortal merchants operating with facilities and agents physically within the state.  The Texas Comptroller has issued guidance for out of state providers of taxable services and goods selling to customers inside Texas which can be found on the Comptroller’s website.

Any merchant inside the state or outside of the state who conducts a business subject to the Texas Limited Sales, Use and Excise Tax must obtain a sales tax permit from the Texas Comptroller of Public Accounts.  Again, the Texas Comptroller of Public Accounts is the chief tax collector for the State of Texas who administers the Texas Tax Code.  All kinds of useful and informative information can be found on the Comptroller’s website.

 

INTERVIEWER: Alexis Brewer, Tax Legal Assistant

Question 3: Attorney, is there any other major tax imposed by the State of Texas that impacts business owners in Texas?

 

Attorney Answer – Question 3:

Alexis, another major tax imposed in Texas is the Texas Franchise tax; which is also known as the Margin’s Tax.  The Texas Franchise Tax is a tax imposed on some businesses for the privilege of doing business in Texas. Anyone interested in this topic can find this tax in the Texas Tax Code.

Several entities subject to the Texas Franchise Tax are:

  • Corporations;
  • Limited Liability Companies (LLC, including single member and/or husband and wife owned LLC);
  • Banks;
  • State limited banking associations;
  • Savings and loan associations;
  • S Corporations;
  • Professional Corporations;
  • Partnerships (general, limited and limited liability);
  • Trusts;
  • Professional Associations;
  • Joint Ventures; and
  • Other business entities not exempt by statute

Entities not subject to the Franchise tax are:

  • Sole Proprietorships;
  • General Partnerships (when ownership consist solely of natural persons or individuals. The partnership cannot have any legal entity owners);
  • Certain grantor trusts , estates of natural persons and escrows;
  • Exempt entities under Tax Code Section 171, Subchapter B;
  • Various other unincorporated passive entities, real estate investment trusts and entities classified under Insurance Code Chapter 2212;
  • Certain trust subject to Internal Revenue Code Section 401(a) or 501(c)(9).

Alexis, the actual computation of the Texas Franchise Tax can be an extremely complicated accounting computation; and any business subject to this tax should hire a very competent Certified Public Accountant who works with business owners who must regularly pay franchise taxes.  Many businesses; perhaps most Texas businesses, who are subject to the Texas Franchise Tax only have to file a no-tax due report each year.  Franchise tax reports are filed annually online with the Texas Comptroller of Public Accounts and there are penalties for failure to file and/or failure to timely pay any franchise taxes that are due for the period.

 

INTERVIEWER: Alexis Brewer, Tax Legal Assistant
Attorney, so far, we’ve been discussing some of the taxes imposed by local governments, property tax in particular imposed locally, and some of the important taxes imposed by the State of Texas in this podcast – for example, the sales, use and excise tax and franchise tax.  There are some upcoming changes on the federal law horizon that you mentioned to me a few of days ago, and I thinking we should wrap up this podcast by explaining that.
Question 4: Attorney, can you briefly explain the Corporate Transparency Act and its key provisions?

 

Attorney Answer – Question 4:

This is a great question and it’s a very important one!

This past year, Congress passed the Corporate Transparency Act (CTA) as a part of the Anti-Money Laundering Act of 2020 (AMLA). The stated goal of the AMLA was to aid the federal government in detecting and preventing money laundering, tax fraud and other illicit activities.

The Corporate Transparency Act, as a result, imposes new mandatory reporting obligations with the stated intention of catching and stopping this illicit behavior. The FinCEN reports created under this mandatory rule are called, “Beneficial Ownership Information Reports” or BOI reports. The Corporate Transparency Act will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners—the persons who ultimately own or control the company, to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).

The Corporate Transparency Act and its new reporting requirements is a huge change coming for all businesses structured under any state or tribal entity organization structuring laws and impose significant new disclosure obligations on business organizers and business owners of entities structured under state and tribal business organizational laws.  The Financial Crimes Network (FinCEN) is the U.S. Department of Treasury agency authorized to enforce the Corporate Transparency Act.

The final rules implementing the Corporate Transparency Act was published by the Financial Crimes Network (FinCEN) on September 30, 2022 in the Federal Register, and applies to domestic & foreign “reporting companies of all sizes, including the smallest of companies.”

A reporting company is a corporation, limited liability company, or any other entity created by filing entity structuring instruments with a secretary of state or any similar office under the law of a state.

  • For example, in Texas, the term “reporting companies” would include most business entities structured under the Business Organization Code, with the exception of sole proprietorships and general partnerships. If the business filed organizational documents with the Texas Secretary of State, the final FinCEN rules implementing the Corporate Transparency Act applies to them.

A “beneficial owner” under the FinCEN final rule includes any individual who, directly or indirectly:

  1. exercises substantial control over a reporting company, or
  2. owns or controls at least 25 percent of the ownership interests in a reporting company.

 

INTERVIEWER: Alexis Brewer, Tax Legal Assistant

Attorney, these sound like huge changes for business owners!  Do you mean to say that the rules apply to even a mom-and-pop business that operates as an LLC!

Question 5: What kind of information will this mom-and-pop organization and other businesses structured under state law have to file and where will they have to file it?

 

Attorney Answer – Question 5:

Yes, Alexis, that is exactly what I am saying.  The final FinCEN rules do not exempt small business from the obligations imposed on affected business organizations.  The rules apply to the mom-and-pop limited liability company as well as other businesses structured under state and tribal laws.  They all meet the definition of ‘reporting company’ and must comply with the reporting rules.

When a reporting company files a “Beneficial Ownership Information Report,” or BOI report, with the Financial Crimes Network (FinCEN), they are required to identify themselves and report four types of information about each of its beneficial owners:

  1. Name
  2. Birthdate
  3. Address, and
  4. A unique identifying number issued by a jurisdiction in an acceptable document. A copy of this acceptable identifying document must be sent to FinCEN for inspection.  The document must be valid and current.

The FinCEN final rules implementing the Corporate Transparency Act and the related new reporting obligations are effective on January 1, 2024.

  • Reporting companies created or registered before January 1, 2024 will have one year (until January 1, 2025) to file their initial BOI reports
  • Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial BOI reports.

Alexis, our law firm will continue to monitor developments with respect to the Corporate Transparency Act and FinCEN announcements implementing the BOI rules.  Our office has been filing FBAR reports with the Financial Crimes Network on behalf of taxpayers for years now; and FinCEN is where the new BOI reports will be filed as well.  Any of our listeners should follow our blogs and Legal Thoughts Podcasts where we discuss these types of topics.

 

Interviewer Wrap-Up

Attorney, thank you for siting with me today to explain the tax obligations of starting a new business in Texas. Today the key take aways from this podcast discussion are:

  1. Texas sales & use tax in Texas: This is a major tax imposed by the State of Texas impacting everyone who buys or sales goods and certain services,
  2. Texas Franchise tax: This too is a major tax imposed by the State of Texas on certain business structured under the Texas Business Organization Code and filed with the Texas Secretary of State, and potentially the big federal rule. Attorney even impacting
  3. Corporate Transparency Act: This is a new, big federal rule coming up in 2024. The new mandatory rule issued by the Financial Crimes Network (FinCEN) requires businesses structured under state or tribal entity organizational laws to file “Beneficial Ownership Information Reports” with the Financial Crimes Network. This rule is wide-reaching and will even impact the small mom-and-pop LLCs. Our office needs to watch the BOI report developments and perhaps produce future blogs, videocast and Legal Thoughts podcasts on this topic.

 

To our listeners who want to hear more podcast like this one please subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcast. Take care, everyone! And come back in about two weeks, for more taxation, litigation and immigration Legal Thoughts from Coleman Jackson, P.C., located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.

English callers:  214-599-0431 | Spanish callers:  214-599-0432 |Portuguese callers: 214-272-3100

 

Attorney Closing Remarks

This is the end of today’s Legal Thoughts!

Thank you all for giving us the opportunity to inform you about: “Starting Your First Business in Texas – State and Federal Tax Obligations and the Upcoming FinCEN BOI Reports”

If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C.  Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast.

Stay tuned!  We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration.  Until next time, take care.

Cash Intensive Businesses Need Good Internal Controls to Substantiate Business Activity

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By Coleman Jackson, Attorney & Counselor and CPA
July 17, 2021

Cash Intensive Businesses Need Good Internal Controls to Substantiate Business Activity

Operating a business enterprise with cash can be an IRS audit flag because businesses operating in cash are susceptible to fraudulent financial transactions.  However certain business operations handle a lot of cash in their normal operations.  These businesses are classified in tax parlance as cash intensive businesses.  Convenience stores, donut shops, massage parlors, hair stylist, mini-marts, bodegas, coin operated amusements venues; such as video games, pinball machines, jukeboxes, pool tables, slot machines and other gaming machines to only name a few classic cash intensive businesses.  All of these types of businesses can legitimately operate with a high incident of cash transactions.  So, there is absolutely no badge or indicia of fraud exist in most of these cash intensive businesses.  Marijuana operators are another example of perhaps legitimate businesses operating in cash.  Where the marijuana operators being legal, they must operate in cash because the use, sell and distribution of marijuana is illegal under federal drug enforcement laws even though several states have legalized this drug for medicinal as well as entertaining purposes in some cases.  Since it is illegal under federal law to sell or distribute marijuana, those enterprises that sell and distribute marijuana cannot use the normal banking system.  And certain laundry facilities also are coin operated businesses.  They too are legitimately cash intensive businesses.  All of these cash intensive businesses have one thing in common, cash is fungible and hard to trace.  Therefore, when the IRS examiner comes to audit their books and records, it can be a challenging experience for the auditor and extremely frightening to the cash intensive business owner.

 

Cash Intensive Businesses Need Good Internal Controls to Substantiate Business Activity

It is not lost on the State of Texas and IRS examiner that cash operated businesses can have multiple sets of books and records or no records at all.  And often when they have records, they are poor, incomplete and inaccurate.  The basic issue is proper accounting for transactions during the audit period:  are sales, purchases, and inventory properly and timely accounted for where the operator and the auditor can timely and accurate compute taxes owed and the operator can submit the right amount of taxes to the tax authorities?  These questions are proper concerns of any auditor who examines the books and records of any cash intensive business.  Personal expenses paid out of the cash of the business.  Business expenses paid with cash from receipts without any records.  Personal use of items purchased.  Physical inventories none existent or sporadic which leads to missing, stolen or unaccountable purchased items.  Cash sales recorded on paper or separate ledgers completely separate and distinct from credit card sales registers or any register tape at all.  Multiple employees using the same cash drawers without any accountability or cash reports or registry procedures or system of control.  Now these things could be done intentionally, but, quite often they are done unintentionally.  Many immigrants work in cash intensive businesses and many come to the United States where different cultural and business norms apply with regards to operation of a business enterprise.  They are not familiar with the requirements to keep timely and accurate business records for Texas limited sales, use and excise tax purposes and federal income tax purposes.  Many immigrants are surprised and afraid when the Texas or Federal tax examiner knocks on their door.  Good internal controls can serve the auditor well and lessen the fear of the business owner.

Cash Intensive Businesses Need Good Internal Controls to Substantiate Business Activity

Internal Controls is an accounting process.  It is a very important process in any business to account for the receipts of money, disbursement of money and account for the inventory and property of the business.  Cash intensive businesses should implement strong internal controls because cash is fungible.  Internal controls are the process or systems in place to ensure the efficient and effective capturing of critical data to ensure that the business can run with accountably to its owners and consistent with the owners’ objectives;  produce reliable and accurate financial summaries for management purposes and pursuant to outside obligations; and reports and comply with applicable laws, regulations and ordinances.  In order for a business to have effective internal control requires that the job duties of employees who collect the money, record the money and review the money reports are adequately separated.  Internal controls require documentation, documentation and more documentation.  And this is critical for cash intensive businesses because under the Texas Tax Code all businesses must keep accurate contemporaneous books and records.  The Internal Revenue Code requires the same for federal tax purposes; and it also requires taxpayers to substantiate its receipts and deductions upon IRS examination.  Cash intensive business owners will do well to review their internal controls prior to a visit by auditors from either the Texas Comptroller of Public Accounts or the Internal Revenue Service to ensure that they are in compliance with all applicable tax laws.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

Podcast – Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair? | LEGAL THOUGHTS

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Published June 29, 2020

Podcast - Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair? | LEGAL THOUGHTS

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation, and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, the Public Relations Associate of Coleman Jackson, P.C.   The topic of discussion is “Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair?” You can listen to this podcast by clicking here:

You can also listen to this episode and subscribe to Coleman Jackson, P.C.’s Legal Thoughts podcast on Apple Podcast, Google Podcast, Spotify, Cashbox or wherever you may listen to your podcast.

TRANSCRIPT:

ATTORNEY:  Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY:  Coleman Jackson

Welcome to Tax Thoughts

  • My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation and immigration law firm based in Dallas, Texas.
  • Our topic for today is: “Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair?”
  • Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz, Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
  • On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and our Immigration Legal Assistant, Reyna Munoz will be reading answers that I previously wrote in response to the questions on this important tax topic: “Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair?”

Interviewer:  Mayra Torres, Public Relations Associate

Question 1:

Hello, Good morning Coleman. My name is Mayra Torres, for everyone who hasn’t met me yet, I am the Public Relations Associate at Coleman Jackson, P.C. Umm… todays first question is regarding Wayfair. What Businesses Located Outside of Texas are Required to Collect and Remit Sales Taxes to the State of Texas after Wayfair. Who is “Wayfair”?

Attorney Answers Question 1:

Wayfair refers to a united states supreme court decision decided by the court on June 21, 2018 in a case that is called south Dakota vs Wayfair, Inc. The case involved a sales tax dispute between south Dakota and Wayfair, Inc.

Interviewer:  Mayra Torres, Public Relations Associate

Question 2:

Well what was the dispute about?

Attorney Answers Question 2:

Wayfair, Inc. Was not located in south Dakota and had no physical presence within The state.

Wayfair, Inc. Sold goods from its remote location to customers who lived in South Dakota. The question in this case was: “when can an out-of-state seller be required to Collect and remit sales tax to a state where they have no physical presence.”

Interviewer:  Mayra Torres, Public Relations Associate

Question 3:

So, why was that even in doubt that South Dakota could make Wayfair an out-of-state Seller collect taxes on purchases of goods and services by south Dakota Residents?

Attorney Answers Question 3:

  • That is an excellent question. I am going to explain the concerns with respect to States imposing legal duties on out of state residents as it relates to sales Taxation: the issue here is the free flow of interstate commerce!
    1. The constitution of the united states gives congress the power to regulate Commerce in article 1, section 8, clause 3.
    2. The concern of the framers of the constitution was division within the United states where states are fighting among themselves imposing economic Burdens on the free flow of commerce.
    3. The commerce clause limits the states regulation of commerce
  • The U.S. Supreme Court will allow a State tax on Commerce so long as it meets all of these conditions:
    1. The tax applies to an activity with a substantial nexus with the taxing State;
    2. The tax is fairly apportioned;
    3. The tax does not discriminate against interstate commerce; and
    4. The tax is fairly related to the services the State provides.
  • Condition Number 1 is the only one in question in the Wayfair Case: the tax applies to an activity with a substantial nexus with the taxing State:
  • In those states that have a sales tax statute, before Wayfair, sellers had to have a physical presence within a state in order for that state to impose a liability on a merchant to collect sales taxes on purchases of goods and services. That is known as the Quill physical presence test from the U.S. Supreme Court decision in 1992 called Quill Corporation vs. North Dakota.
  • After Wayfair, which involves South Dakota, out-of-state sellers can be held responsible for collection and payment of sales taxes to a state by selling a product or service to customers within the state. The Court said that physical presence in a State can be established merely by selling goods and services to customers in the State. No employees or offices or other physical presence is required in order to establish substantial nexus in the taxing state. So now mere shipping goods and services into a state may bring remote sellers within the scope of out-of-state sales tax statutes. The Supreme Court in Wayfair said that imposing this sales tax collection, remittance and reporting requirement in some circumstances did not violate the Commerce Clause of the United States Constitution, Article 1, Clause 3.

Interviewer:  Mayra Torres, Public Relations Associate

Question 4:

Okay…. What Texas… Who is a remote seller selling goods and services to people who live in Texas? Are they liable to collect, remit, report, and keep records of Texas taxable sales?

Attorney Answers Question 4:

  1. A remote seller is defined in Texas Tax Code Rule 3.286(a)(4)(l) and (J) as any seller whose only activities in Texas are the remote solicitation of sales, which includes activities such as solicitation by catalogs, flyers, radio, television, telephone or internet.
  2. Sellers outside of Texas who sell goods and services to Texas residents are required to collect, remit and report Texas sales and use tax effective October 1, 2019 if they made total sales of $500,000 into Texas for a prior 12-month period. If the appropriate sales tax is not properly collected the Use tax must be submitted to the Texas Comptroller of Public Accounts.
  3. And yes, remote sellers must keep proper books and records of all Texas taxable sales transactions and have them available for inspection and examination in compliance with 34 Texas Tax Code Section 3.281. The TAC specifically identifies the types of records that all sellers of taxable goods and services must maintain for 4 years.
  4. Texas Comptroller Auditors are permitted to estimate taxable sales in the event a seller fails to maintain and present the required records for inspection at the request of the Texas Comptroller.

Interviewer:  Mayra Torres, Public Relations Associate

Question 5:

What are the Texas Sales and Use Tax Rate?

Attorney Answers Question 5:

  1. The current sales tax rate is 6.25 percent State rate and each local taxing authority can charge up to 2.0 percent. The maximum allowable sales tax rate in Texas is 8.25 percent.
  2. As for remote sellers, Texas permits them to charge a flat rate of 1.75 percent instead of the local rate which changes from county to county, city to city and school district to school district throughout the State. Remote sellers make this election by filing form 01-799, Remote Seller’s Intent to Elect or Revoke Use of Single Local Use Tax Rate with the Comptroller’s Office. If the remote seller does not make this election, they must compute, collect and remit the local tax based on the local tax applicable to the location to which they shipped the goods or performed the service.

Interviewer:  Mayra Torres, Public Relations Associate

Question 6:

So, who administers the Limited Sales, Use and Excise Tax laws in Texas?

Attorney Answers Question 6:

The Texas Comptroller of Public Accounts.

Interviewer:  Mayra Torres, Public Relations Associate

Question 7:

Are all remote sellers required to do this now?

Attorney Answers Question 7:

  • No; these requirements do not apply to all remote sellers.
  • A remote seller whose total Texas revenue from sales into Texas in the preceding 12 calendar months are less than $500,000 is not required to obtain a sales tax permit and they are not required to collect and remit any sales tax to Texas. The sales are computed on gross revenue not net revenue.
  • As of April 1, 2020, remote sellers must combine sales made through all mediums with delivery into Texas to determine whether they must collect, remit and report Texas Sales.

Interviewer:  Mayra Torres, Public Relations Associate

Question 8:

Wow, it seems like a somewhat complex issue.

Attorney Answers Question 8:

  • Yes, we have just a brief outline here of the issues and sales tax laws applicable to remote sellers since the Wayfair decision of the U.S. Supreme Court.
  • Listeners should stay tune and follow our podcast and read our blogs as we might revisit this topic in the future.

Attorney’s Concluding Remarks:

This is end of “legal thoughts” for now!

  • Thanks for giving us the opportunity to inform you about how the Texas Tax Code requires remote sellers to collect, remit and report sales taxes on sales made to Texas residents to the Texas Comptroller. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! We are here in Dallas, Texas and want to inform, educate, and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

Remote Sellers Must Register in Texas before October 1, 2019

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By Coleman Jackson, Attorney, Certified Public Accountant
September 16, 2019

 

Remote Sellers Must Register in Texas before October 1, 2019

Texas imposes a 6.25 percent state sales tax and use tax on all retail sales, leases and rentals of most goods and some services that are either sold in Texas or used in Texas.  Cities, Counties and Transit Authorities can charge up to 2% sales tax on taxable goods and services.  This local sales tax varies from city to city, county to county and transit authority to transit authority throughout the state of Texas.   The maximum sales and use tax in Texas is 8.25 percent.

 

online retail sales

Remote sellers are required to begin sales and use tax collection on October 1, 2019 on their Texas sales.    The remote seller must collect the correct tax by using the Sales Tax Rate Locator.  For example if a remote seller sales a chest of imported cigars to a person residing in Dallas, Texas; they must collect 8.25 percent tax on the gross sale at the time of the sale.  If this same sale is made in another city of Texas the total collected tax could be lower.  It would not be higher because 8.25% is the maximum sales and use tax in Texas.  However, other types of tax obligations could be implicated in this hypothetical, such as, tobacco taxes and fees. Remote sellers doing business in Texas must register with the Texas Comptroller of Public Accounts before October 1, 2019 to fulfill their Texas tax responsibilities.  First, remote sellers must apply for a Sales Tax Permit pursuant to the Texas Tax Code.

 

remote seller

Once the remote seller is properly registered with the Texas Comptroller of Public Account and receive their sales tax permit, they will be advised by the Texas Comptroller as to whether they must report their taxable sales and use taxes on a monthly basis, quarterly basis or annual basis.  Monthly sales and use tax reports are due on the 20th day of each month following the reporting month.  Quarterly filers must file their sales and use tax reports on April 20th, July 20th October 20th and January 20th.  Annual filers must report taxable Texas sales and use taxes on January 20th for the previous year.

Out of State sellers or remote sellers are required to begin collecting sales and use tax from their Texas customers on October 1, 2019.  If the remote seller fails to register and report Texas Sales and Use Tax they will be subjected to the penalties, administrative actions, and judicial options available under the Texas Tax Code in enforcing the tax laws.  The TTC provides for civil and criminal sanctions against businesses doing business in Texas and not in compliance with their tax responsibilities.

 

Businesses out of Texas

Businesses, who run afoul of the Texas Tax Code and desire to comply with Texas tax laws, whether they are in Texas or someplace else in the world, could possibly qualify to voluntarily disclose under the Texas Voluntary Disclosure Agreement Process (VDA).  A company representative must initiate the process on behalf of an anonymous client who meets the threshold requirements by contacting the Business Activity Research Team (BART) in writing.  If the business has already been contacted by the Texas Comptroller regarding non-compliance with Texas Tax laws, the business cannot voluntarily disclose.  It should be noted that the VDA process is available for all types of taxes administered by the Texas Comptroller of Public Accounts.  Some of the types of taxes that the Texas Comptroller is responsible for administering under the Texas Tax Code are as follows:

  • Sales and Use Tax
  • Hotel Tax
  • Franchise Tax
  • Tobacco Taxes and Fees
  • Battery Sales Fees
  • Cement Production
  • Boat and Boat Motor Taxes
  • Insurance Taxes
  • Manufactured Housing
  • Controlled Substances

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

ONLINE RETAILERS LOOK OUT FOR TEXAS LIMITED SALES, USE & EXCISE TAX

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By:  Coleman Jackson, Attorney, Certified Public Accountant
July 27, 2018

Online retailers have good reason to look out for the Texas Limited Sales, Use & Excise Tax.  Have you ever heard of South Dakota versus Wayfair, Inc.?    South Dakota vs. Wayfair, Inc., 585 U.S. ____ (2018) is a case decided by the U.S. Supreme Court on June 21, 2018.  In that case the Court decided in favor of South Dakota and against Wayfair, Inc.  Wayfair establishes a nationwide rule that basically allows all 50 States to lawfully tax the sales of goods and services performed by online retailers the same as they tax brick and mortar retailers.    Each State is permitted to change its laws governing transactions to realize this new source of revenue.  It is hard to imagine that Texas would not extend its sales, use and excise taxes to reach online retailers selling into Texas from other States or Countries.  The U.S. Supreme Court has given the States a green light to tax online retailers selling goods and services into their States from remote locations.

Online retailers have good reason to look out for Texas to extend the reach of its sales, use & excise tax rules to online retailers selling goods and services to consumers and businesses located in Texas.  In the past as it relates to brick and mortal retailers, Texas law presumed that all retail sales or uses of tangible personal property are taxable transactions.  The burden rested squarely on the shoulders of the brick and mortar retailers to show that sales were somehow exempt from sales, use and excise taxes.  Brick and mortar retailers are required by law to collect the tax and turn it over to the State of Texas pursuant to set rules and regulations.  These rules and burdens are most surely to extend to online retailers in the not so distant future when the Texas Legislature has had a chance to visit the issue after the South Dakota vs. Wayfair, Inc. decision.

Online retailers ought to watch, wait and plan their business activities in anticipation because the days when online retailers selling to consumers in Texas are numbered.    The Texas Comptroller of Public Accounts is the Texas governmental agency responsible for enforcing the sales tax rules in Texas.  Online Retailers need to perform due diligence and comply with Texas Limited Sales, Use & Excise Tax Act through voluntary disclosure and appropriate registrations.  Watch because the tax authorities cometh when you expect not.  Watch our blogs for future updates on this very important topic and other tax, litigation and immigration concerns of interest to our readers.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

Immigrant Tax Alert – Tax Scam Targets Immigrants

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Blog By: Coleman Jackson, PC

Immigration & Tax Law Firm

Firm Site www.cjacksonlaw.com

 

October 31, 2013

Today the Internal Revenue Service (IRS) warned of an insidious, sophisticated telephone tax scam targeting consumers (immigrants and recent arrivals to the United States may be particularly besieged), throughout the United States.  The IRS described the fraudulent activities in Issue Number:  IR-2013-84 as follows:

“Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.”

The IRS further described the current tax scam as follows:

“Other characteristics of this scam include:

  • Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
  • Scammers may be able to recite the last four digits of a victim’s Social Security Number.
  • Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
  • Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
  • Victims hear background noise of other calls being conducted to mimic a call site.

After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.”

Immigrants are particularly vulnerable.  They are in a new land and may be very unfamiliar with the tax laws, tax collection practices and taxing policies of the federal, state and local government.  They may not even be familiar with all of the various taxing authorities.  Immigrants must be especially vigilant and on the alert for tax scams.  But they also must be aware that, in the United States, there are various governmental units who might be charged with assessing and collecting various types of legitimate taxes.  Every communication that may be received concerning a tax issue is not a scam.

Taxing authorities do not ask for personal information such as social security numbers, banking account information and other personal data over the phone, through social media or via tech messaging  or instant messaging or through electronic mail to taxpayers.   If you receive communications through these media you should immediately be on high tax alert.  It would be very unusual for either the federal, state or local government to ask for personal confidential information through these media.  Government correspondence will typically be mailed to you using the United States Postal Service.    The mail will typically be sent to your last known residential address or business address.  If the mail is received anywhere else or otherwise looks suspicious, be on high tax alert.  If you receive information requests through these types of media or other suspicious circumstances, you should be extremely careful.  Consider these guidelines:

DON’TS:

  1. Never give out personal information, such as, your social security number, or bank account details in response to telephone request, emails, texts or social media requests;
  2. Never agree to meet with the caller in person at the instruction of the caller;
  3. Never pay an alleged tax debt with cash at the instruction of the caller;
  4. Never wire transfer any money to the caller or by instruction of the caller;
  5. Never turn over anything else of value to the caller or anyone else as instructed by the caller;

DO’S:

  1. Contact  directly the federal, state or local governmental authorities and report the incident-
    1. Federal Tax Issues—call the IRS at 1-800-829-1040 or Treasury Inspector General for Tax Administration at 1-800-366-4484;
    2. State Tax Issues—  in Texas, call the Texas Comptroller’s Office at  1-800-252-5555 (Sales & Use Tax Issues) or 1-800-252-1381 for (Franchise Tax Issues);
    3. Local Tax Issues— call your city or county tax collector; in Dallas County call 1-214-653-7811.  Call the county tax office where you reside with any questions regarding local tax issues, such as, property taxes.

If you are still confused after contacting the federal, state or local governmental authorities or you just don’t know what to do, contact a tax attorney.  You might also be able to get some guidance from local non-profit organizations, churches and other institutions.  Some area law schools may have tax clinics available for immigrant taxpayers.

Bottom line, as an immigrant taxpayer in America, you do not have to suffer tax harassment in silence or under individual or community siege.  Reach out as we have outlined above to seek help when you suspect that you, your family or community are victims of tax scams.

This blog is written to inform and for educational purposes only.  It is not given as legal advice and does not create an attorney client relationship.  You should consult an attorney for any particular matter pertaining to your facts and circumstances.

COLEMAN JACKSON, P.C.

Immigration & Tax Law Firm

6060 North Central Expressway, Suite 443

Dallas, Texas 75206

Office Phone:  (214) 599-0431 (English)   (214) 599-0432 (Spanish)