October, 2020
One of the most difficult things about sales and use tax is that it has its own vocabulary. Avid readers of our newsletter know that a common word like “wholesale” is not used in New York State sales and use tax law. Avid readers also know how confusing sales tax can be when it comes to food (e.g., how cutting a bagel can change its taxability, or at least that what the State says…) But Ireland has taken this issue to a whole new level.
Ireland’s Supreme Court has ruled that the bread used by the popular sandwich chain Subway is not a “staple food”. Apparently, the bread in question has a sugar content of 10% of the weight of the flour included in the dough and therefore, exceeds the 2% limit specified in their law. Accordingly, the bread is no longer a non-taxable “staple food”. The bread is now a taxable “confectionary”.
WOW!
This is why if you own a business selling food you need to understand these highly nuanced rules. If a court can rule that bread is a confectionary, who knows what other potential pitfalls are looming.
Some states like New York State are actually trying to make food sales simpler. For example, catering is taxable in New York State. However, prior to June 1, 2018, you had to pay sales tax on catering regardless of whether you were purchasing it for resale; purchases for resale are generally not taxable. You would then need to claim a refund or credit for the sales tax paid on the catering that was to be resold. That’s a difficult process.
However, as of June 1, 2018, New York State allowed you to purchase the catering for resale without paying sales tax. Of course, you are required to give the vendor a fully completed and timely resale certificate in good faith which, if you’re an avid read of our newsletter, you know isn’t as easy as it sounds.
The moral of the story is that you should be an avid reader of our newsletter to help avoid traps like these! And call or email us if you need any sales and use tax help!
Success Story
Audit Assessment Reduced by $100,000 & Penalties Abated
A Company came to us with a liability from the New York State Department of Taxation and Finance that was from a second audit.
Some of the liability stemmed from sales and some of the liability stemmed from purchases (sales tax vs use tax). After going back and forth with the auditor regarding the taxability of the sales, we were able to reduce the sales tax due on sales to ZERO DOLLARS! Additionally, after reducing the use tax due on purchases based on available documentation from the client, we were able to further negotiate a settlement to reduce the use tax due by an additional 30%.
In addition to the reduction in tax due, we were also able to negotiate penalty abatement, even though this was a second audit for the business.
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