PA Sales Tax Exemption

[Jeffrey Schronce]

I was just speaking with Wilke Machinary and they advised that they have forms which allow you to waive PA sales tax if you utilize the tools to produce items which you sell. I am sure some folks maybe reporting income or losses from woodworking, so you could legitmately not pay sales tax in PA at Wilke and I would imagine Grizzly (heck any place really). I wouldn't do it if you are not legitmately engaged in the business or are reporting hobby gains/losses to the IRS.
What brought this up was I asked if someone from out of state purchased an item over the net or phone and came and picked it up would PA sales tax be voided. They advised no, tax would be applied same as if you walked through the door and purchased.

[dwolsten]

What brought this up was I asked if someone from out of state purchased an item over the net or phone and came and picked it up would PA sales tax be voided. They advised no, tax would be applied same as if you walked through the door and purchased.

That's weird; the actual law (Federal law) is that they don't have to collect state sales tax if the buyer is out-of-state. The state can't force that either, because that would interfere in interstate commerce which is illegal. So if they're collecting taxes on out-of-state buyers, that's just them being dumb.

I think there's a simple way to deal with this, in a purely economic way, rather than messing with tax forms. Simply add the sales tax to the price as you're comparing prices between this place and other internet retailers like Grizzly or Amazon which don't charge sales tax. In many cases, the extra cost should swing the scales to the competition.

Why bother buying from someplace that you have to jump through hoops to deal with or else pay a high surcharge?

[LCHIEN]

The general rule for sales tax exemptions is that you can avoid paying state sales taxes if the item is to be resold (and the end buyer pays sales taxes). Thus you must furnish the form detailing your sales tax ID number (since as a seller you have to register with the state to collect sales tax on their behalf). You then had better pay sales taxes on your sales that are in excess of the sales taxes that you avoided paying.
In other words if you buy $1000 in goods with a sales tax exemption form, you had yourself better show sale receipts of at least $1000 and pay the sales taxes on that amount.

You are generally NOT permitted to avoid sales taxes on tools or fixtures, furnitures, consumables, supplies etc, only items resold or raw materials that are turned into items to be sold.

At least its that way in Texas; I imagine most other states are very similar. So buying a tool claiming sales tax exemption you would be violating the law unless you resold that tool (even if you resell it after using it!).

Anyone making the sale in the state would have to pay sales taxes, e.g. if you drove to PA to buy it you would be obligated to pay local sales taxes that apply. If you called over the pohone and ordered it shipped to another state, that is not theoretically subject to local state sales taxes unless the store which you buy from has a retail presence in that state.

Thus buying on-line from stores with a brick and mortar presence in your state may still subject you to sales taxes but buying from internet only stores avoids this.

Needless to say, many states would love to change this, if they had their way, states would charge at both ends making you pay double.

The sales advantages to internet sales companies like Amazon is huge, giving them a 5-10% advantage over brick and mortar operations, and there is a strong lobby at the federal level to maintain the interstate commerce tax free as the US constitution says.

[Pappy]

Actually tools used to produce products for sale are tax exempt in Texas if you have a tax ID number. This includes accessories such as router bits, saw blades, drill bits, etc. This according to the dealer where I buy my Whiteside bits. Not sure about consumables like sandpaper.

[Jeffrey Schronce]

dwolsten , the interstate regulation makes perfect since to me, however wouldn't a large number of people do this on large purchases? Anyone have experience buying Grizzly product via web or phone from NY, MD, WV, etc and then picking it up to avoid shipping? As to why not order from Grizzly, I have to pay sales tax of Grizzly as well since they have the proclaimed worlds largest showroom here in PA.

LCHIEN, I agree completely that one darn well better claim the income thus paying taxes (and particularly collecting state sales tax on items sold). The retail B&M locations for Grizzly, Dell, etc force us to pay taxes on products bought online and shipped. This is particularly bothersome for Dell who has a few kiosk in the big fashion malls that allow you to touch items, test drive the tv's etc, but you still have to order and ship 99% of purchases. Because they have these stupid locations we have to pay sales tax on Dell items.
As far as avoiding sales tax due to resell, you are correct that this is common knowledge in most states. Look at all the items sold tax free to small biz at Costco, Sams and BJ which are resold by the biz to end consumers from which they collect the tax. However, Wilke is being pretty clear that the machinery used for production of items may be tax exempt as well. I can kind of see it. I mean you are ultimately physically passing the wood, screws, glue, etc to the consumer but not the machine it is built on. Therefore you would purchase tax exempt wood, screws, glue, etc and pass sales tax to the end consumer. How do you break the machinery cost out of the product since sales tax was paid on that? I normally would assume this was accounted for under the depreciation deductions of the federal and state tax codes. You would depreciate the machine cost, including sales tax, thus getting credit that way. Or in some states you could take a sales tax credit under "other taxes paid".
I don't know. Been a long time since I took those accounting and econ classes. I was just passing along what Wilke advised. Consult a tax attorney or CPA.

[LCHIEN]

Actually tools used to produce products for sale are tax exempt in Texas if you have a tax ID number. This includes accessories such as router bits, saw blades, drill bits, etc. This according to the dealer where I buy my Whiteside bits. Not sure about consumables like sandpaper.

Pappy,
I looked on the following site
http://www.capitol.state.tx.us/statu....000151.00.htm
which is chapter 151 of the texas tax code, and specifically subchapter H (115.300 or so)
and I looked at the exemptions,
most machinery and accessories exemptions are ONLY if the machine or accessory is completely consumed (e.g. both the router and bit are worn out and tossed after the work) AND the work is for a tax exempt organization.

Or if the machinery is used for law-required pollution and environmental control.

Otherwise only materials directly used up and consumed in production for sale may be sales tax exempt. I think the sandpaper and router bits would qualify but not the router.

I skimmed the section searching for references to "machinery" and "consumed" since it is a lengthy document.

[PALefty]

Anyone have experience buying Grizzly product via web or phone from NY, MD, WV, etc and then picking it up to avoid shipping? As to why not order from Grizzly, I have to pay sales tax of Grizzly as well since they have the proclaimed worlds largest showroom here in PA.

It has been my experience that any store will charge tax if you pick up physically. They will also charge tax if they have a physical presence in your state. I hate paying tax AND shipping... so will generally avoid ordering from PA stores for that reason. This sucks in certain instances because there are some great online stores here. One way around this.. for me is to have it delivered to my parents in another state and I pick them up when I visit. Grizzly was the one odd-ball when it came to this. They were going to charge me sales tax because my credit card was listed to a PA address... even though I was delivering to NY. I have never had another company require that. Since the savings weren't great to begin with and I could get the same items at a different online store... I cancelled my Grizzly order.

[Pappy]

Loring, I got the information when I was buying router bits. My assumtion would be that it covered machinery as well since businesses are taxed annually on property. Since I don't have tax id's set up, I never researched it further. From the looks of the document you linked, I don't think I want to, either!

[Wood_workur]

well, if it illeagal to not charge tax like that, would it make a difference if they paid the tax, but didn't collect it?

[LCHIEN]

well, if it illeagal to not charge tax like that, would it make a difference if they paid the tax, but didn't collect it?

having just read the tax law,

The seller is to always presume the item is taxable.
The purchaser must present the exemption certificate or the resale form claiming that the item is to be resold, and then the seller is relieved from the duty of collecting sales tax.
The purchaser shall be 100% liable if he furnishes the above but then failes to use it as he promised. According to TX law, as soon as he realizes it will be consumed or used not in resellable products or services as claimed to the seller then he must pay the tax directly to the sate.

According to the TX law, the seller must furnish a receipt indicating the tax paid, so technically in your example he would be in violation of the law. However he should not charge tax if presented with the proper signed forms, once that happens, the buyer is responsible for paying taxes if he does not resell or offer the item for resale and instead uses it himself.

Besides, it's kind of a money-losing proposition to pay the tax your customer is obligated to pay... Kind of like an 8% loss right off the top.

[Jeffrey Schronce]

well, if it illeagal to not charge tax like that, would it make a difference if they paid the tax, but didn't collect it?

In North Carolina one of the big guitar/instrument stores had a sale claiming "we pay the sales tax". They were advised by the Department of Revenue of the State of NC that they could NOT fail to collect tax from the consumer and remit it themselves. This would effectively reduce sales tax generated if everyone did this causing revenue issues. The following year they had their 2nd annual 5% off sale. The commercial even said that they could not say they would pay the tax but they would give % off. Again, this reduced revenue payable to the State but they ok with this approach as it was a sale with a % off that happened to be the same as the state sales tax.