Sales Tax Planning – NTWR Consulting

Sales Tax Planning

Dedicated, Experienced, and Focused

Sales tax is a transactional tax so there are often planning strategies that can be used to avoid or minimize sales taxes.

These strategies are fact specific so a company would need to review its facts and the laws on its state or states before implementing any strategy.

Transportation Entity

Some Midwestern states allow a business to establish a captive entity that will provide transportation services to the operating entity. By utilizing this structure, they may be able to claim a sales tax exemption available to common / contract carriers. The rules vary by state with respect to issues like:

Use of tax disregarded entities vs. the need for the entity to be its own tax regarded entity
Whether the travel can be intrastate or must be a certain percentage interstate
The size of the truck or semi-tractor / trailer unit
The amount of revenue generated from third parties (“backhauling”)

For more information call (920) 450-1411.

Leasing Entity

Most states consider a lease of personal property as a recurring sale (exception Illinois does not). Therefore, the purchase of an item that will be leased to another person can be purchased for resale. Sales tax is then collected on the rental stream rather than upfront. Some states do require the tax paid at lease inception if the lease if considered a capital lease (Texas). However, if the lease is considered an operating lease, then the sales tax can be spread over the payments. An example could include construction equipment that could be used both internally and rented to third parties. Some related parties purchase an aircraft and lease the plane to the owner and various entities without the pilot to qualify for specific FAA rules.

These are very complex transactions so companies should engage competent state and local tax professionals and legal counsel to ensure that they are properly addressing all business issues when performing this type of transaction planning.

For more information call (920) 450-1411.