Tax Strategies Flashcards

A buyer purchases equipment from an out-of-state vendor that does not collect sales tax. What tax obligation typically falls on the buyer?

Answer: Use tax on the purchase price

When sales tax is not collected, the purchaser generally must self-assess and remit use tax to its state.

Which 2018 U.S. Supreme Court decision allowed states to require remote sellers to collect sales tax based on economic nexus?

Answer: South Dakota v. Wayfair, Inc.

Wayfair overturned the physical-presence rule from Quill and allowed economic nexus standards.

A distributor buys goods it will sell to customers without changing them. Which document should it give the vendor to avoid paying sales tax on the purchase?

Answer: Resale certificate

A resale certificate exempts goods bought for resale because tax is collected on the final sale.

What is the main advantage of a direct pay permit for a large purchaser?

Answer: The buyer self-assesses and remits tax directly, simplifying vendor invoicing and taxability decisions

Direct pay permits let the buyer determine taxability and remit tax itself, which helps when use of items is uncertain at purchase.

Many states exempt machinery used directly in production from sales tax. What is this commonly called?

Answer: Manufacturing exemption

The manufacturing exemption covers equipment used directly in producing goods for sale.

Under the U.S. duty drawback program, what is the maximum refund generally available on duties paid for imported goods that are later exported?

Answer: 99%

Duty drawback generally refunds up to 99% of duties, taxes, and fees paid on qualifying exported goods.

A procurement team wants a vendor invoice structure that may lower sales tax in some states. Which practice often helps?

Answer: Separately stating delivery charges on the invoice

In many states, separately stated delivery charges may be nontaxable, while bundled charges are taxed with the product.