Qualifying purchases. The sales tax exemption applies to sales of tangible personal property for personal use only. Purchases exempt from sales tax are also exempt from use tax. Therefore, eligible items of tangible personal property purchased on the Massachusetts sales tax holiday from out-of-state retailers for use in Massachusetts are exempt from Massachusetts use tax. Alcoholic beverages sold for off-premises consumption by liquor or package stores qualify for the 2010 sales tax holiday.

Nonexempt sales. The sales tax holiday does not apply to sales of motorboats, meals, telecommunications services, gas, steam, electricity, tobacco products, any single item costing in excess of $2,500, and all sales of motor vehicles. Layaway sales do not qualify for the exemption even if the last required payment or payments necessary to complete the transaction are made on August 14 or 15, 2010. Sales of the excluded items remain taxable.

Specific rules. The Department provided specific rules to be applied by retailers in administering the Massachusetts sales tax holiday exemption.

Threshold: Generally, sales or use tax is due on the entire sales price of a single item worth more than $2,500. The sales price is not reduced by the threshold amount. However, since there is no sales tax on any article of clothing worth less than $175, only the increment of the sales price of the article of clothing over $175 is subject to tax.

Multiple items on one invoice: Separate invoices do not have to be prepared when a customer purchases multiple items during the sales tax holiday. As long as each item is priced $2,500 or less, there is no upper limit on the tax-free amount each customer may purchase.

Bundled transactions: When several items are offered for sale at a single price, the entire package is exempt if the sales price of the package is $2,500 or less. Items that are priced separately and are to be sold separately qualify for the sales tax holiday exemption if the price of each item is $2,500 or less.

Coupons and discounts: If a store coupon or discount reduces the sales price of an article, the discounted sales price determines whether the sales price is within the sales tax holiday threshold. If the purchaser bought both an eligible property and a taxable property and the coupon or discount applies to the total amount paid by the purchaser, the seller allocates the discount on a pro rata basis to each article sold.

Exchanges: In case of an even exchange, no tax is due even if the exchange is made after the sales tax holiday.

Special orders: Special order items are eligible for the sales tax holiday exemption provided they are ordered and paid in full on the sales tax holiday weekend and the cost of each item is $2,500 or less even if the items are delivered at a later date. A prior special order purchase with a deposit made before August 14, 2010 will not qualify for the sales tax holiday exemption even if the customer pays the entire remaining balance due on August 14 or 15, 2010.

Rain checks: Eligible property bought with the use of a rain check during the sales tax holiday weekend qualifies for the exemption regardless of when the rain check was issued. Issuance of a rain check during the sales tax holiday weekend will not qualify otherwise eligible property for the sales tax holiday exemption if the property is actually purchased after the sales tax holiday.

Rentals: Generally, rentals for 30 days or less of eligible tangible personal property are eligible for the sales tax holiday even if the rental period covers days before or after the holiday provided payment in full is made during the sales tax holiday weekend.

Rebates: A rebate is generally treated as a cash discount and is excluded from the sales price. So, the discounted sales price determines whether the sales price is within the sales tax holiday threshold, and tax must be charged on the full purchase price if it is over $2,500. If the customer receives a rebate after the sale by mailing a coupon to the manufacturer, the full purchase price of the property determines whether the sales price is within the sales tax holiday price threshold and tax must be charged on the full purchase price if it is over $2,500. If the customer receives a cash discount from the vendor upon the purchase of tangible property and a manufacturer’s rebate after the sale, only the cash discount given by the vendor is excluded from the sales price for purposes of the sales tax holiday exemption.

Internet sales: An eligible property ordered over the Internet is exempt if it is ordered and paid for on August 14 or 15, 2010, Eastern Daylight Time, even if the property is delivered after the sales tax holiday period.

Splitting items normally sold together: Articles normally sold as a single unit cannot be priced separately and sold as individual items in order to qualify for the sales tax holiday exemption.

Returns: Under the law, sales tax may only be refunded if returns are made within 90 days of the sale. During the 90-day period after August 14 or 15, 2010, a retailer may not credit a retail customer who returns an item that could have qualified for the sales tax holiday exemption, unless the customer provides a receipt or invoice showing the tax was paid or the seller’s records show that tax was paid.

Erroneously collected taxes: Customers who were erroneously charged sales tax for an exempt purchase may obtain a tax refund from the vendor. The vendor that has remitted erroneously collected tax to the Department may file an abatement application within three years with satisfactory evidence that the vendor credited or refunded the tax to the purchaser.

Responsibilities of retailers. All Massachusetts businesses normally making taxable sales of tangible personal property on August 14 and 15, 2010 and out-of-state retailers registered to collect Massachusetts sales and use taxes must participate in the sales tax holiday. Any sales or use tax erroneously collected by a retailer during the sales tax holiday must be remitted to the Department. Retailers must keep normal business records showing the date of sale, items purchased and selling price. Purchasers paying for tangible personal property with business credit cards or checks must be charged tax on the items purchased. Normal business records showing the date of sale, items purchased, and selling price must be kept by the retailer/vendor. However, a separate certification of nonbusiness use from the purchaser will not be required for the 2010 Sales Tax Holiday regardless of the amount of the otherwise qualifying purchase.

Penalties. Retailers that back-date sales occurring after August 15, 2010 or that forward-date sales that occurred before August 14, 2010 in order to make them appear to qualify for the sales tax holiday may be subject to the tax evasion penalties of Mass. Gen. L. § 73 , including a felony conviction, a fine of not more than $100,000 or $500,000 in the case of a corporation, or by imprisonment for not more than five years, or both, and may also be required to pay the costs of prosecution.

For example, in Minnesota the tax authorities found a tax evader after he announced on his MySpace page that he was returning to his home town to work and mentioned his new employer.  Genius!

Agents in Nebraska caught a DJ after announcing one of his gigs.  Brilliant!

California caught wind of a rigger of sails through an on-line thread to collect a 4-figure sum.  Outstanding!

Personally, I love these stories.  Can’t get enough of them.  Of course, I also watch all of the “Caught in the Act” and “World’s Dumbest Criminals” episodes I can.

Back in the real world, Tom Quinn and I help people with their IRS, Rhode Island and Massachusetts tax problems on a daily basis.  If you owe the IRS, Rhode Island or Massachusetts taxes, contact us at 401-421-5115 or by e-mail at mmclaughlin@mclaughlinquinn.com or tquinn@mclaughlinquinn.com for more information on how we can help you.

According to the Wall Street Journal, the Democrats in the Rhode Island legislature increased spending this year by 12% while requiring the Governor to cut spending by around $68 million.  The Governor is utilizing these furloughs as part of his plan to cut spending.  Naturally, the state employees unions have vowed to fight this furlough, and they may win.  Click here for the full Wall Street Journal article.

Whether or not the unions prevail, tax experts are concerned about the impact on taxes in the Ocean State.  The Governor and the Legislature already raised the tax rate on long-term capital gains from 1.67% to 9.9%.  Given their reluctance to actually cut spending or to take any sort of business-friendly measures which would increase the base upon which the state income tax is calculated, the Legislature may see no other option than to increase the tax rate (directly or indirectly) on income.  They could, of course, increase other tax rates, such as the sales and use tax, or broaden the sales and use tax base (e.g. to include services).  The Legislature and the Governor already imposed a new tax on Amazon.com and other on-line retailers.  We are still waiting to see how much additional tax revenue the state will receive after several on-line retailers withdrew from Rhode Island.

The tax attorneys at McLaughlin & Quinn, LLC are keeping an eye open and an ear to the ground monitoring any rumors or discussions of changes to the Rhode Island tax laws.  As soon as we hear anything, we will post an entry to the M&Q Blog or send out an e-mail alert.  If you are interested in receiving our e-mail newsletters and alerts, please contact Michaela Costa by e-mail at mcosta@mclaughlinquinn.com and ask to be added to our list.

In the meantime, business owners, investors and everyone else in Rhode Island will just keep operating under the current rules, while wondering who’s running Rhode Island.

What I’m referring to is the recent passage of a law that requires Amazon.com to collect Rhode Island sales tax on sales made through Rhode Island-based associates.  Click here for the entire article from the Providence Business News.  Not surprisingly, Amazon.com immediately severed all relationships with Rhode Island-based associates.

Since book buyers can go directly to Amazon.com to buy their books, with no Rhode Island intermediary, Amazon does not have an obligation to collect the Rhode Island sales tax.  So, now the state will still not receive any sales tax, and no income taxes, property taxes, employment taxes, etc., from the Rhode Island-based associate that may now go out of business, or move to another state.  Absolutely brilliant!

UPDATE

Overstock.com has joined Amazon.com is severing ties with Rhode Island associates as a direct result of actions taken by the Rhode Island legislature.  Click here for the full article from Providence Business News.

ANOTHER UPDATE

Blue Nile, Inc. has joined Amazon.com and Overstock.com in severing its ties to Rhode Island associates.  Click here for the full article from the Providence Journal.  And, click here for the full article in the Providence Business News.  Have the Rhode Island legislators heard about any of this?  Was this their goal?  Where will it end?  Is this good for Rhode Island?

ANOTHER UPDATE

The Rhode Island Division of Taxation has mailed a letter to over 100 on-line retailers informing them of Rhode Island’s new law.  Click here to view the letter that was mailed last week.

ANOTHER UPDATE

According to Steven Roll, Senior State Tax Law Editor at BNA Tax & Accounting, “Overstock.com reinstated its affiliate advertisers in California July 1 and in Hawaii July 2 after governors in both states vetoed bills that would have required the online retailer to collect tax on sales in those states.

“The company reinstated the affiliates in those two states within a day of notifying them that they would be dropped because lawmakers were poised to enact laws imposing a sales tax nexus on Overstock.com based on its affiliate relationships.

“California Gov. Arnold Schwarzenegger (R) vetoed a bill (S.B. 17xxx) with the nexus provisions late June 30, and Hawaii Gov. Linda Lingle (R) vetoed her state’s bill (H.B. 1405) July 1.

“Overstock.com also cancelled affiliate agreements in North Carolina based on out-of-state retailer nexus provisions that may be included in the state’s budget.

“The North Carolina House of Representatives approved budget legislation (S.B. 202) June 13 that included the requirement that retailers are obligated to collect sales taxes on remote sales. The state Senate passed its version of the bill April 9, but did not include that provision.

“Conferees currently are meeting to hammer out the differences in their versions of the two-year budget bill. North Carolina’s fiscal year began July 1, but lawmakers are working under a continuing budget authority and now have until July 15 to come to an agreement on S.B. 202.”

As more states struggle with budgetary and other fiscal constraints, expect to see more efforts to audit and collect taxes under the current system.  Our attorneys at McLaughlin & Quinn, LLC have already felt this renewed effort in both Massachusetts and Rhode Island.  The numbers of new cases is at an all-time high.  These state efforts are focused not just on personal and corporate income taxes, but sales and use taxes, payroll taxes, and excise taxes, such as the cigarette tax, fuels taxes and others.

Ms. Van Der Pool’s article correctly points out that everyone should pay their taxes according to the law.  But, as a tax attorney I can attest that there can certainly be differing opinions as to the proper interpretation of the law.  However, merely not paying any taxes, or not filing tax returns, is not the appropriate method to challenge an interpretation of the tax law.

If you have been selected for audit, if you know you owe taxes, or if you have not filed all required tax returns, and if you want to get these matters settled and behind you, you need to seek competant tax advice immediately.