Sales & Use Tax

As Seen in Anchin’s Real Estate Year-End Tax Planning Guide

More and more building owners and management companies are being audited by states for Sales and Use tax. These audits are resulting in firms being assessed thousands of dollars in Use taxes, interest, and, in some instances, penalties.

The reason these assessments are so high is twofold. First, because many real estate and management companies do not file Sales/Use tax returns, there is no statute of limitations. For non-filers, most states will audit the past six years. For routine filers, the statute is usually three years. Tax exams can be quite tedious and time consuming, and invoices for an exam will be needed for the past three or six years. If you do not have all your invoices for the past six years and cannot provide proof that you paid the Sales/Use tax, then the state has the right to assess the tax, even if you did pay it. The second reason for the large dollar assessments for building owners is that states are cracking down on what qualifies as a capital improvement. Merely issuing a certificate will not make the whole job tax exempt. In every capital improvement project, there are often taxable elements. Examples are carpeting, signage, scaffolding, window treatments, among others. When a state audits contractors, they review the contracts and make lists of building owners who have had major renovations done and refer the landlord for audit.

The popularity of buying goods on the internet from out-of-state vendors is also problematic. While this type of purchasing, as well as catalog purchases are likely to save money, it could also open up a Sales/Use tax liability. When purchasing goods, it is important to keep in mind the state location of your vendors. If the vendor does not have nexus in your home state, then they might not necessarily be required to collect or remit the Sales tax. However, it is still your responsibility to remit the Use tax to the state where the goods are received.