These are some key questions for advisors: Where does the customer take possession of the services? Is it the location where the services are performed, the location where the benefit of the services is received or the location where the customer, who actually requested the service, is?
“Most states don’t provide a lot of guidance on the proper [taxation] sourcing of services,” Christian said. “This is further complicated by certain services being sourced differently depending on the type of service provided. Finally, trying to determine the local sales tax rate can be tricky when customers are located within the same ZIP code but are subject to different local sales tax rates.”
Companies that sell software as a service, for instance, may not have to charge and remit sales tax at the state level in Colorado or Illinois, Christian said, but may encounter the obligation in Denver and Chicago.
“Sales tax is really an area to which an advisor needs to dedicate a large portion of their time to really add value,” Bingel said, adding that advisors who don’t deal with sales taxes on a consistent basis generally fall into two categories: those who realize that “they don’t know what they don’t know” and refer their clients to people who are more experienced with sales/use taxes; and those who try to handle themselves “and often end up digging a deeper hole for themselves or their clients.”