The Issue: The states are all short on funds with the current condition of the economy. As a result, they are aggressively going after any business that makes sales in their state and has not been collecting sales tax. One of my friends recently found this out the hard way when state revenue agents showed up at his office and began collecting data from his computers without any warning. The end result? Writing a very big check to the Department of Revenue for unpaid sales taxes.
The Rule: A business is required to collect sales tax on sales of “tangible personal property” in any state in which they have a “physical presence.” A physical presence normally means employees or an office in the state. However, many states take the position that if you visit the state to do business, especially at a trade show or speaking event, then you have physical presence and they can require you to collect and remit sales tax on all of your sales.
Tangible personal property means, for speakers, any books, cds, or other information products whether there is a physical product (e.g., cd) or whether it’s merely a download. This means most information products other than seminars and coaching. Even seminars can be subject to tax if they come with a manual or other materials. Some states go so far as to say that even if there is no more than a handout at the seminar, the entire course is subject to sales tax. Our member who got hit with the recent audit puts on multi-speaker events and ended up paying the tax on all of the products sold at his events over the past three years by all of his speakers.
The Solution: The best solution is simply to collect and remit tax on all sales at seminars. If this is going to cause a closing ratio challenge for you, then you can separate out the charge for the materials from the charge for the seminar or coaching services and only charge tax (or pay it yourself) on the price you charge for the materials. Just be sure the price you list on your sales form for materials is reasonable.
The Rest of the Story: This is only the tip of the iceberg. Once you have a physical presence in a state (say you speak at a seminar in that state), all of your sales to customers in that state, even through the Internet, are subject to sales tax in that state. In addition, you will be subject to income tax in that state as well. The income tax rules are much broader even than sales tax and in most states don’t require a physical presence.
So beware of this major issue as a speaker and/or promoter. 7-8% of all sales straight to your bottom line literally could put you out of business. To be safe, contact a CPA who specializes in multi-state taxes and have them do a state tax review for you. A few thousand dollars of professional fees now could save you hundreds of thousands of dollars later.
Tom
