Understanding the Role of a Sales Tax Attorney in Atlanta
If you are reading this entry, then chances are that you are either being proactive about an audit, or you are currently going through an audit. A popular question among business owners is when you have to charge a service as part of the gross receipts of a tangible item. This means that you are selling a service and a tangible item together in some sort of fashion.
When you are undergoing a sales tax audit, you may regret selling tangible items along with your service. If you have not taxed the entire sale, then, the auditor will look at the true object of the sale.
Determining Taxability: The True Object Test
When you provide a physical good along with a service e.g., (heart treatment along with a heart monitor), but the good is secondary to the service, taxability is based on the real object of the transaction: the service provided.
Questions to Ask Yourself
To comply with the sales tax laws of your state, consider:
- Is the service you’re providing secondary in importance (“incidental”) to the installation of the equipment?
- Is the physical good simply a means to deliver the main service?
Applying the True Object Test
To help make the determination, a number of state taxing authorities developed an analysis called the “true object test” which they apply to the total transaction.
Using the true object test, you can get a better idea of whether a transaction will be taxable by determining whether the service provided or the property acquired is the main purpose–or the true object–of the transaction.
To apply the true object test, look up the rules of the state in which you’re conducting business.
Common Triggers for Audits and Penalties
Why Businesses Get Flagged
What’s responsible for audit flags and potential penalties? Tax obligations service-based businesses don’t think they have.
For companies servicing installation contracts, technical support, or other business services, sales tax can become a problem if not addressed promptly.
Examples of At-Risk Businesses
Similar at-risk businesses include:
- Construction services
- Manufacturers that provide services along with products
- Many other service-based businesses along the supply chain
As ecommerce shrinks the time between order and delivery, the sales tax risk for supply chain providers grows.
Frequently Asked Questions
What does a sales tax attorney in Atlanta do?
A sales tax attorney in Atlanta helps businesses navigate complex state tax laws, particularly during audits. They assess tax liabilities, defend clients against penalties, and provide strategic advice to ensure compliance with Georgia sales tax regulations.
How does the “true object test” affect my tax obligations?
The “true object test” determines whether a transaction is primarily for a service or a product. If the service is the main focus and the product is incidental, the transaction may be exempt from sales tax. This test is crucial in deciding the taxability of bundled services and goods.
What are common triggers for a sales tax audit?
Sales tax audits are often triggered by discrepancies in tax filings, failure to collect sales tax on taxable goods or services, or patterns that suggest underreporting. Service-based businesses that include tangible products in their offerings are particularly at risk.
Which types of businesses are most vulnerable to sales tax issues?
Businesses that offer both services and products, such as construction firms, manufacturers, and technical support providers are especially prone to sales tax compliance issues. These businesses must carefully assess whether their sales are taxable.
How can I reduce the risk of penalties during a sales tax audit?
To minimize risk, ensure accurate classification of sales, maintain thorough documentation, and apply the true object test when bundling products with services. Consulting a knowledgeable sales tax attorney can also help prepare and defend against audit challenges.