exemptions from sales tax
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DESCRIPTIONExemptions from Sales Tax. Department of Revenue. Exemptions. What Who Why Documentation. Agricultural products Agricultural services Warranty Goods Food Stamps (SNAP) Water Supply System Trucking Services Trade-in Allowance Mini-Storage. Prescription drugs for humans - PowerPoint PPT Presentation
Department of RevenueExemptions from Sales Tax
Examples of Exempt Products or ServicesAgricultural products Agricultural servicesWarranty GoodsFood Stamps (SNAP)Water Supply SystemTrucking ServicesTrade-in AllowanceMini-Storage
Prescription drugs for humansPrescribed medical devicesHealthcare ServicesFinancial ServicesSocial ServicesTravel Agent ServicesAdvertising Services
Government ~ RG xxxx-xxxx-RGNot all government agencies have an RG number.
Public/Private Schools ~ RS or RE
Relief Agencies ~ RA
Purchasers that are NOT exempt:
ChurchesPurchases by churches are subject to sales tax.
Non-profit civic organizationsSuch as PTA, Service Clubs (Rotary), Veterans clubs etc. Their purchases are subject to sales tax. Their dues are exempt from sales tax as are services provided by them.
Sales for ResaleGoods sold are shipped outside the stateDocumentation is shipping addressGoods are leased outside the stateServices are received by customer outside the stateExamples of where tax is sourced (or due):Repair Service keep documentation where customer takes receipt of the repaired itemConsulting service keep documentation where report is sentOnline service documentation is customers address Use Tax is due where the service is used. This may differ from where the receipt is.
WHY IS IT EXEMPT
RESALE PURCHASES OF PRODUCTSTangible personal property purchased to be resold
Tangible personal property purchased to be leased Note: Tangible personal property used by service providers cannot be purchased exempt for resale unless there is a specific exemption. Example: Chemicals used by lawn care providers can be purchased for resale.
DOCUMENTATION FOR EXEMPT SALES IS REQUIRED
Using the Exemption Certificate
Purchaser must provide to SellerGood for only ST, WT, MT licensesNo requirement to update, but DOR advises to updated every 3 years Invalid Certificates - Issuer may be held responsible for tax plus up to 50% penalty, and may be guilty of Class 1 Misdemeanor.
Federal government State or local government (see next slide for out-of-state governments) Tribal governmentForeign diplomatCharitable organization - SD Relief Agency permit requiredReligious or private educational organization - SD permit required (only SD religious or private schools are exempt)ResaleAgricultural (item or service must be specifically exempt)Direct pay permit Direct Mail
REASON FOR EXEMPTION
The governments from other states or the District of Columbia are exempt from SD sales tax if the law in that state provides a similar exemption for SD governments. Governments providing a similar exemption: Colorado, Indiana, Iowa (lodging is not exempt), Minnesota (lodging and meals are not exempt), North Dakota, Ohio, and West Virginia. The governments from states without a sales tax are exempt from South Dakota sales tax. These states are Alaska, Delaware, Montana, New Hampshire, and Oregon.EXEMPT GOVERNMENTS
If ad is prepared and placed in the media by the service providerthe service is exempt.
Media: Newspaper, radio, TV, Internet, magazine etc.
If prepared by service provider and given to the customer it is taxable.EXEMPT SERVICES
Tangible personal property can be purchased for resale if it becomes part of the final product
Examples of purchases for resale by manufacturer: SteelScrewsTiresEngine GlassShipping container
MANUFACTURERS Raw materials sold to manufacturers, processors or fabricators are exempt from sales tax as a sale for resale.Raw materials include: containerslabelspacking caseswrapping papertwinebagsbottlestapecasings
and similar articles and receptacles if they become part of other tangible personal property to be sold ultimately at retail.
COMPONENT PARTS - CONTAINERS
PACKAGING AND CONTAINERSRetailers can purchase certain containers exempt from sales tax as a sale for resale even if the retailer Furnishes the container free of charge to a customer, as long as the container hold products the retailer soldto the customer
Containers include: bags, boxes, wrapping paper, twine, tape, cups, food wrappers, and similar articles. Containers the retailer reuses cannot be purchased for resale.
Services as a component part of a manufactured product Example of services that might qualify for resale for manufacturer, fabricator or processor:
Design service does not qualify as a service for resale
Two criteria must be met for service to be purchased for resale: Service is not used in any manner by the seller andService is delivered or resold to the ultimate customer without any alteration or change.
SERVICES FOR RESALE
Is the service used to develop a product or does it become an actual physical part ofthe product?Attaching components - becomes part of the product.Resale allowed.Designing - does not become actual part of product. Resale not allowed.SERVICES FOR RESALE
A service provider can purchase another service for resale if the service is delivered to a specific customer in conjunction with the services contracted to be provided to the customer.
3 criteria must be met in order to purchase the service for resale:Purchased for or on behalf of a current customer;Purchaser of the service does not use the service in any manner; andService is delivered or resold without any alteration or changeSERVICES TO OTHER SERVICE PROVIDERS
RESALE EXAMPLES Veterinarian Services: Laboratory services for a specific customer can be purchased for resale
The veterinarians service is subject to sales tax, but they can purchase medications as a sale for resale
Products placed in or on the animal can be purchased by the veterinarian for resale
RESALE EXAMPLES#1 - A computer software company hires a programmer to develop customized software for a specific client. Is this resale? Yes, it meets all 3 criteria.
#2 - The software company hires a programmer to develop a new app to scan products and compare prices. The software company then copies and markets this plan to the public. Is this resale? No, not developed for specific client.
ARCHITECTS, ENGINEERS, SURVEYORSException to the rule that it must meet the 3 criteria
Any service purchased by an architect, engineer or surveyor on behalf of a client in performance of a contract for that client may be purchased for resale.
Internet PublicationsExempt EntitiesExemption Certificate
StatisticsList of Relief AgenciesComing January 2012
You can request a tax seminar for your specific business orindustry. Sources
Questions? Need Information?
Visit our Websitewww.state.sd.us/drr2Toll Free Number: 1-800-829-9188
Visit our Geographic Information Systems (GIS)http://www.state.sd.us/drr2/GIS/index.htm
Email the Business Tax Divisionbustax@state.sd.us
Check out our Quest Program (E-file)
*Parts & repairs for ag equipment, Seed, Feed, Fertilizer, Ag Services. New license format since 2009Cities, counties, townships, districts (road, sanitary etc), volunteer fire departments *Service providers are considered to be the user/consumer of all TPP that they purchase, including TPP that they use in the performance of their service, unless there is a specific exemption. Example: a lawn care provider has to pay sales tax on the mower, lawn bags, and other equipment. But if he applies chemicals to the lawn, he can purchase the chemicals for resale
SD Dept. of Revenue & Regulation: Sales Tax TrainingMarch 2010*
Responsibilities of seller/responsibilities of buyer in acceptance/giving of exemption certificate.Buyer can accept Exemption Certificate in Good Faith. Dept policy is if an exemption certificate is on file, we will go to the purchaser to assess any use tax on items that should have been purchased tax paid.
Copy of a license card is not sufficient as resale documentation.Exemption certificates must be obtained in order for the transaction to be exempt. Items to be purchased for resale must be specifically listed on the resale certificate.Any buyer accepting an exemption certificate with the intent to evade sales tax will be liable for the tax plus a 50% percent penalty.
Spring 2009Fall 2008** *Items consumed in mfg process, and component parts of manufactured items: if material becomes a part of item sold-then can be purchased for resale. TAXABLE: Electricity, tools, Mfg equipment. Exempt - physical parts of product being made.
** SD Dept. of Revenue & Regulation: Sales Tax TrainingMarch 2010*
Services by a companys own employees are NOT subject to sales tax. (W2 employees) SD Dept. of Revenue & Regulation: Sales Tax TrainingMarch 2010* Examples are on the slides that follow.*SD Dept. of Revenue & Regulation: Sales Tax TrainingMarch 2010*Example 1: Sale for Resale ~ 3 Criteria are met
Example 2: Taxable programmers services are being used by software company; does not meet all criteria. SD Dept. of Revenue & Regulation: Sales Tax TrainingMarch 2010* Newsletters are now sent to taxpayers 3 times/yr - it contains information about sales/use/excise tax and other items of interest for the department. Jan 1; Apr 1; Jul 1.
Municipal Tax Info Bulletin printed January 1 and July 1 of each year. Also available on the Internet @ www.state.sd.us/drr2. Then click on publications.