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Sales Tax Billing

  • updated 1 yr ago

Sales tax rules are regulated by individual state laws and is usually based on the final destination of the delivered goods. If Kotis produces items and immediately ships them to you, that scenario is easy: sales tax is always based on the delivery location that you requested. However, when goods are to be held in the Kotis warehouse for future delivery, this is more complicated because the destination is not known up front. To handle this, Kotis has historically invoiced and reported tax once the destination became known, on a quarterly basis. We are changing this process as outlined in this notice.

While sales tax is usually based on the final destination of the goods, it can also be impacted by where the title is transferred for those goods. This distinction is problematic without explicit contractual agreement for when the title is transferred, like for items that Kotis inventories. For sales tax purposes, we have been operating under an implicit understanding that title does not officially transfer until delivery, and thus collecting sales tax accordingly. After consulting with outside sales tax experts, we have determined that this is a grey area that needs to be fixed. Going forward we are stating explicitly that title will transfer once items are checked into inventory, that sales tax will be invoiced along with the item costs, and that sales tax will be based on the location of the warehouse. While sales tax laws are different for each state, the laws of both Utah and Ohio allow this approach to work.

New Plan Effective 4/1/2021

Switching to this new process creates a few complications during the transition period, but long term we are hopeful that it will fix a number of underlying complaints that many of our clients have had with the existing process; and more importantly will create a much more certain legal arrangement for both Kotis and our clients.

  • After our Q1 2021 sales tax report, we will no longer be sending quarterly sales tax invoices
  • As of 4/1/21, sales tax will start showing up on all invoices that are being delivered to inventory, unless you provide us valid exemption documentation
  • You may need to register with a state to become eligible for those exemptions, depending on your use case and existing registrations

Exemptions

Whether you need to provide an exemption reason for the invoices is ultimately up to you. If you provide us valid exemption documentation, we will remove tax; if you do not provide the documentation, then tax will be added. The documentation must be specific for the state where your inventory is located, ie Utah or Ohio. Even if you have an exemption in another state, each of Utah and Ohio have separate rules regarding what they will accept as valid documentation from other states. We have created guides with the common documentation that is required and how to register if you need to:

Utah Sales Tax Exemption Information

Ohio Sales Tax Exemption Information

The most common exemption we see is for resale. If you are having us list items for sale on a credit card portal, or if you resell items through other channels, you may want to consider a resale exemption. Keep in mind that if some items are being resold and others are not, your situation may be more complicated. You can either tell us to apply the exemption to all invoices, or we can apply the exemptions to specific invoices at your direction. There are also some other lesser-used exemptions in certain scenarios, like for non-profits. You should consult with your tax adviser on all of these questions.

Existing Inventory

Any inventory currently in our warehouse did not have sales tax collected when initially produced, but the states still expect it to be accounted for. To be consistent with this new process, we are going to apply the local tax rate for the warehouse location of the inventory. Since we are no longer doing quarterly tax invoices, we are sending a report of the full amount of inventory and sales tax due. For larger amounts we are happy to work with you on a payment plan. Note also that if you provide exemption documentation, these amounts will not apply.

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