I was recently surprised by a question.
It has to do with use tax, and it is not the most riveting
issue – even for a tax CPA.
But it did remind me of a recent-enough case from New
Jersey involving sales tax.
Sales tax and use tax are flip sides of the same coin.
Let’s set up an example.
· You
have a product-intensive business. Maybe you sell vintage collectible baseball
and other sports-themed cards.
· When
you buy cards, it is your intention to sell them. That is your business, of
course, and those cards are your inventory. You do not pay sales tax when you
purchase them, but you would collect and remit sales tax when you finally sell
them.
· Let’s
say that you acquire a particularly appealing card, one that you want for your
personal collection. You remove that card from inventory and take it home.
· If
it stops here, the state does not receive any tax on that card. The business
did not pay sales tax when it bought the card. It did not resell because you
took the card home.
· To
make the system work, you would owe use tax when you take the card. The
state gets its money. Granted, there was a change in names: use tax versus
sales tax. I suppose you might have to send a personal check for the tax, or
perhaps the business could collect and remit on your behalf. Different states,
different rules.
There was a New Jersey case to determine whether sales
tax should be included in the calculation of “full retail value” when someone
shoplifted an Xbox One game console.
Why the nitpicking?
Because New Jersey categorized the crime depending on
full retail value. If the value was between $200 and $500, it was a fourth-degree
offense. Go over $500, however, and you become a third-degree offense.
Kohl’s sold the X Box for $499.99.
Two pennies away.
Yes, the sales tax would take that above $500 and make
it third degree.
Which is what the Court decided.
Then – believe it or not – the decision was appealed.
The grounds? The full retail value should not include sales tax.
A fourth degree gets someone up to 18 months in
prison. A third degree is between 3 and 5 years.
The Appellate Court noted that no New Jersey court had
ever looked at this issue.
OK.
The Court reasoned that shoplifting was the purposeful
taking of merchandise belonging to a merchant, thereby depriving him/her of the
economic benefit from the same. A merchant does not keep the sales tax.
Instead, the merchant is an agent, collecting the tax from the customer and
remitting it to the state (although there me be a small administrative allowance).
Since the merchant would not have kept the sales tax, the Court decided that it
should not be considered when calculating full retail value.
The Appellate Court reversed the lower Court’s
decision.
Not all states agree with this reasoning. California for
example will include sales tax in its full retail value.
Our case this time was State v Burnham, 474
N.J. Super. 226 (App. Div 2022).
