CLIENT UPDATE
Published for the Clients and Friends of Zegarelli Associates Professional Corporation

WALKING THE WALK

Zegarelli Associates is pleased to announce that the firm will expand its office at 1100 Allegheny Building, in Pittsburgh, PA. The buildout has already begun and should be completed in early October. The new space will allow for additional attorneys and staff to serve your needs.

Like most of our entrepreneurial clients, each day, we develop our business plan, we assess the business risks and we implement accordingly.

Like you, we represent the entrepreneurial spirit.

JACKIE HUI XU
Joins the Firm!

Jackie Hui Xu (pronounced "sue") has become an Associate of the firm. Jackie has an undergraduate degree in Computer Science from Molloy College,

Long Island, New York. She is a graduate of Golden Gate University School of Law in San Francisco, California, where she graduated in the top 15% range of her class. She recently relocated to Pittsburgh, with her husband, who is a Professor of Computer Science at Carnegie-Mellon University.

Prior to joining the firm, Jackie received detailed litigation training in Federal and state courts through her clerkships with the California State Superior Court and the United States Bankruptcy Court for the Northern District of California.

Jackie practices in all transactional areas of law, with a concentration in commercial litigation, computer and international law, and the law of corporate and business transactions.

As a native of Beijing, China, Jackie is especially familiar with the customs and culture of China, and she is fluent in Mandarin Chinese. As a result, Jackie is also primarily responsible for client transactions in the Pacific Rim. Jackie can be reached directly at 412-765-0530.

SALES AND USE TAXES
AKA, Either Way, You Pay

If you’re like most people, you pay sales tax. But if you’re like most people, you don’t really understand when to pay or why you pay. Perhaps you noticed a mail order advertisement that indicated to pay the tax if you lived in PA, and another that indicated to pay the tax if you lived in AZ, FL, MA or WA. Why the difference? The following summary explanation should assist you. It is noted that the summary is conceptual, rather than technical.

1. Think of the tax as a "consumption" tax. The first step in understanding sales and use taxes is to acknowledge that the state can tax the consumption of products and services within its state jurisdiction. Sales and use taxes are really the same tax, but, they are separated because they must be enforced differently, as explained below. It’s generally more confusing to think of "sales" and "use" issues, just think "consumption."

The state doesn’t have the heart to tax you on consuming everything, just some things. For example, "necessities" like toilet paper are not taxable, nor is unprepared food like steak. You didn’t really need that prepared pizza, so the state taxes consumption of prepared pizzas.

2. Local consumption only. Should Pennsylvania, for example, be permitted to tax Illinois residents on their consumption in Illinois? Certainly not in our American federalism of independent state jurisdictions. Pennsylvania has no jurisdiction over Illinois residents. Pennsylvania would create the tax, if it could, but the U.S. Constitution prevents it—as it also prevents Illinois from taxing Pennsylvania consumption. So far, so good.

3. The General Rule. The general rule is that, if you consume in a state that requires you to pay a tax to consume, then you must pay. It doesn’t matter where you purchased the item, only that you consume it in the state with jurisdiction to tax you.

Okay, easily stated. But, if you were a state, you couldn’t sleep knowing that relatively few persons would, at the end of the year, provide an accurate accounting of all taxable (and generally untraceable) consumption. Enforcement would be a nightmare. And, it still is in some cases, but the state got clever. Real clever.

4. Make business do the work. Because the state knew that many consumers would not voluntarily admit making taxable consumptions, the state forces local businesses to track all taxable items sold, and to collect the tax from the consumers as the state’s agent, at the point of sale. Yes, the state forces, under penalty of law, business to be the tax collector. (If you have collected the tax, you know that the state allows you to keep a de minimis portion of the collected funds as a collection fee.)

When a local business collects the tax for sales made and delivered by it within the state jurisdiction, we’ll call it a "sales tax" because the tax is collected at the point of sale. But, the state still has a problem: it can’t regulate businesses outside of its own jurisdiction. The U.S. Constitution won’t allow such taxes for the same reason that a state can’t tax consumption in other states.

So, for example, what if a person in Pennsylvania purchases from a business in Illinois? Does the Illinois business collect the tax at the Pennsylvania rate, the Illinois rate, or not at all? If not at all, then how does Pennsylvania get the tax from its consumers?

5. Buying from other jurisdictions. Remember, it’s a consumption tax. If you purchase from out of state, then you are still responsible to pay the tax! In this case, let’s call it a "use tax" because it’s collected based upon use only. Yes, you are required by law to complete a Use Tax Return and to declare and to pay the tax related to your consumption of all taxable items which were not collected at the point of sale.

The state doesn’t care whether you purchase from in state or out of state, you must pay the tax. But, as you might imagine, the state still has nightmares about collection of use tax, because it must rely upon consumers to "voluntarily" report their consumption of items purchased from other states.

6. Mail order confusion resolved. You now have all of the rules to know why mail order ads are so different in the collection of sales tax. Stop here to go back and figure it out.

In the introduction, the ad that indicated for PA residents to add sales tax is presumably a Pennsylvania business which is therefore required by Pennsylvania law to collect the sales tax for consumption in Pennsylvania. Pennsylvania has no power to tax consumption in other states, and the other states do not have jurisdiction to force the Pennsylvania business to collect their tax of their consumers purchasing from Pennsylvania businesses. So, for example, if Illinois has a sales/use consumption tax, and the Illinois consumer purchases from the Pennsylvania business, the Illinois resident must pay the tax to Illinois as a use tax, but Illinois has no jurisdiction to force the Pennsylvania business to collect it.

Among other things, a larger company is regulated by every state where it has an office or employees. In other words, some businesses exist in more than one state; therefore, they are within the jurisdiction of each of those states. In the introduction, the other business presumably exists in Arizona, Florida, Massachusetts and Washington. Therefore, that business can be and is required by each of those states to collect the tax for consumption which will occur in each of those states by the respective residents. Companies like Microsoft might list 48 jurisdictions in mail order ads, because it exists in each of those states, and each such state has jurisdiction to force Microsoft to collect the sales tax from the local consumers. See the table below for a brief summary matrix.

CLIENT SPOTLIGHT

Summer’s over! Don’t worry, you’ve got an option—a great option. Join the best health club in Pittsburgh, and stay fit, trim and tan all year round:

The Downtown Athletic Club and Fitness Center, Inc.
Ramada Hotel, One Bigelow Square

(Yes, it’s the facility next to USX Tower with the two distinctive bubble domes.) Dan Griffin, the President, is superbly experienced and knows the business inside and out. He is so confident in his team’s service, that he doesn’t have lock-in minimum terms like other facilities. You’ve really got to see what he’s done with the facility. Call Dan at 412-560-FITT (3488). Dan has agreed to waive the joining fee for clients of the firm a limited time. This is the place to be: great place, great people.

No doubt about it, the Downtown Athletic Club absolutely has the entrepreneurial spirit!

As always, please call us if you have any questions or if we can be of assistance to you in any way.

Sales and Use Example Table:

Articles and information are for general information only, and often address issues, without expressly indicating, in generalizations. Laws vary between and among jurisdictions.  You should not rely upon any information provided by or on the website, including articles, as applicable to your particular situation. The law, filing fees, etc., change often, so the information in this document may not be current. The laws of various jurisdictions may be different than provided here.  Please contact us at info@zegarelli.com if you are interested in becoming our client--only then would this office be in the position to provide advise with regard to your particular situation.  It is important for you to review Terms of Use.

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