How Property Owners Can Stay Compliant with Sales Tax Rules While Increasing Their Savings

As seen in Bisnow, written by John Knowles:
https://www.bisnow.com/new-york/news/commercial-real-estate/landlords-compliant-sales-tax-anchin-studiob-130516

When property owners or managers purchase goods or services on behalf of their tenants, such as electrical utilities, pest control, and locksmith services, they may be subject to a sales tax — a tax applicable to the consumption of goods and certain services. Each state has its own set of sales tax rules with which landlords must comply.

Alan Goldenberg, principal and leader of the state and local tax and tax controversy groups at Anchin, said that he works to help owners, managers, and landlords avoid the potential tax repercussions that come with underpaying sales tax as well as the inconvenience of overpaying.

Anchin, an accounting and advisory firm, helps its clients ensure they’re compliant with these taxes while also understanding the nuances of these regulations on a state-by-state basis.

“Property managers are responsible and can be held personally liable for the sales tax if they’re not compliant. But if they’re paying too much in sales taxes or not claiming credits, that’s money they’re losing out on unnecessarily,” Goldenberg said.

Bisnow sat down with Goldenberg to discuss the nuances in sales tax laws, how owners and landlords can claim sales tax credits, and how Anchin can help.

Resale Certificates

Goldenberg said that one solution for property managers is to pass the sales tax down to the tenant via a resale certificate, which is a document that shows that tangible personal property or a taxable service is being purchased for resale and not for the landlord’s use or consumption. If the seller of the service accepts a valid resale certificate, it exempts the owner from having to pay sales tax on the item or service that will be resold, helping them minimize business costs and retain cash.

When the owner or landlord resells the service or product to the tenant, they charge the tenant the full sales tax on the total amount billed. The owner can then remit the collected sales tax to the state, with no need to claim a credit for previously paid sales tax, since none was paid at the time of purchase, Goldenberg said.

Goldenberg added that a resale certificate helps businesses better track which purchases are for resale, making it easier to avoid missing out on potential credits or refunds.

“The proper use of resale certificates helps them stay compliant with tax laws and reduces the risk of penalties,” he said. “Using these certificates can help save more money upfront and put that cash flow back into their businesses or properties.”

State Tax Laws

Goldenberg said that owners must be knowledgeable about their state’s sales tax laws. While some states only tax a few services, there are other states that tax many.

Staying up to date with state tax laws is crucial because these laws are constantly evolving and even a small change can produce a big impact, especially when some owners have properties across multiple states.

One scenario Goldenberg gave is if the owner or landlord doesn’t provide a valid resale certificate to the service provider, like a locksmith, the company performing the service will charge sales tax.

“They can effectively resell the service to the tenant at a markup and charge sales tax on what the tenant pays,” he said. “In such cases, the owner may take a credit for the sales tax already paid to the service provider. For example, if the owner charges the tenant $10 in sales tax but had already paid $8 in sales tax to the vendor, the owner would only need to remit the $2 difference to the state.”

Tax Experts

Since sales tax is a fiduciary tax, and compliance can be complex across multiple states, Goldenberg said that property owners and landlords should work with tax advisors who understand the nuances of each jurisdiction. Anchin’s state and local tax professionals provide expert guidance to help with the state-specific sales tax rules, including which goods and services are taxable and how to properly apply sales tax in different jurisdictions.

“Having an advisor who can look at these tax laws and understand the transactions on a state-by-state basis is important when it comes to sales tax,” he said. “That’s the state’s money that you’re collecting. And when you collect it, you have that obligation to remit it.”

One case where Anchin was able to save a company significant money was in an electrical metering situation where multiple corporate properties were being rented and the owner was purchasing the electricity, neglecting the sales tax credit that had been built up over years.

“A few years ago, we worked with a company that paid significant sales tax on metered electricity among all of their various tenants in multiple buildings but never claimed a sales tax credit on the resold utility,” he said. “We helped them go back three years and file amended returns, claiming refunds for all the sales tax that they paid on the resold service. As a result, we were able to net them close to $1M.”

He added that even in this case, where the owner or property manager had years of experience, this type of negligence can be a common occurrence because many are unfamiliar with the nuances of their state’s tax laws.

Goldenberg emphasized that Anchin can help property owners be proactive to avoid any sales tax conflicts.

“Our goal is to help property managers keep track of their sales tax obligations,” he said. “We want to be a guide to make this process smoother because we know the tax laws of different states, especially for owners going into different markets,” he said.

This article was produced in collaboration between Anchin and Studio B. For more information, please contact Alan Goldenberg or your Anchin Relationship Partner.