Last week, Kansas enacted a use tax law under which disaster relief workers temporarily entering the state are considered not to be physically present within it. The effect of the law is to exempt from use tax property brought into the state by these workers. While the legislature might have simply stated that such property is exempt from use tax, it instead accomplished this result by deeming disaster relief workers to not be physically present within the state.
Unfortunately for practitioners in the area of sales and use tax, such tricks of misdirection are not confined to April Fools’ Day, and it is often the case that the devil is in the definitions. Perhaps most frequently, the definition of “tangible personal property” is tweaked to expand or narrow the tax’s reach. For example, just last month, Alabama amended its regulations to include prepaid wireless service codes in its definition of the term.
While such recharacterizations may seem like just a benign shorthand for “taxable” or “not taxable”, they sometimes lead to less obvious tax consequences. For instance, in at least one case, Texas’ characterization of electricity as a taxable service, rather than tangible personal property, was fatal to a taxpayer’s claim for the state’s resale exemption. If, as Arkansas does, the state instead characterized electricity as tangible personal property, things might have come out differently.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Does sales and use tax law have a unique tendency towards counterintuitive characterizations? How readily are prepaid wireless calling codes characterized as “personal property which may be seen, weighed, measured, felt or touched, or is in any other manner perceptible to the senses”?
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