1 Unit 1 ITTP KK

INTERNATIONAL INDIRECT TAXES &
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
Department of Management Studies
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
INTERNATIONAL INDIRECT TAXES & TRANSFER PRICING
Basic Concepts
• Sales and Use Tax Systems are some of the oldest taxation
systems in world.
• United States
 19th Century First State Sales Tax—Kentucky
 1930s proliferation of sales tax throughout the country
 Currently 45 States and most U.S. territories impose

sales tax.
Basic Concepts
 All but New Hampshire, Oregon, Montana, Alaska, and

Delaware (NOMAD states).
 Note: Alaska boroughs have limited Sales and Use Tax

Taxation in the United States
Involve payments to at least four different levels of

government
 Federal government
 State government
 Local government
 Regional entities
What is taxable?
Retail sales or sales to consumers:
• Any transfer of title or possession of tangible personal

property for a consideration
• The preparing, furnishing, or serving of food, meals, or

drinks for a consideration.
• Manufacturer----Wholesaler-----Retailer-------Consumer
Industries - ALL
• Hospitality
• Manufacturing
• Medical / Health Care (including non-profits)
• Government Contractors
• Oil & Gas
• Petrochemical
• Retail
• Technology
• Utilities
THANK YOU
Krishna Kumar S
krishnakumars@pes.edu
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
Imposition of Sales and Use Taxes
Sales Tax
• Sales Tax is defined as a tax on the sale, transfer, or

exchange of a taxable item or service.
• Sales tax generally applies on the sale to the end user or

ultimate consumer.
• Sales tax is generally added to the sales price and is

charged to the purchaser. It is the responsibility of the
seller of the commodity to collect and recover the tax
from the purchaser.
• Sales Taxes are assessed by every state except Alaska

(AK), Delaware (DE), Montana (MT), New Hampshire
(NH) and Oregon (OR) (NOMAD)
• Example : A seller from California sells groceries for a

purchaser located in California.
USE Tax
• Use Tax is defined as a tax on the storage, use, or

consumption of a taxable item or service on which no
sales tax has been paid.
• Use tax is a complementary or compensating tax to the

sales tax and does not apply if the sales tax was charged.
• Generally sales and use taxes apply same tax base and
consists of almost same tax rate .
• Sales and Use tax rates, exemptions, rules and

regulations all vary from state to state.
• Example : A seller from California sells groceries for a

purchaser located in Virginia.
Nexus
• Nexus can be defined differently depending on the state. In

most instances, a company has nexus if they have one of
the following inside the state.
 Physical location, including warehouse
 Employees, including sales people
 Any type of property, including delivery trucks
• If one or more of the above applies, a business is required

to register to collect and remit sales tax on all taxable sales.
A basic example of sales tax transaction is a sale at a store
location, such as a department store or restaurant.
THANK YOU
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
Different types of SALES TAX
• Seller Privilege – tax imposed on the seller for the privilege

of selling TPP or services within the state
• Consumer Levy – tax imposed on the consumer or

purchaser of TPP in the state, is collected by the seller
• Transaction – tax imposed on the sale (transaction) of TPP

or taxable services in the state, and may be a debt to the
seller until paid
• Gross Receipts – tax imposed on gross receipts derived

from non-exempt transactions of a business in the state
Different types of USE TAX
• Consumer Use Tax : Consumer Use Tax is a tax on the

purchaser and is self-assessed by the purchaser on taxable
items purchased where the vendor did not collect either a
sales or vendor use tax.
• The purchaser remits this tax directly to the taxing

jurisdiction.
• Many states now include a line on the individual income tax

return to facilitate the reporting of the use tax.
Different types of USE TAX
• Vendor or Retailer Use Tax : applies to sales made by a

vendor to a customer located outside the vendor’s state or
sales in interstate commerce if the vendor is registered in
the state of delivery. This is the tax that a retailer outside
the customer’s state typically is collecting.
Additional taxes and fees
• Passenger car rentals: An additional 11% tax applies to

charges for passenger car rentals in the MCTD. Outside the
MCTD, the car rental tax is 6%.
• Information and entertainment services: An additional

state tax applies to information and entertainment services
heard over the telephone (such as "900" numbers). These
taxes are in addition to the regular state and local sales tax
on these services.
Additional taxes and fees
• Hotel occupancy in New York City: A $1.50 per unit per day
fee on hotel occupancy in New York City applies in addition
to the sales tax on the rent for hotel occupancy.
• Parking services in New York City: An additional 6% New

York City local tax applies to parking services in New York
City. The borough of Manhattan also has an additional 8%
parking tax that applies unless the purchaser is a certified
exempt resident.
THANK YOU
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
Taxable Receipt
 The taxable amount of your charges to your customers is called the taxable
receipt.
 Sales tax is calculated based on the total purchase price paid on all taxable items
or services on the bill or invoice.
 If you sell only taxable items or services, the entire invoice amount is the amount
subject to sales tax.
 If you sell a combination of taxable and nontaxable goods and services, you
must identify which of the items are taxable and which are not.
 Example: Your store sells a package containing assorted cheeses, a cutting board, and a knife
for $15. These items are not sold separately. You must collect sales tax on the $15 selling
price, even though a portion of the package (the cheese) would not be subject to tax if it were
being sold separately.
Taxable Receipt
 Any business operating expenses that you pass along to your
customers as part of your bills for taxable services are included in the
taxable receipt and are subject to sales tax.
1 ½ hours at $50 per hour $75.00

Travel 15.00
Parts 22.00
Subtotal $112.00
Sales tax 8% 8.96
Total due $120.96
Taxable Receipt
• Certain discounts offered at the time of sale will reduce the taxable receipt.
• Any discounts that result in a reduction in the selling price, such as a trade
discount, volume discount, or cash-and-carry discount, are subtracted before
calculating the amount of sales tax due on the sale.
• These discounts are given at the time of sale, based on the type or quantity of
merchandise purchased, and represent a reduction in the purchase price.
 Example: You sell office supplies and offer a discount to your customers for purchasing in
bulk. If a customer orders three cases of copy paper, the price per case is $35. However, if a
customer orders 10 cases, the price is reduced to $32 a case. Because the price is established
at the time of the purchase, sales tax is due on the reduced selling price ($320) when a
customer orders 10 cases at a time.
Taxable Receipt
• The early payment discount is an optional discount that customers can take
if they choose and does not represent a discount in the actual selling price
of the product. The early payment discount is not subtracted from the
amount of the invoice that is subject to sales tax.
• Example: Using the facts in the example above, you sell the same 10 cases of copy
paper for $35 a case. However, on the invoice you state that a 10% early payment
discount is available to customers who pay their invoices in full within 10 days of the
date of delivery. The invoice shows the purchase price of $35 per case, and the sales
tax is calculated on the $350 for the 10 cases
Resale Certificate
• • A resale certificate is an official document that easily instils confusion in many online
resellers. Depending on the state you live in, it can also be called a reseller's permit,
reseller's license, reseller's certificate, resale license, sales tax ID or sales tax permit
• • A resale certificate typically states the name and address of the buyer, the reseller’s
permit number, a description of the items being purchased and a statement that the
property is being purchased for resale.
• • Please note that if you intend to make multiple purchases from the same vendor, you
can usually provide your resale certificate only once to that vendor and the vendor will
keep it on file.
• • A business owner can typically apply for a resale certificate with his/her's state tax
department. Once you receive your tax exemption certificate, the state will start sending
you monthly or quarterly statements.
THANK YOU
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
Use Tax for Individuals-New York
• Use tax is a tax imposed on taxable items or services used in New York
when the sales tax has not been paid. If a sales tax has not been
collected by the seller on a taxable sale, or when taxable items or
services are used in New York and the New York sales tax has not
been collected, you must report and pay tax directly to the Tax
Department.
Use Tax for Individuals-New York
• The following are common situations in which a New York State resident
may owe use tax:
 purchases of taxable property or services made outside of New York State;
 purchases of taxable property or services made over the Internet, from
catalogs, or by phone from businesses that are located outside of New York
State;
 purchases of taxable property or services on an Indian reservation;
 purchases where the taxable property or services are used in a different
local taxing jurisdiction in the state from where they were purchased or
where they were delivered.
Situations in which you owe use tax
• Purchases of taxable property or services made outside of New York State
•
When you purchase taxable property from a seller who is located outside
of New York and you use that property in New York, you are required to
pay use tax.
• Example: You buy furniture in Massachusetts and you bring it to New York
State to use it in your home. You owe use tax on the furniture.
• Example: While on vacation in Myrtle Beach, South Carolina, you purchase
a set of golf clubs that are delivered to your home in New York State. You
owe New York State and local use tax on the cost of the golf clubs, including
any charge for shipping and handling.
• Purchases of taxable property or services made outside of New York
State
•
When you take or send property out of New York State to have a
taxable service performed on that property, and then bring or have
the property shipped back into New York for use in the state, you are
required to pay use tax.
• Example: You take your stereo equipment to Connecticut to be
repaired. After it has been fixed, you bring it back to New York to use
it in your home. You owe use tax on the repair service.
• Purchases of taxable property or services made outside of New York State
•
When you purchase taxable services outside New York and you use them in
New York State, you are required to pay use tax. Examples of these services
include taxable information services and protective (security) and detective
services.
• Example: You contract with an out-of-state company to provide you with
stock market analysis reports. The sale of this information is a taxable
information service. The information is sent to you at home in New York. No
New York sales tax was collected. You owe use tax on the amount you paid
for the reports.
• Purchases made over the Internet, from catalogs, or by phone from
businesses that are located outside of New York State
•
When you purchase taxable property or services over the Internet, from
catalogs, or by phone without paying New York sales tax, and the seller
delivers the property or services to you in New York, you are required to
pay use tax.
• Example: You buy a computer through a retail Web site from a business
that does not collect New York sales tax, and it is delivered by a freight
company to you in New York State. You owe New York State and local use
tax on the cost of the computer, including any charge for shipping and
handling.
• Purchases of taxable property or services on an Indian reservation
• When you purchase taxable property or a taxable service from an
Indian reservation without paying New York sales tax, and you bring it
or have it delivered to you in New York, you are required to pay use
tax.
• Example: While on an Indian reservation, you purchase a Swiss watch
and bring it off the reservation. You owe New York State and local use
tax on the cost of the watch.
• Note: Indian arts and crafts purchased on an Indian reservation are
not taxable property.
• Purchases where the taxable property or services are used in a
different local taxing jurisdiction than where they were purchased
or where they were delivered
•
Local sales tax rates vary from one jurisdiction (city, county, etc.)
within New York State to another. The amount of use tax you owe is
generally determined by the rates in effect where you live. Therefore,
even though New York State and local sales tax may have been
collected where you purchased an item, if the local tax was collected
at a rate that is lower than the rate at the location where you live and
use the item, you will owe the difference in use tax.
• Purchases where the taxable property or services are used in a different local taxing jurisdiction
than where they were purchased or where they were delivered
• Example: You purchase and pay sales tax on merchandise in a locality in New York State with a lower tax rate
than the rate where you live and use the merchandise. When you bring the merchandise home, you will owe
tax for the difference between the rate in the locality of your home and the rate in the locality where you
purchased the merchandise.
• Example: As a resident of Albany County, you purchased an item from a business located in Saratoga County
where the sales tax rate is 7%. Since the sales tax rate in Albany County is 8%, you owe use tax for the
additional 1% on the cost of the item when it is brought home or delivered to you at home.
• Six-month rule
• There is an instance in which a New York State resident's use tax is not based on the
purchase price of the item or services. If you used the item or services outside of New
York for more than six months prior to bringing the item or services into New York, the
amount subject to tax is the lesser of the purchase price or the current market value at
the time you bring the item or services into New York State.
• Example: You are a New York State resident, and you have a camp in Vermont. You buy a lawn
mower in Vermont to use at the camp. The following summer you bring the lawn mower into New
York State for use at your home. Because the lawn mower was used outside the state for more
than six months, you would owe use tax based on the fair market value of the lawn mower at the
time you brought it into New York State.
• Credit for sales taxes paid on purchases outside of New York State
• If you paid state or local sales taxes on your purchase of property or
services outside of New York State, you may be eligible for a credit
against your New York State use tax for the tax paid to the other state
or local jurisdiction.
THANK YOU
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
Use Tax for Businesses- New york
• Withdrawal of taxable property from inventory for use by the business
•
When you purchase taxable property (such as inventory) or services
without paying taxes because you intend to resell them, but you remove an
item from inventory and use it, you are required to pay use tax.
• Example: You purchase a dozen desks for sale to your customers. You subsequently
withdraw a desk from inventory to be used in your office. You owe use tax on the
amount you paid for the desk.
• Example: You own a lumber yard in New York State. You purchase, for resale, lumber
from an out-of-state vendor who will deliver the lumber by common carrier. No tax is
collected by the supplier. Upon delivery of the lumber, you withdraw enough lumber
to build shelves to be used in a milling room. You owe use tax on the cost of the
lumber used to build the shelves
• Purchases by nonresident businesses
• Use tax is generally not due on taxable property or services purchased by a
business while it is a nonresident of New York State. However, the Tax Law
was amended effective April 10, 2017, to narrow the exclusion from use tax
for purchases made by nonresident businesses.
• Use tax is now imposed when a nonresident business brings tangible
personal property or a taxable service into New York State for use
here unless the nonresident business has been doing business outside of
New York for at least six months prior to the date that the property or
service is brought into New York State.
• Doing business means that the business is actively engaged in normal operating
activities, such as hiring employees, having a payroll, and making routine purchases
and sales. Merely being organized as a legal entity is not a sufficient indication of
doing business absent other normal operating activities.
• Purchases by non-resident businesses
• Example: X Corporation was formed in Delaware on January 15, 2017. X Corporation

is a nonresident of New York State. X Corporation remained dormant until
March 17, 2017, when it hired employees and purchased a number of computer
servers for use in its business. On June 24, 2017, X Corporation opened an office in
New York State and brought some of the servers to New York for use here. Because X
Corporation had been doing business outside New York for less than six months prior
to bringing the servers into New York (i.e., March 17 - June 24), X Corporation owes
use tax on the servers.
• Example: Same facts as in the preceding example, except that X Corporation does
not open its New York office and bring some of the servers to New York until October
4, 2017. Since X Corporation had been doing business outside New York for at
least six months prior to bringing the servers into New York (March 17 - October 3),
the exclusion from use tax provided in Tax Law § 1118(2) applies and X Corporation
does not owe use tax on the servers.
• Use of taxable property that is manufactured, processed, or
assembled by the business
• When a manufacturer, processor, or assembler uses its product in
New York State or incorporates the product into real property, it has
made a taxable use of the property. This is so whether it was
manufactured, processed, or assembled inside or outside of New York
State.
• Example: You own manufacturing facilities located in New York that produce
furniture. Your company makes office furniture for its own use. You owe use
tax on the furniture used in New York State.
THANK YOU
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
Products and services subject to tax
• Sales and use tax (sales tax) is applied to:

• Tangible personal property (unless specifically exempt);
• Gas, electricity, refrigeration and steam, and telephone service;
• Selected services;
• Food and beverages sold by restaurants, taverns, and caterers;
• Hotel occupancy; and
• Certain admission charges and dues.
Exemption VS Exclusion
• Exemption
• Refers to non-taxable transactions based on who the purchaser, the type of transaction and the
type of product Exemptions
Exempt Transactions
Exempt Organizations
Exempt Products and Services
Exemption VS Exclusion
• Exclusions
• Can apply to all types of transactions regardless of the purchaser or
type of product. Exclusions are adjustments made which reduce the
taxable amount. Some examples of exclusions are-
Bad debts
Returned merchandise
Home Rule States
THANK YOU
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
TRANSFER PRICING
Basic concepts:
US Indirect Tax
Krishna Kumar S
Prepayments
• Prepayment Advance
• Prepayments made current month for next month in advance. It is added to
tax liability
• Prepayment Credit
• Prepayments made in last month, utilized as credit against current month tax
liability
• Credits
• Credit arises when prepayments exceeds the tax liability. Credits should be
applied if the net tax due for that tax type will be greater than $0.00(nil)
Preprocessing and Processing
• Preprocessing/Formatting of the data
• Processing data in the tool
• Validation of the data
Return Preparation
• System Generated
• Manual
Filings
• E-Filing
• Filing returns electronically. Logging on to the state’s website and data
entering the tax information
• Electronic Data Interchange (EDI) –
• Logging onto the state’s website and uploading a file containing the tax
information
• Paper Filing
• Filing paper returns
Mode of Payments
• ACH Debit
• Transfer funds by authorizing the state to electronically debit your client’s
bank account
• ACH Credit
• Transfer funds by instructing your client’s financial institution to debit your
client’s bank account and credit the state’s bank account.
Wayfair Decision
• On June 21, 2018, the U.S. Supreme Court concluded in South Dakota
v. Wayfair that there is no physical presence requirement for sales
and use tax nexus.
• Overturned 36 year old physical presence standard established in
Quill v. North Dakota.
• States are forming opinions on retroactivity and timelines for
implementing new requirements
Wayfair Ramifications
• Historic Exposure/Nexus profile changed
• Vendors will likely collect the tax for E commerce sales.
• New compliance requirements implemented by states
THANK YOU
Krishna Kumar S

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INTERNATIONAL INDIRECT TAXES &

 19th Century First State Sales Tax—Kentucky

 1930s proliferation of sales tax throughout the country

 Currently 45 States and most U.S. territories impose

 All but New Hampshire, Oregon, Montana, Alaska, and

 Note: Alaska boroughs have limited Sales and Use Tax

Involve payments to at least four different levels of

Retail sales or sales to consumers:

• Any transfer of title or possession of tangible personal

• The preparing, furnishing, or serving of food, meals, or

• Sales Tax is defined as a tax on the sale, transfer, or

• Sales tax generally applies on the sale to the end user or

• Sales tax is generally added to the sales price and is

• Sales Taxes are assessed by every state except Alaska

• Example : A seller from California sells groceries for a

• Use Tax is defined as a tax on the storage, use, or

• Use tax is a complementary or compensating tax to the

• Sales and Use tax rates, exemptions, rules and

• Example : A seller from California sells groceries for a

• Nexus can be defined differently depending on the state. In

• If one or more of the above applies, a business is required

• Seller Privilege – tax imposed on the seller for the privilege

• Consumer Levy – tax imposed on the consumer or

• Transaction – tax imposed on the sale (transaction) of TPP

• Gross Receipts – tax imposed on gross receipts derived

• Consumer Use Tax : Consumer Use Tax is a tax on the

• The purchaser remits this tax directly to the taxing

• Many states now include a line on the individual income tax

• Vendor or Retailer Use Tax : applies to sales made by a

• Passenger car rentals: An additional 11% tax applies to

• Information and entertainment services: An additional

• Parking services in New York City: An additional 6% New

1 ½ hours at $50 per hour $75.00

• Example: X Corporation was formed in Delaware on January 15, 2017. X Corporation

• Sales and use tax (sales tax) is applied to:

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