Divergent Use - The Real-Life Tale of Little Red Riding Hood

Don't play Little Red Riding Hood to the Big Bad Wolf, i.e. divergent use.  Divergent use is a big gotcha for companies that expand lines of business without reconsidering Texas sales and use tax consequences.

Divergent use occurs for Texas  equipment rental companies when equipment purchased tax-free is used in  a taxable manner.  When an equipment rental company issues a resale certificate in lieu of paying sales/use tax and uses the equipment to perform services divergent use has occurred.  It is common for equipment rental companies to decide to lease equipment with an operator.  But when a resale certificate is issued in lieu of paying sales or use tax, a company may not use the equipment to perform services for clients without paying sales or use tax on the divergent use.  Sales or use tax is owed on the fair market rental value for the “normal” term of a rental to third parties or the original purchase price.

Tax Amnesty - A Pot of Gold at the End of the Rainbow

I have been quiet lately because I took a little time out to go on a working vacation. But I am back now, rejuvenated and ready to share the latest interesting tidbits about sales and use tax. 

The most important thing that everyone needs to know is that there is a tax amnesty program currently in effect with the Texas Comptroller of Public Accounts. That means from May 1 through June 29, 2018, the Comptroller is waiving penalties and interest for businesses who:

  • Did not file a required return or report originally due before January 1, 2018
  • Made an error on a previously filed report that resulted in an underpayment of taxes or additional tax due
  • Or that don’t have a permit or proper registration for collecting and remitting Texas tax.

Computer Conversions: Right after I purchase tech it is upgraded!

One of the most heartbreaking things I see too often is the ineffective technology upgrade.  How can an increase in functionality be ineffective? There’s one huge way...when you have someone who refuses to use the new technology.

We have all seen companies that pay a lot of money for computer upgrades.  Management spends a lot of time and money on the computers, software, training, and troubleshooting.  Everything seems to be going great until someone makes a simple request.

Don't Let Spring Fever Turn into an Inferno for Your Business

Spring is upon us. The birds are singing, bees are buzzing, and the pollen count is off the charts. Even if you are experiencing snow in April (which is so weird), spring fever is still contagious. But business owners and accounting departments should not get carried away clearing out old files and records, in case the state taxing authority decides to visit.

Show me the money! Say your price LOUD and PROUD!!!

People talk about clients that don’t want to pay them. The client pays too slow or raises a stink about the bill. There are several ways to deal with it. I find that an ounce of prevention is worth a pound of cure.

When people call, I tell them my prices up front. When I estimate how much time a project is going to take, I make a reasonable guess based on past jobs and then multiply the estimate by two and provide a range of prices.

Tabasco is Not the Same as Hot Sauce! Neither are Exemption and Resale Certificates.

There are some things in this world that appear to be interchangeable, but really aren’t: diamonds and cubic zirconia, Tabasco and hot sauce, Drew and Jonathan Scott.  While these things (and twin TV host brothers) may look the same, they are different.   They are as different as Texas Sales and Use Tax Exemption Certificates and Texas Sales and Use Tax Resale Certificates.

4 Red Flags: I’d Rather Eat a Dirt Sandwich than Become Involved

Hindsight is 20-20.  Over the course of my career, I have regretted accepting select engagements.  The interesting thing is a voice in my head always told me to “run!” I listen now after much aggravation and loss of time and money.  

Be EXCELLENT to YOURSELF: Are You Waiting To Have Fun? Why?!

be-excellent-to-yourself-1.jpgToday I decided to take a fun break.  There is always something to do.  Let’s take a siesta for a moment.

Bye Felicia

bye-felicia.jpgMost of us have a client that we love. Your contact is wonderful. They pay on time. The volume of business is spectacular. You are living large!

Then it happens. Your client merges with or is bought by another company. Your contact is  replaced by someone who sends email at 2:00am and is enraged that you dare to sleep. The person who employs your company has been replaced with someone who decides to limit or discontinue your contract. Or the client decides they are not going to use your services and they are not going to pay you the “substantial” amount that they currently owe you.

New Year, Better Informed You

Every new year brings resolutions and ideas about how we can all make our lives better.  From exercising five times a week, skipping the glazed doughnuts to quitting smoking, we all have been there when it comes to personal and professional goals.

My Blog Posts Are BORING!!

Okay...I got a call from my marketing guru who told me that my blog posts are BORING.  They tell good information if you can stay up long enough to read them.  Ouch!

When Cleanliness is Not Next to Godliness: Keep Your Records!

For those business owners who have never been through a sales tax audit, the idea that the state can audit your records for several years can come as a shock.  The statute of limitations for a sales tax audit varies from jurisdiction to jurisdiction.  In Texas, the statute of limitations is four years.  That means that an audit generated in 2018 can cover periods in 2014.

5 Tips for Managing Sales Tax Related to Hurricane Harvey Repairs

As construction companies and contractors work to repair the damage caused by Hurricane Harvey, they need to know that there are sales tax exemptions available for projects in designated disaster areas.  Here are some things you need to be aware of:

TX Tax Bite: Software Modification

Most taxpayers know that in Texas software is subject to sales and use tax. It is common for taxpayers to assume that software is taxable but modification services are not taxable. The assumption is based on the perceived absence of software modification in the listing of taxable services. Software modification is taxable if the software is being modified by the party that sold the software. Software modification is not taxable if it is performed by a party that did not sell the software.

Disaster Area – Sales Tax Exemptions for Labor


During this hurricane season, we wanted to remind you all that the Comptroller’s Office has exemptions relating to repair and remodeling projects in designated disaster areas. There is an exemption for labor to repair commercial property in designated disaster areas. 

TX Tax Bite: Software as a Service

It is popular to offer software with monthly access fees. Instead of selling the software itself, access to the software is sold. Some vendors incorrectly think this distinction renders the charge for access nontaxable. Instead, the access fees are deemed to be the sale of software as a service. The fees are subject Texas sales or use tax. However, twenty percent (20%) of the charge is exempt from sales or use tax because the charges are characterized as data processing by the Comptroller of Public Accounts.

It is Risky to Take a Tax Credit on a Return

There are taxpayers who pay consultants to look for and retrieve overpayments of sales and use tax. There are several ways to perform this service. One option is to reduce sales tax remittances or request a refund from the vendor without the approval of the state taxing authority. Another option is to submit a refund request directly to the state taxing authority.

Interim Reviews:  Friend or Foe?

The first thought that comes to mind when explaining to someone that they have no reasonable basis on which to challenge a tax bill is, "An interim review could have stopped this tax bill in its tracks."  A few events should trigger the thought that an interim review might be a good idea.

Audit Deficiency:  Don't Make the Same Mistake Twice

As a rule of thumb, if you have an accounting system that works, barring any change to the services or products offered, do not change the invoicing system. It is not uncommon to have a ”good” audit result under one accounting regime and have a sizable tax deficiency due to a change in the accounting system.

David vs. Goliath:  What to Expect When Fighting an Audit Deficiency

Advocates typically share the plan of action for addressing audits. We engage with clients as much as the client allows. As the taxpayer, it is your right to ask questions, understand your matter, and be involved in decisions that will directly impact your company and/or your job. Ask how your advocate is going to approach the situation. Understand the basis of any challenge. Ask how your position will be proven.

“The content of this website is intended to convey general information only and does not represent accounting, tax or legal advice or opinion. Because tax laws, policies, and applications are dynamic and fact-specific, please consult with a state tax professional for a complete analysis of law as it may apply to your specific situation at a particular time. If you require an in-depth review of a specific fact situation, please contact our offices to establish a client relationship for opinion and advice.”