Frequently Asked Questions from Clients

"We want to sell stuff on Ebay. Do we have to charge sales tax?"

The requirement to collect and remit sales tax depends on the taxability of the item, the destination of the item, and the amount of presence or "nexus" the seller has in the destination state. For example, if you are a Michigan college that wants to sell Tshirts on Ebay and you have no employees or payroll outside the state of Michigan, you would collect sales tax on any Tshirts going to Michigan addresses, but would not be required to collect and remit sales tax on Tshirts shipped directly outside the state. Shipping and handling charges may also be taxable. Keep in mind that sales and use tax rules can be very specific to particular transactions, so please feel free to contact me with questions about your particular situation.

"We have a tight budget. Can we reimburse mileage for less than the standard rate?"

Yes. Generally, in order for travel reimbursements to be nontaxable to employees, they must be made under an accountable plan. An accountable plan must include the following:

Expenses must be business related (related to expenses incurred while the employee was performing services for the employer).

Expenses must be adequately accounted for by the employee to the employer within a reasonable period of time.

Excess reimbursements or allowances must be returned by the employee to the employer within a reasonable period of time.

The current standard mileage rate for reimbursement allowed by the IRS is 44.5 cents per mile (increasing to 48.5 cents per mile in 2007). You may choose to reimburse at any rate up to that amount to qualify for nontaxable treatment. You may also choose any maximum or minimum number of miles to reimburse. You may choose to reimburse only certain employees. The employee may deduct any qualified mileage amount not reimbursed on their personal returns, but they must itemize and the deduction is subject to the 2% adjusted gross income minimum (which means most people don't get the deduction).

"We frequently provide catering services to nonprofit organizations. Aren't nonprofit organizations exempt from sales tax?"

The answer depends on the state in which the catering services are provided. Some states have blanket exemptions for nonprofit organization purchases. Other states, like Michigan, only exempt purchases by nonprofit organizations if they are related to their exempt purpose. In Michigan, when a nonprofit organization purchases catered meals, they are taxable if the organization receives any reimbursement or payment for the meals from the participants. The organization could collect sales tax from the participant on the value of the meal, but the state allows the organization to pay the tax to the catering service, instead (which is probably easiest). If the nonprofit organization is claiming an exemption, it must provide an exemption certificate and the exemption is only valid if the invoice is paid using checks or credit cards in the name of the nonprofit organization, not individuals. The exemption certificate must indicate there will be no reimbursement to the organization to defray the cost of catered meals. We recommend retaining copies of exemption certificates and copies of payment for audit support for exempt transactions.



For further information on the items above contact: Catherine Bonnes at 269.567.4557 or Forrest Lewis at 517.336.7522.