Kentucky Sales and Use Tax

Kentucky Sales and Use Tax Auctioneers’ Training Guide 2013

Part I- General Information Background/History General Forms Resources

Background/History Part I: (A) • Sales and Use Tax Law is regulated by a combination of Kentucky Revised Statutes (Chapter 139), Kentucky Administrative Regulations, and case law. • Sales Tax: tax imposed on sellers at the rate of 6% for the privilege of making “retail sales” within the Commonwealth (KRS 139.200) • Use Tax: backstop for sales tax and applies to tangible personal property or digital property purchased for storage, use, or other consumption in Kentucky upon which sales tax has not been paid (KRS 139.310)

Imposition of Sales and Use Tax Part I: (A)1 • KRS 139.200(1)- A tax is hereby imposed upon all retailers at the rate of six percent (6%) of the gross receipts derived from retail sales, regardless of method of delivery, made within this Commonwealth • KRS 139.340(1)- Every retailer engaged in business in this state shall collect the tax imposed by KRS 139.310 from the purchaser… the taxes collected or required to be collected by the retailer shall be deemed to be held in trust for and on account of the Commonwealth

Statutes and Regulations Part I: (A)2 • KRS 139.010(12)(a)- “Gross receipts” and “sales price” • KRS 139.010(27)(a)(2)- “Retailer” • KRS 139.010(33)- “Tangible Personal Property” • KRS 139.010(9)- “Digital Property”

General Forms Part I: (B) • Registration Application (Form 51A100) • Sales and Use Tax Return (Form 51A102) • Resale Certificate (Form 51A105) • Streamlined Sales Tax (SST) Certificate (Form 51A260) • Agricultural Certificates (Form 51A158 and 51A159)

Registration Application Part I: (B)1 • One Stop Business Portal www.revenue.ky.gov • Kentucky Tax Registration Application www.revenue.ky.gov/business/register • Sales and Use Tax Permit (Form 51A101) shows retailer is properly registered with the Department and is authorized to collect sales tax as required by KRS Chapter 139.

Sales and Use Tax Return Part I: (B)2 • Must remit a sales and use tax return (Form 51A102) according to assigned filing schedule • Due date- the 20th day following the end of the period (Accelerated filers’ return is due by the 25th) • Online filing is available • Line 1 “Gross receipts” • Lines 2-19 Eligible Deductions • Line 23 Use Tax

Resale Certificate Part I: (B)3 • KRS 139.270 provides guidance when collecting a resale certificate (Form 51A105) • Relieves the retailer from the burden of proof if the retailer obtains a completed certificate and maintains the certificate on file • Must be collected within 90 days from the date of the sale • May be designated as a “single purchase” or “blanket”

Streamlined Sales Tax (SST) Certificate Part I: (B)4 • SST Certificate (Form 51A260) is a valid alternative to the resale and farm exemption certificates • Relieves the seller from the burden of proof if retailer obtains a completed certificate with all relevant data • Form may be accepted if collected from out-of-state buyers

Agricultural Exemption Certificate Part I: (B)5 • 103 KAR 30:091- “Farmer” is defined as any person regularly engaged in the business of farming • Vendor must have a completed agricultural certificate on file • Farm Exemption Certificate (Form 51A158) • On-Farm Facilities Exemption Certificate (Form 51A159)

Resources Part I: (C) • Website www.revenue.ky.gov • Tax Alerts addresses topics regarding all tax types; issued about 6 times a year • Sales Tax Facts provide assistance to persons fulfilling their sales and use tax obligations; issued 2 to 4 times per year • Guide for Auctioneers guide intended for general information for licensed Kentucky auctioneers

Part II Part II- Specific Guidance Registration Collection Requirements Property Subject to Sales and Use Tax Exemptions Non-Profit Charity Auctions Buyers’ Premium

Registration Part II: (A) 1 • If starting a new business, must register with DOR by completing Form 10A100, Kentucky Tax Registration Application • If you need to update or correct your account information, must complete Form 10A104, Update or Cancellation of Kentucky Tax Accounts • www.revenue.ky.gov/business/register • Will receive permit letter that must be posted in a conspicuous place in the retailer’s establishment (KRS 139.250)

Specific Statutes Part II: (A) 2 • Every person presently engaged or desiring to engage in or conduct business as a retailer or seller within this state shall file with the Department an application of a permit for each place of business. • “Retailer”- every person engaged in the business of making sales at auction of tangible personal property or digital property owned by the person or others for storage, use, or other consumption KRS 139.240(1) KRS 139.010(27)(a)

Part II: (B) Collection Requirements • Auctioneer’s Responsibility- KRS 139.105(1)- must collect and remit sales and use tax even if the tax is collected in error or the purchaser refuses to pay sales tax • Prohibited Advertising- KRS 139.220- retailers are prohibited from advertising that tax will not be charged or the customer will receive a discount equal to the amount of tax paid Advertising

Collection Requirements Cont. Part II: (B) • Auctioneers Acting as an Agent- if hired by another auctioneer to control the bidding process does not need to report sales made at that auction • Customer Receipts-KRS 139.210(1)- must provide each purchaser a receipt showing separately the sales price and the amount of sales tax collected • Returned Merchandise- 103 KAR 31:050- may take a deduction only if the full sales price plus sales and use tax is refunded

Property Subject to Sales and Use Tax Part II: (C) KRS 139.260- establishes the presumption that all gross receipts are taxable “until the contrary is established” Mobile Homes/Manufactured homes when sold as tangible personal property Personal and recreational boats and boat trailers Trailers- bumper hitch trailers and trailers with living quarters

Property Subject to Sales and Use Tax Part II: (C) Horses unless they meet qualifications for exemption Off-road vehicles: Dirt bikes, 4-wheelers, ATVs Sales to individuals or businesses from out of state who take possession here Collectibles (Coins, Stamps, etc)

Part II: (D) Exemptions • Horses: 2 years or older sold to a non-resident or purchased exclusively for breeding • Items sold for resale • Sales to state and local government • Sales to resident non-profit 501(c)(3) organizations • Food and food products • Interstate commerce • Farm machinery and agricultural items • Semi-trailers

Non-Profit Charity Auctions Part II: (E) • KRS 139.010(27)(c) excludes from the definition of a retailer, persons making sales at a charitable auction for church, school, civic, and other resident nonprofit if… • The qualifying entity is sponsoring the auction • The purchaser directly pays the qualifying entity and not the person making sales at the auction • The qualifying entity is responsible for the collection, control, and disbursement of auction proceeds • Non-profit subject to provisions of KRS 139.496

Buyers’ Premium Part II: (F) • KRS 139.010(12)- “gross receipts” is defined as the total amount of the sale • Sales tax is computed on the total amount of the sale including the buyers’ premium plus • Charges by the retailer for services necessary to complete the sale are also subject to sales tax  delivery, shipping, transportation, postage, handling and packing charges

Part III- Compliance Audits Non-Compliance Examples Cost of Non-Compliance

Audits Part III (A) • Primary object of an audit is to determine the correct measure of tax • Statute of Limitations: KRS 139.720- auctioneers are required to keep all records for a minimum of four (4) years from the date a return is filed • Verification of records: all records must be complete and kept up to date • Deductions are reviewed to ensure they are valid and substantiated with appropriate exemption certificates

Non-compliance Issues Part III (B) • Lack of records: if the taxpayer has failed to keep proper records or has lost, misplaced, or destroyed them, an assessment of tax due may be made (KRS 131.180) • Unsubstantiated Deductions: all deductions not substantiated with appropriate documentation are disallowed and are subject to sales tax • Invalid Deductions: deductions taken in error also become subject to sales tax (failure to collect tax on trailers, boats, etc)

Part III (C) Cost of Non-Compliance • All taxes not paid at the time prescribed by statute shall accrue interest at the applicable year’s tax interest rate plus 2% 2009: 5% + 2% 2010: 3% + 2% 2011: 3% + 2% 2012: 4% + 2% 2013: 4% + 2% • If additional tax is due, the amount is considered paid late. Penalties should be calculated as 2% of the total amount of tax due for each 1 to 30 day period. Penalty will not exceed 20%, and there is a $10.00 minimum. There is also a late pay penalty that is calculated the same way. Interest KRS 131.183 Penalties KRS 131.180

Part IV- Questions and Answers

Kentucky Sales and Use Tax