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Inquiry from MN Dept of Revenue

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rated:
Looking for some info/advice.

The janitorial company I used to work for asked my wife to clean our offices once a week.  They provided all supplies.  They gave my wife a form (invoice) to fill out to get paid each week.  As an employee, I knew janitorial service are required to collect and remit sales tax to the state.  I asked if them about the sales tax issue, and they said my wife doesn't have to worry about it, because they pay use tax.  The state is Minnesota, and my wife probably earned around $20K over about 3 years.

My wife receives a 1099-MISC, so, of course, I include that on our income tax forms.  Yesterday, I got a letter from the MN Dept of Revenue saying that we need to provide information to help them identify our sales tax responsibility.

Any thoughts on if we are going to have to pay back sales tax and any penalties.  Or, was what my former employer correct, that they can pay use tax and we don't have to worry about sales tax.  If they lied to me, is there any way to collect the sales tax from them now, or if we ended up paying the sales tax and penalty, would they be liable, and could we collect anything from them?

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rated:
Let me make sure I understand.

1. You worked for a janitorial company
2. They hired your wife to clean your office
3. They told you that you didn't need to collect sales tax
4. You knew better
5. You neglected to collect the sales tax
6. Now the state wants it from you
7. And you want to know if you can blame the company that you worked for.

Did I get that right?

rated:
supersnoop00 said:   Let me make sure I understand.

1. You worked for a janitorial company
2. They hired your wife to clean your office
3. They told you that you didn't need to collect sales tax
4. You knew better
5. You neglected to collect the sales tax
6. Now the state wants it from you
7. And you want to know if you can blame the company that you worked for.

Did I get that right?

  All except the part where I knew better.  I knew that cleaning services are taxable in MN. So, when I asked the VP of Finance if my wife needed to collect sales tax, she told me that it wasn't needed because the company pays use tax on the service.  I had no reason not to trust what she was saying, so I took it at face value.  Maybe that was stupid of me.

rated:
Just so its clear - you're saying that the state will be able to collect the sales tax they claim is due - it's just a matter of whether your wife or the company is liable for it?

Also, perhaps this is a little confusing because it's a janitorial service company, but your wife is cleaning the office of janitorial service company? Or the janitorial service company contracted with your wife to provide cleaning to other companies/individuals?

rated:
snnistle said:   The janitorial company I used to work for asked my wife to clean our offices once a week.  They provided all supplies.  They gave my wife a form (invoice) to fill out to get paid each week.  As an employee, I knew janitorial service are required to collect and remit sales tax to the state.  
  Since when does an employee have any connection to the sales tax aspect? They are liable for income tax. Maybe send them a copy of your last 3 years state income tax returns showing your wife reported her earnings.

rated:
Most odd, sounds like the State is looking to build a case against the company.

rated:
marginoferror said:   Just so its clear - you're saying that the state will be able to collect the sales tax they claim is due - it's just a matter of whether your wife or the company is liable for it?

Also, perhaps this is a little confusing because it's a janitorial service company, but your wife is cleaning the office of janitorial service company? Or the janitorial service company contracted with your wife to provide cleaning to other companies/individuals?

I'm asking if it is possible that the company paid use tax and my wife is exempt from paying sales tax?  If not, I am resigned to the fact that she will be paying sales tax.  If she is, do you think there is any way to recoup that from the company, since as a cleaning company, they knew the law better than my wife.  In fact, legally in MN, you must either itemize sales tax on each invoice, or have a statement saying that sales tax is included in the total.  The "invoice" they asked her to use included neither.

It is a large retail janitorial company that asked my wife to clean their offices.  She did not clean any of their accounts.

rated:
Use tax is really only for cases when the seller isn't normally collecting tax such as out of state sellers. Is the wife maybe not from the same state?

MN sales tax is charged on cleaning services :
http://www.revenue.state.mn.us/businesses/sut/factsheets/FS112.p...


http://www.revenue.state.mn.us/Forms_and_Instructions/sales_tax_...
"You must register to collect sales tax if you make taxable retail sales in Minnesota."

Was there an exemption? The booklet talks about exemptions for cases of direct pay when the buyer pays the state directly.

Seems the state wants their sales tax which the wife ought to have been paying.

rated:
BTW, why in the world would a janitorial company outsource their own office cleaning?

rated:
jerosen said:   BTW, why in the world would a janitorial company outsource their own office cleaning?
  maybe janitorial supply company?
The janitorial company I used to work for asked my wife to clean our offices once a week.  They provided all supplies.  

rated:
rufflesinc said:   
jerosen said:   BTW, why in the world would a janitorial company outsource their own office cleaning?
  maybe janitorial supply company?
The janitorial company I used to work for asked my wife to clean our offices once a week.  They provided all supplies.  

  
That would make sense if they ONLY sold supplies.   But he also refers to them as a "cleaning" company and clarifies that she did not clean any of their accounts.

 

rated:
atikovi said:   
snnistle said:   The janitorial company I used to work for asked my wife to clean our offices once a week.  They provided all supplies.  They gave my wife a form (invoice) to fill out to get paid each week.  As an employee, I knew janitorial service are required to collect and remit sales tax to the state.  
  Since when does an employee have any connection to the sales tax aspect? They are liable for income tax. Maybe send them a copy of your last 3 years state income tax returns showing your wife reported her earnings.

  Yes, but I was the employee.  My wife was not.  She received a 1099-MISC.

rated:
jerosen said:   
rufflesinc said:   
jerosen said:   BTW, why in the world would a janitorial company outsource their own office cleaning?
  maybe janitorial supply company?
The janitorial company I used to work for asked my wife to clean our offices once a week.  They provided all supplies.  

  
That would make sense if they ONLY sold supplies.   But he also refers to them as a "cleaning" company and clarifies that she did not clean any of their accounts.

 

 They have an employee clean the office now, but previous to that the parents and spouses of the owners cleaned the office.  I think it was a way for the owners to "help" their relatives.  But, they started skipping weeks and were pains-in-the-butt, so they asked my wife to take over.  At the time, it was a very profitable company.  When I left, which is also when the brought the office cleaning in-house and stopped using my wife, they were losing a lot of money.

rated:
snnistle said:   
marginoferror said:   Just so its clear - you're saying that the state will be able to collect the sales tax they claim is due - it's just a matter of whether your wife or the company is liable for it?

Also, perhaps this is a little confusing because it's a janitorial service company, but your wife is cleaning the office of janitorial service company? Or the janitorial service company contracted with your wife to provide cleaning to other companies/individuals?

I'm asking if it is possible that the company paid use tax and my wife is exempt from paying sales tax?  If not, I am resigned to the fact that she will be paying sales tax.  If she is, do you think there is any way to recoup that from the company, since as a cleaning company, they knew the law better than my wife.  In fact, legally in MN, you must either itemize sales tax on each invoice, or have a statement saying that sales tax is included in the total.  The "invoice" they asked her to use included neither.

It is a large retail janitorial company that asked my wife to clean their offices.  She did not clean any of their accounts.

  Is it possible? Of course, anything is possible. A company can self assess as much in use taxes as they want. Does that make your wife exempt from collecting and remitting (in most states the seller isn't "paying" sales tax and the distinction is important) sales tax - this would probably depend on the state. Many states require you to collect and remit unless the purchaser provides an exemption certificate/reseller certificate. Just to give you some point of reference - though the rules are not the same - an employer isn't necessarily relieved of a withholding obligation just because the employee pays all of his/her income taxes.

I don't know if you'd have a case against the company of you could go back to the company. This may be legally barred or you may have a contractual claim. There may be other theories you could sue under as well.

It also sounds like you are admitting that your wife's invoice to the company didn't comply with the law. I'm not familiar with the law and not trying to be hard on you, but to me that's what your statement says.

rated:
marginoferror said:   
snnistle said:   
marginoferror said:   Just so its clear - you're saying that the state will be able to collect the sales tax they claim is due - it's just a matter of whether your wife or the company is liable for it?

Also, perhaps this is a little confusing because it's a janitorial service company, but your wife is cleaning the office of janitorial service company? Or the janitorial service company contracted with your wife to provide cleaning to other companies/individuals?

I'm asking if it is possible that the company paid use tax and my wife is exempt from paying sales tax?  If not, I am resigned to the fact that she will be paying sales tax.  If she is, do you think there is any way to recoup that from the company, since as a cleaning company, they knew the law better than my wife.  In fact, legally in MN, you must either itemize sales tax on each invoice, or have a statement saying that sales tax is included in the total.  The "invoice" they asked her to use included neither.

It is a large retail janitorial company that asked my wife to clean their offices.  She did not clean any of their accounts.

  Is it possible? Of course, anything is possible. A company can self assess as much in use taxes as they want. Does that make your wife exempt from collecting and remitting (in most states the seller isn't "paying" sales tax and the distinction is important) sales tax - this would probably depend on the state. Many states require you to collect and remit unless the purchaser provides an exemption certificate/reseller certificate. Just to give you some point of reference - though the rules are not the same - an employer isn't necessarily relieved of a withholding obligation just because the employee pays all of his/her income taxes.

I don't know if you'd have a case against the company of you could go back to the company. This may be legally barred or you may have a contractual claim. There may be other theories you could sue under as well.

It also sounds like you are admitting that your wife's invoice to the company didn't comply with the law. I'm not familiar with the law and not trying to be hard on you, but to me that's what your statement says.

  I understand and appreciate the input, even if it's not what I hope to learn.

rated:
Based on what you wrote, it appears the company itself definitely is supposed to have been accounting for the use tax due on the invoices your wife was submitting without sales tax added, and for paying that use tax. See Minnesota Revenue fact sheet # 146 and # 112. http://www.revenue.state.mn.us/businesses/sut/Pages/fact_sheets....

However, if your wife was submitting invoices for janitorial services and accounted for that income on her tax returns as a janitorial service then the state can no doubt ding her for the sales tax as well. I suppose they'd just go after both parties separately and see what falls out.

What might be worth trying is responding to the state (in writing) with the explanation that she was supplying casual labor as a individual contractor, doing whatever, including cleaning, and had been asked not to itemize sales tax on the billing because the company stated its intention to account for and pay the any corresponding use tax (and cite their own Fact Sheet #146, perhaps). Since they ARE obliged to do just that for janitorial services among other things, the state just might turn their attention to the deeper pockets. And in fact, the company may actually have done so, and the tax actually HAS been paid, and the state just hasn't connected the dots.

Worst case they say "tough luck, pay up" and you're back where you are now. If that happens and you get stuck paying, you might see if you are permitted to characterize the submitted invoices/billings as "inclusive of sales tax" which would at least fractionally reduce the amount due. That's not permitted in all cases, but worth looking into.

rated:
bhofw said:   Based on what you wrote, it appears the company itself definitely is supposed to have been accounting for the use tax due on the invoices your wife was submitting without sales tax added, and for paying that use tax. See Minnesota Revenue fact sheet # 146 and # 112. http://www.revenue.state.mn.us/businesses/sut/Pages/fact_sheets.... 

However, if your wife was submitting invoices for janitorial services and accounted for that income on her tax returns as a janitorial service then the state can no doubt ding her for the sales tax as well. I suppose they'd just go after both parties separately and see what falls out.

What might be worth trying is responding to the state (in writing) with the explanation that she was supplying casual labor as a individual contractor, doing whatever, including cleaning, and had been asked not to itemize sales tax on the billing because the company stated its intention to account for and pay the any corresponding use tax (and cite their own Fact Sheet #146, perhaps). Since they ARE obliged to do just that for janitorial services among other things, the state just might turn their attention to the deeper pockets. And in fact, the company may actually have done so, and the tax actually HAS been paid, and the state just hasn't connected the dots.

Worst case they say "tough luck, pay up" and you're back where you are now. If that happens and you get stuck paying, you might see if you are permitted to characterize the submitted invoices/billings as "inclusive of sales tax" which would at least fractionally reduce the amount due. That's not permitted in all cases, but worth looking into.

  Great advice.  Thanks.

rated:
If you end up having to pay the state, bill the company for it.
If you have something in writing to substantiate: "they said my wife doesn't have to worry about it, because they pay use tax", that would really help.

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