In a recent newsletter, the Kentucky Department of Revenue reminds taxpayers of numerous sales and use tax requirements. Topics range from food to internet sales tax.
Food
Certain types of food and food ingredients are exempt from Kentucky sales tax, provided they are for human consumption. It is more expedient to list what is not exempt. Taxable foods include:
- Alcoholic beverages
- Candy
- Dietary Supplements
- Prepared foods
- Soft drinks (includes Gatorade, flavored water, and a few other surprises)
- Tobacco
Use tax
When taxpayers do not pay sales tax on tangible personal property at the time of purchase, Kentucky use tax is due. Untaxed purchases most frequently occur out-of-state or remotely, as with internet or catalog sales. Retailers should report Kentucky use tax on line 23(a) of the sales and use tax return. Individuals should report it on their individual income tax returns.
To help spread the use tax word, remote vendors that do not collect Kentucky sales tax are required to notify their customers of their use tax obligation.
Drop shipments
For tax purposes, drop shipments are treated as two transactions:
- The sale from the seller (manufacturer-wholesaler) to the purchaser (retailer).
- The sale from the purchaser (retailer) to the end consumer.
Tax requirements depend on the location of the seller, the purchaser, and the end consumer. When all three are located in Kentucky, “the retailer furnishes a resale certificate to the seller (manufacturer/wholesaler) … and collects sales tax on the final sale to the end consumer.”
Complications arise when the retailer is located out-of-state. An out-of-state purchaser (retailer) should issue a Kentucky resale certificate (Form 51A105), but make a notation on the form that it is a nonresident retailer not required to register in Kentucky. The end consumer must remit use tax.
Additional information, including paper and online filing tips, is available in the December Sales Tax Facts.
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