GLOSSARY

IPT Sales and Use Tax Symposium

Beginner Basics

GLOSSARY
The following definitions have been developed to facilitate an understanding of the course
material. They tend to be generic in nature, and do not necessarily apply in any specific
jurisdiction. In addition, the same terms may be defined differently in contexts other than those
considered in the course material.

Term
Absorption

Agency clause

Agent

Assessment

Bracket system

Bulk sale

Bundling

Case law
Commerce Clause

Common carrier

Compliance

Definition
The condition that exists when a seller does not add sales or
use tax to the selling price as a separate itemized amount,
but instead remits the tax from his or her own funds (not
commonly allowed). Absorption is also known as
embedded Compare with separation. Example of State:
Arkansas does not require a separate line item for tax.
A contract provision that gives one party the authority to act
as an agent of the other. In a construction contract, such a
clause may authorize a contractor to act as the customer's
agent in making purchases.
A person acting on behalf of another person, with the
authority to bind the other person in dealings with third
parties. Note that one can act on behalf of another without
having this authority and this is sometimes referred to
loosely and imprecisely as "agency."
Generally refers to a taxing authority's formal assertion that
the taxpayer to whom it is issued owes a stated amount of
tax, interest, and/or penalty.
A tax chart provided by the jurisdiction that sets forth ranges
of sales prices (usually less than $1.00) and prescribes the
amount of tax due on transactions within each range.
A sale of all or a substantial portion of a business's assets.
Examples may include the sale of a division or line of
business. Certain states require the bulk sale be made to
one entity.
Combining more than one item (which may include tangible
personal property, services, intangibles, or any combination
of them) in a single transaction with a single, non-itemized
price.
The law as developed in the decisions of courts. May refer to
State cases or United States Supreme Court Cases.
Article I, Section 8, subsection 3, of the United States
Constitution. This clause provides that Congress shall have
the power To regulate commerce with foreign nations, and
among the several States, and with the Indian Tribes.
One that transports property for others for a price. The term
generally refers to a carrier that is obligated to accept such
business from the general public (in contrast with "private" or
"contract" carriers). Other elements may also apply in a
given jurisdiction (such as standardized rates or schedules).
Generally refers to the functions performed to adhere to the
sales and use tax laws, including but not limited to
registration, filing of sales and use tax returns, and
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Computer software

Conditional sale

Construction contractor

documentation of exemptions.
Written or recorded instructions that direct the activities or
processes of a computer or peripheral devices. Note that
distinctions may be made between canned or packaged
versus custom software for sales and use tax purposes.
A transaction where property changes hands but title (held
by seller) does not transfer until the full sales price has been
paid by the purchaser.
A person who makes improvements to real property and/or
may incorporate tangible personal property into realty.
1. Prime contractor - usually the focus person who
is responsible to the owner for ensuring the job
is completed properly and timely.

Consumer levy

Corporation

Cost plus, time and material, and

separated contracts
Determination

Direct pay authority

Division

2. Subcontractor the person who is hired by the

prime contractor to perform a specific task. An
example of a subcontractor is a plumber.
A type of sales tax that is imposed on the purchaser and that
the seller collects for the taxing jurisdiction. Common
(although not universal) features include the following:
absorption is not allowed; separation is required; the tax is a
debt of the buyer to the seller; the buyer can request a
refund directly from the state; and the seller receives a
collection allowance for collecting the tax. Example of State:
New York
An entity having authority under the law to act as a single
person distinct from any other, including the shareholders
who own stock in it. A corporation is generally treated as a
separate and distinct taxpayer for sales and use tax
purposes.
Contracts that are usually billed showing the separated
amounts for labor (time), equipment and materials.
One of several terms that may be used to refer to a formal
notification of assessment by the taxing jurisdiction, or to the
resolution of a taxpayer's objections to such an assessment.
The term can also be used more broadly to refer to other
types of decisions or conclusions.
Authorization granted by a taxing jurisdiction that allows a
purchaser to choose to remit sales or use taxes directly to
the jurisdiction rather than to the seller. When a purchaser
provides the seller the required evidence of such authority,
the seller is relieved of the obligation to collect tax from the
purchaser.
A unit of business within a legal entity that is generally
treated as indistinct from the legal entity of which it is a part.
Divisions have the same Federal Identification Number as
the Parent Corporation. Sometimes subsidiaries are referred
to as divisions but a true subsidiary (even when called a
division) is, in fact, a separate legal entity from that of its
parent corporation. **See Subsidiary definition.
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Electronic commerce

Electronic Data Interchange (EDI)

Electronic Funds Transfer (EFT)

Enumerated services
Escheat

Estimated assessment

Excise (as in excise tax):

Used broadly to encompass a variety of activities, including

telecommunications, Internet access, online sales of
products, services, or entertainment, electronic data
interchange, electronic transfers of funds, and the use of
proprietary networks. Sometimes used more narrowly to
refer to Internet access and online sales.
The transfer of data between different entities using
electronic media, such as the Internet. For example, EDI
may be used to replace paper purchase orders, invoices, tax
returns and other documents with prescribed electronic data
sets.
Transfers of electronic payments or collections via the
internet or other data channels.
Generally refers to services that are specifically identified in
a sales tax statute as taxable.
Reversion of property to the state when no legal heirs or
claimants exist (such property is commonly known as
unclaimed property).
An assessment issued in the context of an audit when the
taxpayer, according to the DOR, has not made available
adequate records to determine its tax liability for the audit
period. Estimates may be based on taxpayer records for a
different period, industry data, or other information.
An impost or duty levied on manufacture, sale or
consumption of goods within a given geographical territory,
or an extraction for license or permission to practice or
conduct certain trades or occupations.
Examples:
International: Value-added tax
Federal level: manufacturers, fuel, transportation,
telecommunications, luxury, firearms, sporting
goods, alcohol, etc.
State level: fuel, tobacco, alcohol, gasoline, etc.
sales, use, consumption, business and occupations,
etc.

Exclusion

Local level: business license, transient or hotel,

tourist, bed, etc.
Two definitions:
(1) A transaction that is outside the general scope of the
statutes imposing the sales or use tax. Common examples
include real estate, stocks, bonds, and most services.
(2) An amount that is not included in the taxable base as a
measure of sales and use taxes. Common examples include
certain discounts, charges for freight, and charges for
installation labor.

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Exemption

Exemption certificate

Exhaustion doctrine

Fixed price or lump sum contract

Grandfather clause

Gross receipts

Gross receipts tax

Grounds

Hearing

Home rule jurisdiction

Imposition clause

Jeopardy assessment

A transaction that is within the general scope of the statutes

imposing tax, but is the subject of special provisions
removing it from taxation. While not in all states, common
examples include exemptions for specific purchasers (i.e.
federal government, charities), exemptions based on the
nature of the product, and exemptions based on the use of
the product.
A document that establishes the exempt status of the item,
the service, the purchaser, or the transaction, and relieves
the seller of the obligation to collect or remit tax. Generally
taken in good faith (that which a reasonable person would
accept based on the type of engaged business).
Refers to a legal requirement in many taxing jurisdictions
that a person pursue relief through an administrative process
before applying to a court. The doctrine is commonly (but not
universally) applied in tax matters.
A contract that is for a set amount and does not separate out
the charges for material, equipment and labor.
Generally refers to a provision of law that creates an
exception from the law's effect for something that existed
before the law's effective date. For example, a law
increasing a sales tax rate may include an exception for
contractor purchases made in performing contracts entered
into or before the increase became effective.
The total amount of money or other valuable consideration
received by a taxpayer for goods sold or services performed,
before deductions.
A tax measured by gross receipts derived from non-exempt
transactions. Three states (Arkansas, Hawaii and New
Mexico) impose gross receipts taxes that operate similarly to
a sellers privilege tax (see privilege tax definition).
Reasons for a position or conclusion. Examples include the
taxpayer's stated basis for objecting to an assessment, and
the taxing authority's basis for agreeing or disagreeing with
the taxpayer.
When used broadly, any setting (including informal
meetings) in which a person presents evidence or
arguments to a decision maker. More narrowly used to refer
to a formal proceeding such as a court session.
Self-regulating municipality, county, or other political
subdivision that has authority to levy or administer its local
sales and use taxes. The sales and use tax definitions and
exemptions of home rule jurisdictions may differ from those
in their states statutes and regulations.
The section in the statute that levies the tax. Also see Legal
incidence and the four types of sales taxes (Consumer
levy, Gross receipts tax, Privilege tax and Transaction
tax).
A type of assessment issued without the usual review
procedures, when a jurisdiction believes that collection of an
amount due would be jeopardized by delay or flight risk.
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Lease

Legal incidence

Managed Audit (MA)

Managed Compliance Agreement

(MCA)

Manufacturing

Measure

Nexus

Occasional, isolated or casual sale

Person
Precedent

A contract by which one party (lessor) gives to another

(lessee) the use and possession of property for a specified
time and for specified payments or other consideration.
Short-term leases may be referred to as rentals.
Generally refers to the object of a tax as expressed in the
law. A state's law may impose a sales tax on the seller, on
the buyer, or on the transaction. The legal incidence can
affect who is liable to the state for the tax, who can sue or be
sued for the tax, and who can claim refunds or seek other
relief.
A tax compliance audit that the taxpayer conducts of its own
records. Representatives of the taxpayer and the taxing
authority will typically meet to discuss the parameters of the
audit and other pertinent data. The areas reviewed in an MA
are similar to those reviewed in a routine audit conducted by
a state tax auditor.
An agreement that allows the taxpayer to accrue tax on its
purchases on a percentage basis. Before the MCA is
formalized, representatives of the taxpayer and taxing
authority will typically meet to discuss the taxpayers
operations, accounting systems utilized, how data can be
extracted, changes or anticipated changes within the
company and how the taxpayer will monitor the accruals.
The process of taking raw materials or component parts and
creating a new product which has a different form, with a
change in its physical and/or chemical properties, and which
has a greater value than in its previous form.
The dollar amount upon which the tax is computed. For
example, the sales price is commonly the amount to which
the tax rate is applied in computing a sales tax.
The connection that a taxpayer must have with a state
before that state may subject the taxpayer to its taxing
powers. There must be nexus whether a state seeks to
impose a tax directly on a business or instead seeks to
impose on the business a requirement to register and collect
taxes on its behalf.
A sale made by a party not in business of selling, or an
infrequent sale (usually less than three times a year) of
property which is not normally held for resale or for which
sales tax registration is not required (e.g., doctor sells his
examining table).
In sales and use tax, a distinct legal entity. Includes natural
persons, corporations, partnerships, trusts, and others.
The decision of a court. Generally it is a reference to a prior
court case decision by another court. Can also refer to
decisions of other tribunals and agencies.

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Private ruling or Letter ruling

Privilege tax (or sellers privilege tax)

Purchase price
Real property

A mechanism for a taxpayer to write to the revenue agency

and ask what tax treatment will be given to a specific set of
facts and circumstances.
A type of sales tax in which the seller is liable for the tax
measured by total taxable sales. Common (although not
universal) features include the following: absorption is often
allowed; separation is not required; and the seller, not the
purchaser, is liable to the taxing jurisdiction for the tax.
What one pays for what one buys. See also "sales price."
Land and improvements to land. Includes tangible personal
property that is incorporated into real property, and that
meets the following tests:
1. it is annexed, incorporated, or attached to land or other
real property;
2. the annexation, incorporation, or attachment is intended
to be permanent; and

Reciprocity

Regressive

Regulations

Remedies

Resale certificate

Retailer

Retail sale
Rules
Ruling

3. it cannot be easily removed without causing substantial

damage to the land or the other real property.
Favorable tax treatment in one taxing jurisdiction conditioned
on another taxing jurisdictions similar application in its own
law.
The characteristic of the sales tax that its impact falls more
heavily on the economically disadvantaged; exemptions for
necessities (e.g., food, medicine, and clothing) tend to
mitigate this effect.
Typically, the published rules of an agency, adopted
according to a statutory procedure, that has the force of law
until overturned. Revenue regulations generally contain the
revenue agencys interpretation of the law, its directives on
how taxpayers are to comply with the law, and/or its internal
procedures.
The procedures available to a taxpayer to resolve an issue
or obtain other relief. Examples include the hierarchy of
hearings and appeals to which the taxpayer is entitled in
order to resolve a tax matter or audit, refunds, ruling
requests, and rulemaking that can be initiated by a taxpayer.
Generally, a written document given by the purchaser to the
seller, representing that an item is purchased with the intent
to resell it. If the certificate has all the contents required by
the law of the jurisdiction, it relieves the seller of the
obligation to collect or remit tax on the transaction.
The person making the sale to the final consumer; a person
engaged in the business of making sales at retail (also called
a jobber or dealer).
Sale to an end consumer. Sometimes defined as a sale for
any purpose other than for resale.
See "Regulations."
A generic term that can be used to refer to any decision or
expression of position or opinion of a governmental authority
on a specific matter.
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Sale

Sales price
Sales tax permit

Separation

Sellers Privilege Tax

Services
Shifting

Statute

Statute of limitations

Subsidiary

Tangible personal property

Tax clause

Trade-in

Transaction tax

A transaction which results in the passage of title or

possession or both of tangible personal property from the
seller to the buyer, or which results in the provision of a
service by the seller for the buyer, in exchange for
consideration.
What one charges for what one sells.
The evidence that a taxpayer has registered to collect sales
or use tax within the issuing jurisdiction. Sometimes called a
registration certificate. (Note: businesses may be required to
obtain other types of permits to operate.)
In sales and use tax, the seller's itemization of the tax
amount distinct from the sales price on an invoice or other
tangible evidence of the sale. Commonly required. Compare
with absorption.
See Privilege Tax definition.
Generally, the occupation or function of serving, repairing or
providing an activity to satisfy a public demand.
In sales and use tax, shifting refers to the buyer bearing the
economic burden of a tax that may be legally imposed upon
the seller.
The law enacted by a legislature. The word "code" may also
be used in this fashion, but can also mean a body of
administrative regulations.
A provision in the law that prescribes the time within which a
claim must be asserted. There are normally statutes of
limitations applicable to assessments and refund claims.
A corporation that is owned or controlled by another
corporation. A subsidiary is generally treated as a separate
and distinct taxpayer for sales and use tax purposes. A
subsidiary has a different Federal Identification Number than
the Parent Corporation.
Property, other than real property, which can be held,
smelled, touched, seen, tasted, or is in any other manner
perceptible to the human senses. Excludes intangible
property that is evidenced by tangible things, such as stocks,
bonds and money.
Generally refers to a contract provision that addresses the
way the parties will handle tax issues amongst themselves.
Tax clauses within contracts do not supersede the tax
statutes.
Generally, any allowance or credit for any tangible personal
property taken in partial payment by a retailer on the
purchase of goods.
A type of sales tax in which the transaction, rather than the
buyer or the seller, is subject to tax. The seller is liable to the
state for the collection and remittance of the tax. The buyer
is also directly liable to the state for any unpaid tax. Common
(although not universal) features include the following:
absorption is not allowed; separation is required; the tax may
be a debt of the buyer to the seller; buyers may not be able
to get a refund directly from the state; and a collection
allowance may be available to the seller for collecting the
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Transactional

True object test

Use

Vendor discount

Voluntary disclosure

Waiver

Wholesaler
Wholesale sale

tax.
The characteristic of a sales or use tax that indicates the tax
is applied to a discrete event (a single sale or use), rather
than a series of events (e.g., all of the income for one year)
or a condition (e.g., the value of property as of a given date).
A test used to evaluate the intent of the parties in
determining whether or not a transaction is taxable (often
when a transaction involves a mix of products and services).
For example, the test may be applied to decide whether the
intent of the parties was a taxable sale of tangible personal
property per se or the transfer of tangible personal property
incidental to a non-taxable service. Also known as the
essence of the transaction test.
The storage, use or consumption of taxable property or
services and includes the exercise of any right or power
incident to the ownership of the property.
An amount a retail seller is permitted under the law to deduct
from the tax remitted to the jurisdiction, as compensation for
collecting the tax. May also be referred to as the collection
allowance or similar terminology.
A process by which a taxpayer can settle past liabilities with
a jurisdiction by coming forward prior to any contact by the
jurisdiction. It is often begun anonymously via a third party,
and generally results in a negotiated agreement that relieves
the taxpayer of civil and criminal penalties or other amounts
that would otherwise be subject to assessment on audit.
A term most commonly used in the tax field to mean the
taxpayers formal agreement to keep a period open for
review and assessment by the taxing jurisdiction, that is, an
agreement to forego the benefit of the statute of limitations.
A waiver is evidenced by a form completed and signed by
the taxpayer and the jurisdiction.
A person that makes sales to resellers rather than to the end
consumer.
A sale to a retailer or other purchaser who is not an end
consumer.

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