Don’t be tricked by taxable transactions
A recent BTA decision reminds us that taxable transactions aren’t always obvious, particularly when the internet is involved.
A Pizza Hut franchisee was using an online ordering service (QuikOrder). QuikOrder created a Pizza Hut branded website with the Pizza Hut menu, prices, specials, coupons, promotions, and other items provided by the franchisee. Customers could order from the website and would receive an estimated time of delivery or carry-out.
At first glance, use of the ordering/advertising website might not appear to have any sales tax implications, but as the Tax Commissioner noted in his Final Determination, additional activities were taking place. The information the franchisee provided (menu, prices, specials, etc.) were placed on the franchisee’s computer equipment. QuikOrder obtained this information by accessing the franchisee’s computers. The order and customer information existed on QuikOrder’s computers, which were accessed by the franchisee’s computers. As the menu, prices, specials, and promotions changed, and as customers continued to order through the website, QuikOrder continued to access information on the franchisee’s computers, and the franchisee continued to access information on QuikOrder’s computers.
Due to this back-and-forth, QuikOrder’s service fell into the definition of electronic information services: providing access to computer equipment by means of telecommunications equipment to (1) examine or acquire data stored on the equipment or (2) place information on the equipment to be retrieved by a designed other. Both the franchisee and QuikOrder were providing access to their respective computers so the other could retrieve information on them.
QuikOrder didn’t charge sales tax, and the franchisee didn’t report use tax. The franchisee was audited and assessed. While the additional amount the franchisee had to pay (penalties and interest) was likely relatively low, the franchisee probably wasn’t too happy about having to cut a check for some $10,000. Periodic internal use tax reviews could have helped catch this small issue that grew into an unwanted surprise.
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