Question

Kai operates the Surf Shop in Laie, Hawaii, which designs, manufacturers, and customizes surf boards. Hawaii has a hypothetical 4 percent excise tax technically paid by the seller. However, the state also allows "tax on tax" to be charged, which effectively means a customer is billed 4.166 percent of the sales price. Determine the sales tax liability the Surf Shop must collect and remit - or the use tax liability that the customer must pay - for each of the following orders:

a) Kalani, a Utah customer, places an internet order for a $1,000 board that will be shipped to Provo, Utah where the local sales tax rate is 6.85 percent.
b) Nick, an Alabama resident, comes to the retail shop on vacation and has a $2,000 custom board made. Nick uses the board on vacation and then has the Surf Shop ship it to Tuscaloosa, Alabama where the sales tax rate is 9 percent.
c) Jim, a Michigan resident, places an order for a $2,000 custom board at the end of his vacation. Upon completion, the board will be shipped to Ann Arbor, Michigan, where the sales tax rate is 6 percent.
d) Scott, a Nebraska resident, sends his current surfboard to the Surf Shop for a custom paint job. The customization services come to $800. The board is shipped to Lincoln, Nebraska, where the sales tax rate is 7.25 percent.

Answer 1

Step-by-step explanation:

According to the Kai surf shop in Laie, Hawaii, below is the computation of sales and use tax of surf shop that must collect or remit.

A.

Kai doesn't have a sales tax nexus with Utah, therefore it will not have any sales tax liability. Instead, Kalani will have a tax liability in Utah that will be $63($1000 x 6.85%).

B.

kai will have a tax liability of $83($2000 x 4.166%) Also, Nick will have use tax liability of $87[($2000 x (9% - 4.166%)].

C.

Kai doesn't have a sales tax nexus with Michigan, therefore it will not have sales tax liability. Instead, Jim will have a use tax liability in Michigan will be $140($2000 x 6%)

D.

Sales and use tax is not imposed on sale of services. Therefore, neither Kai nor Scott will have any sales or use tax liability.