To support JMP on our journey of separating from SAS, the Finance team has grown quickly over the past year. As an organization, we strive to share the “Why?” even if it sounds like complex Finance lingo.
In this new series "Financial Literacy 101", we aim to explain basic financial topics in a way that is beneficial to all.
Everyone's favorite topic - Taxes! … No? Okay, bear with me as I think this information is helpful and can provide confidence when communicating with customers. There are numerous types of tax, but we will focus on three types that impact JMP and our customers: income tax, sales tax, and value-added tax (VAT).
Income Tax
Income tax is a tax on the net income of a company (or individual). Complex tax regulations dictate which income is taxable, which expenses are deductible, and which tax rates apply. A tax return must be filed annually to report taxable income and calculate total income tax due or, if you’re lucky, the amount to be refunded. While you probably don’t care about income taxes, there are a few nuances that are impacting key communications with customers. Ever heard of a W-9?
Most customers will request JMP’s W-9 and Banking Information forms when setting up a new vendor profile. The W-9 is a US Internal Revenue Service (IRS) form that is used to provide the correct Taxpayer Identification Number (TIN) of a US company to the person who is required to file an information return with the IRS. You see, companies are required to report when they pay certain vendors more than $600 annually and they need the correct TIN to fulfill that requirement. This form also serves as a way to protect the customer from paying illegal vendors.
Why does the JMP W-9 mention SAS?
Legally, JMP is organized as a Limited Liability Company (LLC) and SAS Insititute Inc. is the single member/owner. In the eyes of the IRS, this means JMP is a disregarded entity for income tax purposes and SAS is responsible for the taxes on JMP’s net income. Accordingly, the JMP W-9 lists SAS for the Name (as shown on the income tax return) and includes SAS’ TIN (or EIN) under Part I. This appropriately reflects the party responsible for taxes and ensures all tax filings are correct. JMP is listed as the Business Name since we are the legal entity entering into the agreement with customers. Our latest W-9 and Banking Information forms can be found in the Common Forms section of the Finance Confluence page.
REMINDER: If working in JMP First accounts and systems, NEVER send SAS W-9 or Banking Information forms as the contract is between the customer and JMP. If working in legacy systems with existing customers, continue to provide SAS forms as the contract is between the customer and SAS.
Sales Tax (US)
Sales tax is a tax levied on the sale of finished goods and services in the US that is usually calculated as a percentage of the purchase price and collected by the seller (that’s JMP). The applicable tax rate varies and is set by each state and local jurisdiction. JMP makes reasonable efforts to include sales tax on any invoices with a shipping location within the United States. The shipping location drives the calculation of tax which makes it important to get this information correct. Certain products, entities, or transactions are exempt from sales tax; however, the rules and forms vary by jurisdiction so ensuring compliance is no small feat.
JMP is required to report and remit sales tax each month to applicable jurisdictions. To ensure accurate reporting and proper controls (to be an auditable company), Finance has a very narrow window to make changes after the customer is invoiced. For that reason, every effort must be made to obtain the proper shipping address and tax documentation before invoicing. Our policy on sales tax and potential tax exemptions for CPQ (Invoicing) or eCommerce can be found in the Policy section of the Finance Confluence page.
Value-Added Tax (Outside of the US)
Value-added tax (VAT) is a consumption tax used outside of the US and is levied on goods and services at each stage of the supply chain. This may seem like double taxation but that’s not true since only the value added at each stage is taxed. Get it? Value-added tax! Most businesses can also deduct the amount of VAT paid to vendors (input VAT) from the amount of VAT received from customers (output VAT) and remit the difference, thus making themselves whole.
Like sales tax, the shipping location drives the calculation of VAT and requirements vary by country. Since JMP is headquartered and has primary operations in the US, our need for VAT registration may differ from SAS which has legal entities around the globe doing business. Although VAT is not a tax on the seller, sellers are responsible for collecting and reporting it similar to sales tax. JMP makes reasonable efforts to include VAT on any invoices where our business practices require us to do so.
Why does this matter for JMP?
JMP wants to be easy to do business with while at the same time ensuring that we are compliant with tax regulations worldwide. As JMP continues to transition into a standalone company, we can expect changes to how we are used to doing things because we may not have the same tax requirements that SAS does.
Why should this matter to JMP staff?
Perhaps you were interested in learning more about taxes?! More than likely, you are thinking that all this talk of taxes is making you nauseous. That is okay; you can still say, “Let me talk to our Finance team”.
Our goal is to share just enough information to be helpful and enable you to confidently respond when faced with uncertainty from our customers. We have compiled a Finance FAQ form on the Finance Confluence page for ease of reference and will do our best to answer additional questions as they arise.
Learn more about this topic using the following video as a useful resource:
TAX BASICS: a Beginner's Guide to Everything - YouTube
TIMESTAMPS
00:00 - What is Tax?
01:48 - Direct vs Indirect Tax
07:05 - Income Tax
09:35 - Sales Tax
11:46 - Value-Added Tax
