Elf Sternberg

Last night, I had a lovely time at a geek event, but afterward I had a conversation with one of the participants, and we had an interesting exchange of knowledge about being men of small business.

I learned two things that surprised me. The first was that he did not know what an encumbrance was. In accounting, an encumbrance is a forward-looking entry in your ledger indicating money that you are obliged, with contingency, to pay sometime in the future. In Quicken, for example, all "scheduled transactions after today" are encumbrances. Quicken will show you how much money you will (or won't) have three months down the line if all of your scheduled income and payments go as scheduled. Contingencies are things like: you sell your car and have no more car payments, or you lose your job and have no more income.

In a project I have, customers can launch long-running processes. We create an encumbrance to their account. Whenever someone enquires as to how much credit the customer has left, unless a flag is passed in the response is the credits minus all encumbrances. This prevents overspending. If the long-running process succeeds, the encumbrance is committed and the account debited; if it fails, the encumbrance is cancelled. So he learned something.

I learned that Washington State applies sales tax on everything you buy out of state. Everything. If the state you bought it from has a sales tax, you must pay the difference to the Washington state treasury. There is no refund if the other state's sales tax is higher. This is not optional. It applies to Internet purchases. It's called a use tax.

If you're an Internet business in Washington, and your servers are in another state, you must pay the "use tax" on those servers. If you buy a bag of peanuts in New Orleans but don't eat them until you're in Washington state, you owe the Washington State Department of Revenue 1.5% of the cost of the bag (Louisiana has a 4% sales tax, compared to Washington's 6.5%):

Use tax is a tax on the use of goods or certain services in Washington when sales tax has not been paid. Goods used in this state are subject to either sales or use tax, but not both. Thus, the use tax compensates when sales tax has not been paid. Use tax is due at the rate where you first use the article, not where the sale takes place.

Note that this puts the burden of accounting for use tax on the purchaser, not the seller. No wonder it's usually only applied to businesses, but that's selective enforcement.