Sales Tax

[drcollie]

There is sometimes confusion over sales taxes and when they are owed. Basically under the current laws a retailer is required to collect a state sales tax:

1) If they have a business presence in a given state.

2) If the customer takes delivery of the goods in that state.

My store, for example, is only in Virginia. Therefore I only collect 5% VA Sales Tax (by law) for any sale made in Virgina AND the customer takes delivery of the goods in the state.

Out of state buyers are NOT exempt from their state sales taxes, its just the merchant may not be collecting them on behalf of the taxing authority. You still are required to report your out-of-state purchases to your home state and submit a Use Tax on them (equal to your state's sales tax). No one ever does though, unless they are running for public office or work for the Justice Department, etc.

States are scrambling for revenue right now and know they are losing millions in sales taxes from out-of-state purchases. They are looking to get that money on goods purchased and making headway. One of the most ardent champions of defending the sales tax status quo has been Amazon.com. However today I about fell out of my chair when I head on the radio that Amazon has agreed to begin collecting Virgina Sales Tax in September 2013 in a deal worked out with the Governor's office. They are opening two distribution centers in VA (this gives them a business presence in the state) so in another 18 months - Amazon will begin taxing its VA customers.

I think you will see more of this, and the days of not paying sales taxes on out of state purchases may be winding down.

[bubbaonline]

Unfortunately, Amazon has some large distribution centers in my home state. I've been paying taxes on my Amazon shipments for years...

[Sofadoo]

This is interesting. I make a ton of purchases online and I often wonder how much states' revenues have declined due to increasing online purchasing (where no sales tax is collected). Of course the overall economy has been bad-- but it seems like every state is having budget issues these days and online purchasing must be having an impact...

[simplyjeff]

Furniture Today has a front page article in the latest edition predicting that state sales tax for online purchases will be mandatory by the end of this year for all retailers who sell more than $500,000 via the Internet.

The article also says that states and local governments will lose over $11 billion annually from not collecting taxes this year. California alone claims it will lose over $4 billion this year.

Jeff Frank
Simplicity Sofas

[drcollie]

Never going to happen until they consolidate reporting issues. There is no way I'm going to file forms for (50) different states each month! Nor is anyone else - Congress has to get a National Sales Tax going (like Canada) and then distribute to the states. They have to figure out the mechanism to do that efficiently.

[simplyjeff]

There is supposed to be a "simplified reporting system" for small businesses that will reduce the extra workload. I have not seen the details.

Unfortunately now that major online dealers such as Amazon and Walmart with a physical presence in many states are beginning to cave in, most e-commerce experts are saying that the transition is inevitable.

Jeff

[aaron]

I don't think it's so much "caving in" as much as it's established companies creating a barrier to entry that will affect startups and a cost and administrative hassle that will disproportionately affect smaller venders.

How are we defining "via the Internet" in this context? If you start online but finish with a phone call, is that a phone sale or an Internet sale?

[simplyjeff]

How are we defining "via the Internet" in this context? If you start online but finish with a phone call, is that a phone sale or an Internet sale?[/QUOTE]

I don't think it makes any difference. The states want their share of the sales tax on anything shipped into their territory regardless of how the sale is made.

Jeff

[aaron]

That, they do. I was asking due to the specificity of the prior statement that this would apply to "retailers who sell more than $500,000 via the Internet".

How about "the customer takes delivery of the goods in that state" - Does FOB shipping point get around that? "You can pick it up on my loading dock. Here's the number of a company that can get it the rest of the way to wherever you're taking it."

[drcollie]

Sales tax is determined by where the retail customer takes possession of the goods.

Lets say you live in Michigan and come to my store to buy something that I have in stock. Here's the various scenarios:

* Take it with you > Pay 5% VA Sales Tax
* I ship it UPS to MI > No tax collected
* I ship it via LTL Truck or Blanket Wrap > No tax collected
* You send your buddy in with a truck > Pay 5% VA Sales Tax (he is not a licensed shipper that can give me a Bill of Lading)
* I deliver it to the Maryland Hotel where you are staying which is across the river from my store > You pay 5% VA Sales Tax (your delivery address is not bonafide)

As the merchant, I am tasked by the Commonwealth of Virginia to collect all viable sales tax. If the Department of Taxation comes to do an audit, I will pay the sales tax (plus penalty and interest) on any item that I cannot prove was shipped out of state. That's also why I require full addresses and phone numbers for customers out of state on every ticket. As there is no customer going to pony up sales tax in arrears a few years after the purchase, we dealers err on the side of being covered in case of an audit. One thing you don't mess with if you're smart is the State's receivables!

True Story:

Several years ago I bought a Kubota Diesel Tractor ($ 17,000) for use on my property in Virginia from a Virginia dealer. He was higher than the Maryland dealer across the river on the same machine so I simply asked if he would be willing to price match or come close to it, and he did (still $ 200 more at the end total, but that was fine). They delivered the tractor to me and went off on their merry way. Three years later I get a demand letter from them for $ 850 in Virginia Sales Tax, or they will come after me with Collections, etc. Turns out they were audited by the state for shady tax practices and now they were scrambling to get that money they owed the Commonwealth. What they had done - without my consent - was made up a fictitious address in Maryland that didn't even exist in order to lower the price to me! Now they were caught. I told them to go pound sand and never heard from them again....I had thought I had paid the VA sales tax on the transaction, but now they were liable for it, not I.