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Drop Ship Sales Tax
Can it be avoided?
iJeep

10+ Year Member



 
Msg#: 4631 posted 5:03 pm on Dec 19, 2005 (gmt 0)

A few of my suppliers (especially those in California) are charging me sales tax for orders drop shipped within their state.

The result is a loss of thousands in profit. It is very difficult if not impossible to keep track of the tax rates of the area of all my suppliers warehouses and figure out what to charge a customer.

Not to mention the rare cases when a customer who has a billing address in my state gets charged my state's sales tax and then I get charged another states sales tax because the customer has the order shipped out of state. That is double taxation.

I have been told by my suppliers that I need to get a retail certificate for each state they each have a warehouse in.

I am confused because when I goto California's sales tax info site (http://www.boe.ca.gov/info/reg.htm#sales), it says I need a permit if:

* Are engaged in business in California and
* Intend to sell or lease tangible personal property that would ordinarily be subject to sales tax if sold at retail.
* Will make sales for a temporary period, normally lasting no longer than 30 days at one or more locations (e.g. fireworks booth, Christmas tree lots, garage sale).

I don't think that applies to me because I am not engaged in business in California, I am engaged in business in Missouri.

Does anybody have helpful information to add to this?

 

FalseDawn

5+ Year Member



 
Msg#: 4631 posted 6:32 pm on Dec 19, 2005 (gmt 0)

I think you are doing something wrong somewhere. As far as I understand it, you only pay sales tax on orders shipped to the same state as your primary business is located. Don't know why you are paying twice.

I don't think you should be charged sales tax from your dropshipper, since you have a "reseller" agreement with them to collect the sales tax yourself (via your TaxID) - at least that's how I understand it to work.

iJeep

10+ Year Member



 
Msg#: 4631 posted 6:51 pm on Dec 19, 2005 (gmt 0)

That's how I understand it too.

Also, items purchased for resale should not be taxed.

It's hard for me to believe I am the only one running in to this.

jsinger

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 4631 posted 7:30 pm on Dec 19, 2005 (gmt 0)

Two years ago, I had the same problem drop shipping from a California manufacturer to an end user in California. The manufacturer insisted on charging sales tax. I protested. But California law seems to require it.

Our firm has zero presence in California.

Easy_Coder

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 4631 posted 7:32 pm on Dec 19, 2005 (gmt 0)

I'm not in CA but the company I work for has a physical presence there and w/o a reseller certtificate we have to charge sales tax for orders shipping into that state and then report it the CA.

LostOne

5+ Year Member



 
Msg#: 4631 posted 7:46 pm on Dec 19, 2005 (gmt 0)

"I have been told by my suppliers that I need to get a retail certificate for each state they each have a warehouse in. "

You're not alone. If we sell to a resident of Texas as an example and it ships from Florida(our home state) the wholesaler charges us the Texas sales tax, because they have locations in that state. We also have been told to contact each individual state they do business in for an exempt resale certificate. Doesn't make sense to me and it's taken forever to do.

iJeep

10+ Year Member



 
Msg#: 4631 posted 7:54 pm on Dec 19, 2005 (gmt 0)

Yes, it seems backwards from the information on the state's website's.

So are you saying that you were able to get a resale certificate and stop the sales tax?

If so, were you able to recoupe past tax collected?

john_k

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 4631 posted 3:49 pm on Dec 20, 2005 (gmt 0)

First, if this is in fact a matter of several thousands of dollars, then you need to speak with an attorney or accountant that is versed in California tax law.

I am not either of those, but here is how I understand it:

From the drop-shipper's perspective, you are a retail customer because you have not provided them with a tax certificate indicating otherwise. Since they have a presence in the state that THEY are shipping to, they are required to collect sales tax on the sale.

The certificate is your statement that you are purchasing the goods for resale (not for consumption by your company). And that you will collect and report applicable sales taxes.

If they are audited, they need to be able to produce one of these for every sale they make:
- Evidence that they collected and reported sales tax on the sale
- A tax certificate for the purchaser indicating they intend to resell the item(s)
- Proof of tax exemption for the purchaser (schools, out of state address, etc.)

There may be others, but the point is they don't have any wiggle room to negotiate this or give you a pass on the requirement.

The methods are different, but each state essentially has similar rules. And they boil down to this: They have proclaimed themselves entitled to taxes on every purchase made within their state. The tax is paid by the purchaser. However, in order to make it easy on the purchaser (and easier to collect the tax), they generally require the seller to collect the tax on behalf of the state. If you make sales within their state, or make internet sales to customers in their state and have ANY presence there, then you fall under this mandate and MUST collect the tax. If you make sales to residents of the state via the internet, and you do not have a presence, then you are not required to collect the tax. (the purchaser is supposed to report and pay it themselves)

Ratdog

10+ Year Member



 
Msg#: 4631 posted 2:07 pm on Dec 21, 2005 (gmt 0)

This is how I understand the law in California regarding taxes: If you drop ship to a California address from a California distributor or manufacturer, tax applies - in other words, they charge me tax. Also, the State of California attempts to require a resale certificate to anyone who sells products in California regardless of what state your business is located in. So when I drop ship to California from a California distributor, they charge me tax and I absorb the cost otherwise I would have to collect tax and submit it to the State of California for every time I sold/shipped to a California address - imagine the extra paperwork and loss of sales if I did this. The only way around paying tax to the State of California is to drop ship from another distributor from outside the state of California or ship to myself and then ship to my customer. We sell products to businesses, we do not charge tax...however, the businesses we sell to are required to pay State use tax which I suspect most companies are not aware until it is audit time...

Barb

5+ Year Member



 
Msg#: 4631 posted 7:48 am on Dec 25, 2005 (gmt 0)

So, what you are all saying is if my drop ship supplier AND my end customer are BOTH in the state of California - then my drop ship supplier charges me California sales tax?

If I do not have any drop ship supplier in the state of California and I do have an end customer in that state, then I am NOT charged California sales tax?

I called my state's Dept of Revenue (North Carolina) and asked about this and they said that the only sales tax I collect (and thus pay) is from my end customers who live in my state (North Carolina). I asked several people at the DoR and they all said the same thing.

FYI - I do provide my state's resellers tax id number to each of my drop ship suppliers so I am not charged sales tax, since they are wholesaling to me.

john_k

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 4631 posted 4:46 pm on Dec 25, 2005 (gmt 0)

Every state has slightly different nuances to when a sales tax is to be charged.

When a person or company makes a retail purchase in the U.S., it is almost always subject to sales tax. The tax authority/authorities of the delivery address are usually going to claim that a sales tax is due. There are generally few issues with this for point-of-sale purchases (in-store) because the sales tax is determined by the location of the store. And the store is always responsible for collecting the tax or retaining proof of a purchaser's exemption.

State tax laws are usually written so that the seller is responsible for collecting the sales tax whenever the item(s) they sell are delivered within the state. Payment of sales tax on items delivered out of the state are the responsibility of the purchaser.

The (apparent) logic behind this is that a seller should be accountable for knowing their own state's tax laws, but not all of the other states' laws. And likewise, a buyer should be accountable for knowing their own state's tax laws.

So yes, for most states in the U.S., when you buy items for consumption (not for reselling) online from another state, you are supposed to be paying sales or usage tax to your own state.

As an extension of the logic I cited above, you are accountable for knowing the tax laws in which you (as a seller) have any physical presence. And you are generally responsible for collecting sales taxes on sales made within those states.

Your drop-shipper is your physical presence in the state. You are shipping to a retail customer. And you are shipping it to them from within California. Therefore the sale is subject to California sales tax and you are responsible for collecting that tax.

The California drop-shipper must have plausible assurance from you that you are collecting California state sales tax on things they ship within California, or they must charge sales tax to you for those items.

So, what you are all saying is if my drop ship supplier AND my end customer are BOTH in the state of California - then my drop ship supplier charges me California sales tax?
If I do not have any drop ship supplier in the state of California and I do have an end customer in that state, then I am NOT charged California sales tax?

I called my state's Dept of Revenue (North Carolina) and asked about this and they said that the only sales tax I collect (and thus pay) is from my end customers who live in my state (North Carolina). I asked several people at the DoR and they all said the same thing.

FYI - I do provide my state's resellers tax id number to each of my drop ship suppliers so I am not charged sales tax, since they are wholesaling to me.

Barb - You need to talk with an accountant or lawyer that knows CALIFORNIA state tax code.

The bottom line is that each transaction is subject to the tax code of EVERY state in which any transaction participant is located.

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