You best bet would be to contact your CPA - or whoever is doing your taxes. Getting advice like this on the forums could potentially be devstating to your business.
There might be a few CPAs on here but you need to have a relationship with them in case / when you are audited.
No legal way out if your shipping point is California. The legal way out is to warehouse outside the state. The warehouse you are using is doing business in California; hence they must collect the tax. If they get audited they will be responcible. We are in State and collect the tax and I do not think we have lost any business.
PS I am not a CPA, but I play one at my company and have been thru seven state audits in the last 25 years. The worst Tax agency is the California Franchise Tax Board. They are brutal. BTW I would not put it past these guys to data mine so you might wanna watch your posts... :)
I can buy from a warehouse in any state and ship to the same state and not collect taxes because the customer is buying from me, not the warehouse and I do not own the warehouse or anything in it. It is irrelevant that the warehouse is in the same state, it is where I am that matters.
Many warhouses and manufacturers will try and collect taxes from you for shipping to the same state becasue they don't know any better and don't care, it is an easy way to cover their butts without educating themselves.
I go by what my CPA tells me and you should too.
The State of California has a website that talks about what constitutes a sales tax nexus in their state.
The part that seems to pertain:
|Maintaining, occupying or using any type of office, sales room, warehouse or other place of business in California. This includes use that is temporary, indirect or through an agent or other representative. |
Is your drop shipper an agent or representative? Your drop shipper obviously thinks they are. Best talk to a tax professional familiar with California and how aggressive their definitions are and what case law may apply.
|I can buy from a warehouse in any state and ship to the same state and not collect taxes because the customer is buying from me, not the warehouse and I do not own the warehouse or anything in it. It is irrelevant that the warehouse is in the same state, it is where I am that matters |
Yes and no.
You can buy from a warehouse in NY, then ship it to NY from YOUR business in Florida and not have any taxes to worry about.
If you drop ship it from the warehouse in NY to a customer in NY, you - or the customer - is probably liable for sales taxes.
Please note that the original poster's question was in regards to California sales tax. Tax laws in other states are irrelevant.
If you ship to a California address, the shipment is subject to CA sales tax, because CA residents are required to pay sales tax on their purchases. Period, written in stone, end of discussion. You want to change it- sue the State of California. The CA state income tax return even has a line where people can declare (and pay the tax) on out of state purchases.
CernyM's posting was spot-on. CA is even going after big companies that don't have operations in CA to get them to charge for any shipments made to CA.
In our case (office in CA), we ordered a server from CDW. Even though it was not going to be used in California, CDW still charged CA sales tax on it. Despite complaining and explaining how it wouldn't be used in CA, they said their policy is to always charge CA sales tax for CA shipping addresses, unless the recipient can produce a tax exempt certificate. So now we are waiting (6 months now?) for our sales tax refund from CA.
LostOne's only real choice for avoiding CA sales tax is to use a different supplier because that supplier, like all other suppliers in CA, is legally obligated to charge CA sales tax to all shipments to CA.
|If you drop ship it from the warehouse in NY to a customer in NY, you - or the customer - is probably liable for sales taxes. |
The customer may be liable, but I don't have to collect the tax from the customer. I ship from NY manufacturers and warehouses to NY all the time and don't have to collect the sales tax and I am not liable for it because my business is in another state.
[edited by: Peter_Cornstalk at 10:07 pm (utc) on Feb. 21, 2006]
|If you ship to a California address, the shipment is subject to CA sales tax, because CA residents are required to pay sales tax on their purchases. Period, written in stone, end of discussion. You want to change it- sue the State of California. The CA state income tax return even has a line where people can declare (and pay the tax) on out of state purchases. |
Yes, the person buying is responsible for declaring and paying it. :)
There is the legal side and the practical side.
Legally, many states require that sales tax be paid.
But on a practical bassis, there are few, if any, mechanics for actually collectinng that tax.
Rats, thanks for your thoughts. It's the only supplier of the product in question. I suppose I could add a seperate price for CA residents on the site. Which looks better in your opinion, a higher price or "California residents add 7 1/2% sales tax?"
The way we get around it is to ship it to our location, then ship it out from here to CA. It puts a 2 day delay on shipments to CA if it HAS to come from one particular supplier. 95% of those situations, people are fine with the delay. We also took a look at the top products shipped to CA last year. We have a small quantity in stock of each item just for CA in our warehouse.
I would reiterate that this is a far more complicated issue that it would seem. There is a fair amount of case law on the topic and yet grey areas still remain.
If you push the envelope, you may find yourself in court having to defend your justifications. Only go as far out on a limb as the risk of being called dictates to be prudent.
Talk to an expert to determine if you have a nexus in a state that would compel you to collect and submit sales tax. Rely on your own personal opinion or that of posters on WebmasterWorld at your own folly.