Drop Ship Sales Tax

Vendor charging sales tax eventhough I am a reseller

[jeffswaves]

My question is this:

My company is located in California. I have a customer in California that purchased an expensive item from me. I used a vendor in Utah to fulfill the order. I sent the vendor my California Reseller Permit. The vendor ships the customer's order directly to Las Vegas, NV for a trade show. Vendor in Utah wants to charge me sales tax. Is this correct? I am a reseller and would think that I don't need to pay sales tax. Also, they blind shipped the order to Nevada. What do you think? Thanks, Jeff

[LifeinAsia]

If it's shipping to Nevada, I don't see any reason to charge CA sales tax in the first place.

[jeffswaves]

Well, they are trying to charge NV sales tax

[MrHard]

If vendor has a physical business location in NV then they can charge you NV sales tax, unless you have a NV sales tax exemption.

Blind shipping is irrelevant.

[jeffswaves]

Even if I am a reseller with a CA reseller permit?

[jeffswaves]

Also, they do not have a physical location in Nevada, but they claim they have a "Nexus" (marketing presence) there.

[RhinoFish]

They're being overly conservative in their actions, in my opinion.

Likely, they sell direct, so they usually charge sales tax for items that ship to NV. But Retail Sales Tax is usually charged only to the final end user - in this case, they are mistaking that label. They aren't selling to the final end user, but to you. The Sales Tax burden falls on you, not them. But since they usually collect sales tax for shipments to NV, they're doing it out of habit. They are behaving as the seller - but they're the supplier, you're the seller.

I've seen this happen before. And it'll be very hard to get them to change because somewhere along the line they're accountant told them to charge tax on anything they ship anywhere they have a nexus. Their accountant needed to add "and where you're the seller" for clarity.

This is the whole point of you providing them with the reseller certificate.

I'm not a lawyer, or tax accountant, but there certainly may be other things that complicate their determination. Nevada may have some rules about selling stuff at the convention on the floor of a show that requires them to collect sales AND use taxes and report them to NV, or any number of crazy gotchas.

But generally speaking, I think they're playing it safe by avoiding answering the question of whether they are the seller or a wholesaler.

Are you sure they're a legitimate wholesaler? (Not implying shenanigans here, but I mean do they themselves have their biz properly registered in the states where they do business... are they a reseller themselves... these types of anomalies)

[HRoth]

If the customer is in CA and the seller is in CA, which you say you are, then you have to charge the customer CA sales tax even if you ship it to another country. You apparently didn't charge the customer CA sales tax.

[jeffswaves]

Thanks for the prompt replies.

RhinoFish- Yes, they are definately a legitimate wholesaler and a rather large company. As far as shenanigans, the only thing I can think of is that they might be wanting to add to their bottom line using this method. It's hard to tell, but I would rather my profit not go to the state of Nevada or grease their bottom line. They let me know today that I was correct and they are issuing a refund of the sales tax amount. They say that the state of Nevada is ok using a CA reseller permit, but other states vary. So, now I am left not know the tax laws for the rest of the 48 states! Ugh!

Thanks all

[LifeinAsia]

The buyer is taking delivery outside of California. For all you know, the customer has no plans to use the item in California. I see no reason CA sales tax should be charged.

If the customer later intends to bring it back to California and use it there, then the customer is liable for paying the Use Tax on it. But it's not your responsibility at that point.

[jeffswaves]

I just received this email explanation. Can anyone take a look at it and see if it makes sense to them given the above description of this issue? Thanks

<snipped>

[edited by: lorax at 4:56 pm (utc) on Mar 6, 2010]
[edit reason] no email snippets pls - see TOS [/edit]

[LifeinAsia]

Head spinning...

And as more and more states continue to spend themselves into oblivion, the grabs for more tax money are just going to get more complicated.

[MisterT]

jeffwaves, i'm not sure but i get the feeling your wholesaler is mistaken. it is the job of the retailer to collect sales tax, not the wholesaler. i don't know of any need for a retailer to have a resale permit in every state they ship to. you just need a resale permit in the state(s) you do business in. (again, i'm not sure but this is my understanding)

[jeffswaves]

LifeinAsia- I agree completely

MisterT- That's my understanding as well.

[MisterT]

jeffswaves: additionally, if the wholesaler is charging you the sales tax, you do not need to also tax your customer. as i understand it, sales tax only needs to be paid once. (or at least in California that is how it works)

[MrHard]

That means that in order not to charge our customer tax we need a resale certificate from the state we shipped it to

If they owned a distribution warehouse, or directly employed staff in the state it was shipped to state it is a nexus. You will need a tax exemption certificate for each state.

NV uses a CA permit. I don't see how this is possible to keep books straight. NV would have to use your CA permit number to find out where you live, whether you paid your NV tax and cross check with Federal Tax return amount by going through CA tax board records?

[HRoth]

If the customer ordered the item from within CA, that was his billing address, even if he ships it to Russia, he has to pay sales tax in CA. This is how it is in NY. The only way he would have to pay sales tax in NV is if he ordered it from there, even if he was just visiting or there for five minutes. The sale didn't occur in Nevada, so the sales tax of Nevada doesn't apply, even if it is shipped there. The sale occurred in CA.

Re the sales tax resellers cert, sometimes IME these distributors get confused about its purpose. I've been told, for instance, by a distributor in another state that I have to give him my sales tax number. No, I don't. There's no point in him having that on his records, because it is there not to protect him from oversight about NY state sales tax but about sales tax in his own state. For me, in fact, when a distributor in another state asks me for my reseller's ID number, I know he is basically full of baloney and doesn't know the law. He is just trying to sift out regular retail customers from he hopes will be bulk buyers by requesting a reseller's number from everyone, regardless. These people I don't do business with.

[MrHard]

I have to give him my sales tax number. No, I don't

You don't HAVE to do anything, but getting into a spat with the hand that's feeding you is rarely a good idea, unless you really want to drive your principle home I suppose. The email explanation has been censored, but I read it first. I read it before the moderators deleted it off because it was bad. It's not the kind of correspondence I would consider pushing back with with someone I had to work with or needed info from in the future. Deleted if off.

[LifeinAsia]

HRoth-
Apparently CA tax laws are different from NY. A California resident only has to pay sales tax if:
1) he purchases it from a B&M business in California, or
2) from a company with a nexus in California for delivery in California.

No sales tax is due if the delivery is outside of California. If delivered outside of California (or purchased at a B&M outside California) and the customer brings it back to California to use in the state, then the customer is subject to a Use Tax (usually equal to the sales tax).

[HRoth]

They're sure more liberal about it than NY is. NY is a very taxing state. In many ways.

[MrHard]

Is it ok if I get hard?

[HRoth]

I don't know. Go ask your wife.

[samc]

I know a few distributors in California who have been sued over this issue and essentially CA has made them be the tax collector. They now charge tax in just about every bloody state and will not ship into some without a resale certificate for that state. Ingram, Tech Data, Bell Micro. It's been that way for awhile and it's getting worse as CA. tax revenue continues to plunge. It's frustrating for the reseller but imagine the distributor who gets hit with an audit which typically happens when millions of dollars are at stake for unpaid taxes. Settlement always happens. Always.