The final word on interstate sales tax

[digitsix]

I have a client, and this is the first time that this has happened in 10 years of doing this, that swears up and down that the great state of California makes them file sales tax for for EVERY SINGLE COUNTY in their state, all of which has different rates. The company is not even located in the western half of the united states and the only link they have to the state is a "sales rep" that works/lives in cali.


To accommodate the situation I created modified my original tax by state db table to include a column "dobycoutny" which is 1 or 0, and then flipped it to 1 for California.

I then created another table "taxbycounty" with columns ID,STATE,COUNTY_NAME,TAX_RATE, then populated this table with every single county name (in upper case), for example:

1, CA, ALMEDA, 9.5

After setting this up I had to modify my checkout system to detect when the user enters a shipping state of California, then insert an additional step asking them to select from a drop down box, of all the counties listed for California (populated from the db). The user picks theirs and continues, tax is applied to the order based on the county tax rate of the county the user selected.


That being said....


The client forced me to do this in-spite of my pleas to further research the legitimacy of this.

I have not been able to verify this is legit but it seems ridiculous to me.

How does California, expect a company in Ohio, to keep track of all the current tax rates of their different counties and file all these tax forms for every single Cali county at the end of the year.

The company is in OHIO, yet OHIO only makes them collect the tax rate of their local county for ALL Ohio orders, irregardless of which county the customer is shipping the package to.

The reason for this post is that I would like to put a finalized tax management module in my shopping cart system and I cannot do that until I fully understand whats required of this module.

Is this legit? Or could they tell cali to go-f-them-selves? And what would be the repercussions of just charging a base sales tax rate for the whole state, and how would one find out what rate that should be?

Help with this is greatly appreciated!

[jwolthuis]

The State of California appreciates your clients' candor. I'm sure he'll reap the benefits of California's windfall.

A single "rep" located in CA doesn't establish nexus. He has no liability to collect a dime of any of the hundreds of CA taxes.

But lets suppose that he did have nexus (any accountant/lawyer would take this very-safe stand. After all, it's extra business for him). In that case, he's required to collect taxes for buyers in that state, specific city, and specific county where the rep lives / has an office. Not the other hundreds of other cities and counties in CA.

Fianlly, taxes are based on the "shipping" address, not the "billing" address. (You can go 12-rounds with folks that will argue the opposite). It's the whole, "buyer in Michigan buys a computer made in Texas, and has it shipped to his father in Arizona"-argument. The father in AZ pays use tax. Neither the seller in TX nor the buyer in MI owes a dime in sales taxes.

[digitsix]

Still spinning my wheels with this.

Can anyone clearly explain to me when you DO have to charge sales tax by the county / locale of where the package is being shipped /andor/ billed to?

I've read people say that if my nexus is in city/county X in california, but I ship to city/county Y in california I have to charge the sales tax rate of city/county Y...

I also read in that same scenario I would just charge the state sales tax for all counties other than my own.

Which is correct?

Now consider this: My nexus is not in california at all, what law is there that says I have to collect sales tax for each order shipped to california, based the local sales tax rate of each individual order's shipping address, rather than just the state wide sales tax rate?

As for an update, apparently the client above in question does a lot of business with state governments, which is how they keep getting black balled in to all this extra sales tax jazz...

State z has a bid for contract out on materials. They bid, state z says oh wait you havent been reporting sales tax in our state, so you have to set up a tax id with us and start charging sales tax in our state or you cannot bid on our invoices. etc.

[incrediBILL]

Not sure why anyone would fuss trying to implement this from scratch when there are easy plug-in services available such as Avatax and some others that provide this:
[avalara.com...]

[digitsix]

^^ Looked over the site and did not see once price, is it free or what? lol I doubt it.

Anyway, right now I'm not so much trying to fuss with implementing it, as I have a crude way implemented at the moment... I'm more or less trying to fully understand the logistics behind when the local sales tax rate of where the order is shipping is applicable to the sale, when just the state sales tax is applicable and when no sales tax is applicable. It seems understanding something so trivial is impossible.

[incrediBILL]

Um, they had a price page for ProStores at least, should give a clue:
[avalara.com...]

The upside to a service is they maintain all the crazy tax rates, lotta work.

[jwolthuis]

Can anyone clearly explain to me when you DO have to charge sales tax by the county / locale of where the package is being shipped /andor/ billed to?

I've read people say that if my nexus is in city/county X in california, but I ship to city/county Y in california I have to charge the sales tax rate of city/county Y...

You collect X taxes for customers located in X; where your nexus is (assuming a "rep" constitutes a nexus, which is a stretch).

You are under no obligation to collect Y taxes. It's actually quite simple, and no plug-in service is needed.

Here's why the confusion: If you ask any accountant/lawyer, they will advise you to collect taxes for everyone/everywhere, all cities, counties, and 50 states. It's safe advice, and more business for them.

[LifeinAsia]

Did you try contacting CA's Board of Equalization directly and asking them? Whatever their answer is, push them to cite the relevant part of the tax code (and verify it yourself) so you have it for reference for your client and if you ever get audited.

Getting the correct information from the horses um... mouth... is always the best bet.

[arieng]

A single "rep" located in CA doesn't establish nexus.

I'd try checking this with a tax attorney. I've been doing a lot of research on this and I think a single rep. (especially if they are an employee) in the state of California would establish nexus. Heck, in some states a single web affiliate is sufficient to establish nexus.

Unfortunately, I think your client is right. They have to collect CA state sales tax.

[dpd1]

The whole 'collection' thing is so screwed up now, I have no idea whether they should or not, based on the info you gave. But as far as the district to district thing goes... Yes, believe it or not, that's what they do. You are supposed to check each district to see what the percentage is, and then charge that. The funny part is... Most of the businesses are going to be based in the highest percentage areas. So if they did it by where you are located, they'd probably make more money. But of course they're not smart enough for that. I will maybe have lousy $300-400 of taxes to pay this year. I don;t sell to CA often. They insist I do it that way AND no option but to do quarterly filings. I told them... Look, I will pay you an estimated amount for the whole year in full right now, ahead of time. Nope. So I get to do about three hours of work four times a year, to pay about $65 in taxes each Q.

[rocknbil]

I second arieng's motion, but make it an Ohio tax attorney. It sounds like an Ohio issue, definitely not CA.

We just went through this in CA, as CA residents, we got it in writing that we don't need to charge tax for municipalities or counties from our web site - just a single flat rate for any ship-to's for CA. I say "got it in writing" because that's the recommendation of the CA BOA - don't listen to anything anyone tells you on the phone, get it in writing.

We danced around this municipalities issue too, and the bottom line is if you go to some street fair and the tax rate is 8.9%, that's what you charge because you're physically selling there. Come to the street fair near home and you will have to charge 9.2% (or whatever.) But when sold from a CA based site to a CA ship to, a flat rate is all that's needed.

[dpd1]

So you're saying they told you in writing, that a sale made through your site based in CA, to another person in CA, can be charged the rate where YOU are located?

[rocknbil]

For **this** situation, no. My client does not have a physical retail store at the moment and is not in a special district. We can use the statewide flat rate. She chased this for many weeks because she wanted to make sure it was right (and was freaking out about the district taxing issue before she got it sorted out.)

I've contacted the client for the full correct details, but from page 10 of this publication: [boe.ca.gov]

How do I know if I am required to report and pay the district tax for special taxing jurisdictions described above?

As a seller, you must report and pay the district sales tax (called a transactions tax) or use tax on your taxable sales and leases if you:
• Have a business location or are engaged in business within the district,
• Lease tangible personal property that is used in the district, or
• Sell or lease vehicles, undocumented vessels, or aircraft that will be registered in the
district.

You are engaged in business in a district if you are a retailer who:

• Maintains, occupies, or uses any type of office, sales room, warehouse, or other place of business in the district,
even if it is used temporarily, indirectly, or through an agent, or
• Has any kind of representative operating in the district for the purpose of making sales, making deliveries, or
taking orders, or
• Receives rental income from leases of tangible personal property located in the district.

[[cut]]

If your sales or leases are not subject to a special district tax, you should report tax at the statewide base rate, which
is currently 8.25 percent.

Note this is time sensitive and may change tomorrow. :-)

[dpd1]

Ugh... It's all Chinese to me.

[rocknbil]

Well, it's fairly simple (I think? :-) ) Say you're in a district that has a .50 surtax. So the local sales tax is 8.75. You don't have a store ("office, sales room, warehouse, or other place of business") but work out of your home or other non-commercial property in Internet sales only. You can use the statewide rate.

Start doing well, open a store. You're now engaged in business in the district so have to start charging 8.75% in the store. <not sure alert> According to my client, you can still use the statewide rate for Internet sales, but I'd say to be safe you should charge the district rate.

Do not take this as legal tax advice, call up the BOE and hound them for sure answers for a given situation.

[dpd1]

Well, that's the thing... I called twice, and both times I was told I should calculate based on the the district the buyer is in. So if they don't even know what the right thing to do is, I don't know how they expect us to.

[LifeinAsia]

if they don't even know what the right thing to do is,...

That's why I previously recommended that you demand that they cite the exact part of the tax code to backup their answer. If they can't do that, you can't trust their answer. So you need to bump the question up to their supervisor or even higher up until you find someone who actually knows and understands the code to give you the correct answer.

When it comes to dealing with any bureaucracy (government or private sector), always assume that if you ask 3 different people the same question, you will get three different answers (with a good chance that all of them are wrong).

[jwolthuis]

The OP was referring to a "sales rep" in CA; no store, no physical presence other than the location where a single saleman (who may-or-may-not work there next week) sleeps at night. The question of "nexus" applies.

We seemed to have mixed another scenario into this, with a CA-based office. Nexus is established, and tax law is very clear with this scenario.

I hope people reading this thread don't confuse non-CA-based tax rules with those of CA companies.

[rocknbil]

...the only link they have to the state is a "sales rep" that works/lives in cali. ...

...You are engaged in business in a district if you are a retailer who:
.... Has any kind of representative operating in the district for the purpose of making sales, making deliveries, or
taking orders ....

I would see it as being bound to the district in which the rep lives, or at least, it's a ghost I would chase. But again, this applies to CA businesses, I think the situation is compounded by whatever the rules are for retailers in Ohio.