Sales tax collection

[hutchins13]

My question is specifically regarding New York state in the US, but it would be interesting to know how other states operate.

My question is this... If I sell a product to a customer out of state but ship it to an in-state address, do I have to collect sales tax?

And what about the opposite? I sell to a person in-state, but ship it out of state. Do I have to collect sales tax?

[mivox]

I think in any state it's based on where the buyer lives, not where the product is shipped.

I could be wrong though. I'm lucky enough to live in a non-tax area, so I don't have to figure that one out for myself... (yet)

[Laisha]

That's correct.

If you are in New York and sell to someone in New Mexico, for example, you need to charge NM taxes.

The moratorium on internet taxes expired nearly unnoticed just after the WTC bombings, so states are now reconsidering taxing for Internet sales.

[mivox]

The moratorium on internet taxes expired

ACK! I HATE the way they let things sneak through the legislature behind big headlines.

Although, it seems to me that Internet taxes should work the same way as catalog sales, wherein you only need to collect/pay taxes if both the vendor & customer are both based in the same tax area...

[Laisha]

Actually, while I know that's the case for NM, I am not certain it's the same for all other states. I sell services, and since NM requires sales tax on services, that's the only one I have to be concerned with.

There is an informative article here [bcentral.com], and I'm digging for more.

[Added]:

Aha! NoLo [nolo.com] has a definitive article on it.

[Conard]

If you are located in New York State...You have to charge the sales tax for the ship to address. Including sales tax on shipping.
If someone in N.Y. orders a product and has it sent to New Mexico you are not liable for any sales tax, unless you have a physical presence in New Mexico.
If someone in New Mexico makes a purchase and has it shipped to a N.Y. address, you have to collect N.Y. tax based on the county it is shipped to.
It gets much worse. There are different taxes on items of clothing and for every county and some cities.

[tilt]

> The moratorium on internet taxes expired
Not true.

Well, it did expire, but it has since been reinstated and extended. It's been extended for two more years.

[mayor]

The moratorium being talked about here has nothing to do with sales taxes on goods sold over the Internet.

The moratorium is on taxing Internet usage.

As I understand it, goods sold on the Internet are subject to state sales taxes in much the same way as states tax mail order sales.

[Laisha]

I asked my accountant last night to clarify why it is I only pay sales tax when I sell to a NM client, and she explains that it is because technically, I have a "presence" there. So I went back and read up on it.

Amending my NY -> NM statement:

From the reference above, NoLo [nolo.com]:

>The obligation to pay sales tax is determined by the location of the buyer, not the seller. If a business does not have a physical presence in a particular state, such as a store or warehouse, it is not required to collect sales tax for sales from customers in that state. In legal speak, this connection between sales and location is referred to as a "nexus" and was established by the U.S. Supreme Court in Quill v. North Dakota, 504 U.S. 298 (1992).

There are details and exceptions below that, of course.

In other words, the example I gave applies to me, but probably not to you, unless you live in one state and pay income taxes in NM.

And just so it's out there, Ivan Hoffman's site [ivanhoffman.com] provides a lot of legal information.

Apologies for any confusion.

[Tapolyai]

I just a memo from my accounting dept. stating that "the purchase of services related to software is not subject to Ohio sales tax, if they are clearly separated and identified". We already got $27K credit back from vendors.

There might be similar state level reliefs in the other states.

[mivox]

So, like I thought, unless the buyer is a resident of the SAME sales tax area wherein the seller has a "physical presence," the seller does not have to collect sales tax.... If the seller only has a physical presence in an area with no sales tax, they don't have to collect a sales tax from anyone.

However, according to the NoLo article mentioned above, if a buyer in a sales tax area buys from a vendor outside the area, while the vendor doesn't have to collect sales tax, the buyer may be technically liable for paying a "use" tax to his own sales tax area...

From the NoLo link:

If you live in a state that collects sales tax but avoid paying it on an Internet purchase, you are still required to pay the tax to the state. When you pay it directly to the state, it is referred to as "use" tax rather than sales tax.

The only difference between sales and use tax is which person -- seller or buyer -- pays the state. Theoretically, use taxes are just a backup plan to make sure that the state collects revenue on every taxable item that is purchased within its borders. But because collecting use tax on smaller purchases is so much trouble, states have traditionally attempted to collect a use tax only on big-ticket items requiring a license, such as cars and boats.

[hasbeen]

There's the rub, Mivox...Use tax. If the Legislature can't agree on a sales tax of goods bought over the internet, my gut feeling is the states will start going after the use tax. We already had a customer who lives in Florida billed by Florida's DOR for products she bought on our site (we're based in Arizona). Seems the freight company that delivered it had to file tax on service they performed (or something like that) and the DOR went after the addressee! Factor that into your tax discussions, kiddies. Use tax + sale tax = nightmare!

[rcjordan]

>states will start going after the use tax
>
Heh! Now you're really opening up something that's little understood. North Carolina has been fine-tuning this at the consumer level for 2 years now.

>Seems the freight company that delivered it had to file tax on service they performed

Yep. It's a common way the state revenue offices check for likely large-$$ deliveries. Mentioned here [webmasterworld.com], some time ago.

[mivox]

Well, speaking from the vendor's perspective, the use tax is all well and good to me. (Speaking as a buyer in a sales-tax free area, it's doubly well and good!)

But if I lived in a sales-tax area, and did a lot of purchasing online, I'd start a file of invoices from my online purchase deliveries.

[rcjordan]

>I'd start a file of invoices from my online purchase deliveries.

A wise move. In NC, purchases subject to use tax now have their own line-item on the state income tax form. You have to specifically list your out-of-state/online purchases. Even a novice programmer working for the dept of revenue could devise a cross-check of income levels and demographics and compare it to the amount declared to sniff out suspects.

[hasbeen]

>In NC, purchases subject to use tax now have their own line-item on the state income tax form. You have to specifically list your out-of-state/online purchases.

I believe AZ has the same thing...at least I think my CPA mentioned it at tax time last year...couldn't hear him through my sobs!