Sales Tax question

QC

Supreme Mariner
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Mar 22, 2005
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22,783
Is the following a true statement?

The Constitution of the United States limits the power of the states to subjects within their jurisdiction. Jurisdiction over interstate commerce is reserved to the federal government.

Or put another way, If I sell something manufactured in Texas and ship it to a Customer in New Jersey, is my business in any way potentially liable for the collection of Sales and/or Use tax in New Jersey? Is this entirely my New Jersey based customer's responsibility?

Please no speculation. This is an actual debate within our Company right now and I want to be sure of my answer. Thanks.
 

dolluper

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Jul 19, 2004
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3,904
Re: Sales Tax question

In Canada if your a business and ship out of province to another province there is no sales tax just federal tax,the person at the other end if also a registered business then no tax is applied ,as long as your invoice has their business number on it,they are then responsible for all taxes collected As we go hand and hand in many things you should ask your regulatory bodies if in fact this is the cause in the USof A
 

Bob_VT

Moderator & Unofficial iBoats Historian
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26,048
Re: Sales Tax question

QC essentially you are drop shipping merchandise. We ship auto parts from the dealership where I work and it is the responsibility of the buyer (out of state) to take care of the taxes.

When I did my income tax last year my accountant asked me if I made any purchases that I did not pay tax on such as over the internet. If a company had collected tax I would have to have a receipt and could claim it on my taxes.

Same thing with the sale of a vehicle.... taxes are paid in the state where it is to be registered and it is our responsibility as the seller to keep records of taxes not collected the same as records of taxes collected. We also inform buyers of that.

Ship a $10000 widget to another state and it is the widget buyer who is responsible.

Want a solid answer...... call the IRS office and State Tax Offices.
 

QC

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Re: Sales Tax question

Bob,

Your understanding is mine as well. However . . . we are run out of the UK and our Accounting dept. is there too. They are well intentioned and have done the right thing and checked into this. Anyway, they have come back and said that a US based lawyer has advised that we have to get it in writing from the customer that they accept all tax liabilities in their state. Personally I think this is foolish as we all have done business this way for years. Also, if that is the case, then we would need a signed document from all of our customers that we "drop shipped" to over the last five years, which I assert is ridiculous and will make us look stupid in the eyes of our customers. I am going to fight this one, because, as a salesman, I insist that we do not look stupid to our customers. I also think we should get our money back from the legal counsel who recommended this, so I want to have my facts straight.

Thanks. Any more back-up from anyone experienced would also be appreciated.
 
D

DJ

Guest
Re: Sales Tax question

QC,

Internet transactions are sales tax free. iboats is a perfect example. However, Congress is feverishly trying to figure out a way to tax this potential tax bonanza. :-(

Sales tax, as I understand it, only applies to vehicles or objects that are to be licensed, in a state. At the time of licensing, a tax is levied.

If you sell a product, to someone in another state, there is no sales tax. Sales tax can only be levied when that product is resold, or licensed, in the state where it ended up.
 

SeaKaye12

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Jul 3, 2005
Messages
1,108
Re: Sales Tax question

The Law in California:

If I (as a consumer) take delivery of something that I purchased on-line (or over the telephone etc.) from an out of state vendor, I still need to pay the tax. There is a line on the Year-end tax form to accomodate this. It's called USE TAX.

http://www.boe.ca.gov/pdf/pub112.pdf

I doubt that very many people are that honest . Even fewer are organized enough to remember all such purchases at tax time. But, that is the law in California. It was enacted partly to recover lost revenue and partly to help merchants in California be more competitive.

I doubt that any of this applies to your exact situation; but I thought it would make interesting reading. I'm a retailer; and very few of my customers seem to be aware of these details.

Chuck
 

QC

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Mar 22, 2005
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22,783
Re: Sales Tax question

Thanks guys. To be clear these are not Internet transactions and are not vehicles. They are engine parts and components. In the example above, HUGE Catalytic Converters. The size of your garage or bigger.

Sea Kaye, Use Tax is my understanding too, but . . . that is the end users responsibility regardless of where it ships, right? The seller would NEVER be liable for "Use" tax, right?
 

arboldt

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Aug 25, 2007
Messages
417
Re: Sales Tax question

Generally speaking, if you have a point of presence in a state and you sell goods in that state, then you must collect the sales tax and remit it to the state.

For example, if I buy something over the internet and the seller is in Michigan (for me) or has any office in Michigan, then they are required to collect Michigan sales tax. If they have no presence in the state, then they may but cannot be required to collect it. Lots of merchants in border areas will collect the tax for their neighboring state.

The trick is to define point of presence. If you have an office, a post office box, a trailer dock or transfer point, a salesman, etc some states have determined those constitute a point of presence.

Other posters have indicated the feds are trying to legislate that online /mail order sellers must collect sales tax regardless. Some big internet merchants are volunteering to do that if the system could be simplified. They're negotiating in order to prevent something even more onerous. Example - when we lived in Missouri 20 years ago, there was a state sales tax, a county sales tax, and a city sales tax. How could a seller determine if I was in or out of the city (whether I had to pay that tax or not) since the city name was used for mailing for a large area outside of the city limits. Quite confusing, and I lived there!

One final thought, as if it weren't confusing enough. When my son worked for a national retail chain in Minneapolis, every so often someone would object to the Minnesota sales tax since they were residents of (for example) Indiana and had their driver's license to prove it. So that store then charged them the sales tax of their home state, not where the transaction took place.

Things that are titles / registered like cars and boats, your home state will collect the tax when you register it -- usually there's a limit like if it was purchased within the last 90 days.
 

Mike722

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Messages
370
Re: Sales Tax question

In Illinois, the way it was explained to us and the research we did was that if the customer picks it up in Illinois they pay Illinois tax. If we deliver it to another state, the customer and our driver sign a form stating that it is being used outside Illinois and was delivered out of Illinois. If we ship it out of state, we must keep a record that it was shipped out of state, (UPS tracking number, USPS receipt, etc).

The customer is required to pay tax acording to their home state, but no form stating that is required.

I believe each state is a little different. When we lived in Iowa, we purchased a couch and chair in Nebraska and paid Iowa tax at the store because we had them deliver it to our house. If we had picked it up at the store ourselfs we would have paid Nebraska tax.

If you buy a vehicle in Indiana you pay indiana tax and then you get a credit form for Illinois and pay the difference to Illinois. IN is 4% and IL is 6.25% so you pay 4 to IN and 2.25 to IL

We were audited a few years back for sales tax and the auditor was giving us different information than a friend of one of the employees who is an auditor. They don't even understand the regulations.
 

MrBigStuff

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Messages
497
Re: Sales Tax question

This goes back to way before the internet. Look at TV ads for mechandise for example. If the company presence is in MI and the buyer is in MI, then they collect sales tax from that buyer. All other buyers are responsible for paying the use tax in their state.

It's always in the fine print on the TV screen, newspaper ad or whatever medium is being used to solicit customers. The internet is just the latest medium to be used to separate customers from their money.

We had some local stores asking your zip code at checkout so they could collect additional county taxes where applicable. Everybody I know memorized the number for the cheapest county...
 

tommays

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Re: Sales Tax question

In NY your "suppose" to pay sales tax on ALL out of state buying :rolleyes:

At one point they were taking down plate numbers at the IKEA in NJ after a LOT of public outcry they backed off


But in reality they can really only get you when you buy and sell things that have to go through the DMV


As far as work at this point i have to file sales tax forms with most vendors i buy parts from in the NY,NJ,CT area that state the use of the part and the fact that are prodiucts are resold and taxed when they reach the store


Now are biggest TAX nightmare is Alcohol as the goverment seems to think every 55 gallon drum (of thousands per year) has 55 gallons in it :)

Generaly there is a BIT extra and we have to prove were NOT running a still

Tommays
 

Drowned Rat

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Jan 20, 2004
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3,070
Re: Sales Tax question

This is confusing.

So, if I buy something from iboats (I live in Arizona) I'm supposed to pay tax on the item to Arizona?? Not that I'm going to do that, but if I wanted to, how do you do it? If that is indeed the law, why isn't there more effort to enforce it?

I always thought retailers wanted your zip code so they would know where their customers were. So they could market that area more heavily. Can you refuse to give your zip code?

The man gets you at every turn!
 

QC

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Mar 22, 2005
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22,783
Re: Sales Tax question

This is why they have the terms "Sales and Use tax". If you buy it somewhere else it is not a Sales tax, but they can ask you to report "Use" tax in some states . . . I don't believe all states have a Use tax.

My question remains the same: is there any case where "Use" tax would be the responsibility of the seller? I submit by the use of the term "Use Tax" it is ridiculous to ever consider that a responsibility of the seller. He/she doesn't "Use" it . . .
 

Mike722

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Messages
370
Re: Sales Tax question

Rat,

Part of the Illinois income tax form has a place to list all internet and out of state purchases and you pay the sales tax with your income tax. Each state would be different.
 

SgtMaj

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Nov 19, 2007
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1,997
Re: Sales Tax question

QC,
To answer your question, I would need to know if you have any buildings in New Jersey, and in what state your business is incorporated. If you do have a building in NJ, then you would be responsible for collecting sales tax, even though the product was drop shipped from the factory in Texas. Otherwise the answer will vary by state.
 

jay_merrill

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Dec 5, 2007
Messages
5,653
Re: Sales Tax question

Please no speculation. This is an actual debate within our Company right now and I want to be sure of my answer. Thanks.

You are in the wrong place to be asking this with the expectation of a certain answer. I suggest that you contact your CPA, your attorney, or both.
 
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