In this episode, we're going over the extremely exciting topic of sales tax.
What is sales tax?
What's a use tax?
When do you charge sales tax?
What about online sales and sales tax?
We cover these questions and more in this episode.
Disclaimer: The information for this episode is a combination of things I've learned and resources (listed at the bottom of this description). Sales tax laws vary depending on the jurisdiction and can change quite often. I'm not a tax professional, so please don't use the information in this episode as a substitute for speaking with a professional.
Corrections: I found three mistakes that I made when going back over the episode.
1. Around 24 minutes. The example used to describe a use tax. I said that if I travel to Ohio to buy a shirt and I don't have a presence in Ohio, then sales tax wouldn't be charged and then I would owe a use tax in the state of Texas (where I live).
This example is incorrect. If I traveled to Ohio to buy a shirt, I would pay sales tax wherever I purchased the shirt in Ohio. No use tax is owed. I should have said that I buy the shirt online from a store in Ohio and sales tax is not charged. Then I would owe a use tax in Texas, because I'm 'using' the shirt in Texas.
2. At around the 1hour mark on resale certificates. At the end of the episode, I explain how a resale certificate could help a drop shipper from being charged sales tax on an item that they are going to sell to a customer and charge a customer sales tax. I wasn't sure which state the drop shipping supplier would apply sales tax for and remit to. This is my understanding of how it would work...
I'm in Texas. Let's say I have a customer in Florida. I don't have a 'presence' or nexus in Florida so I don't charge the customer sales tax for the shirt. Let's assume the supplier for the shirts doesn't have a nexus in Texas, but they do in Florida. When the customer buys a shirt from me, they don't get charged sales tax. However, I get charged Florida sales tax when the supplier bills me for the shirt that will be sent to the customer in Florida. This is where a resale certificate comes in play. The supplier then would not charge me sales tax, because I'm selling it to the customer in Florida. However, I have to remit the sales tax charged to my customer in Florida to Florida. Since I have to get a sales tax permit to get a resale certificate, I now have to remit sales tax in Florida.
I got confused because I didn't know if the supplier would charge me Texas sales tax (my supplier does have a nexus in Texas) because the supplier considers me the destination of the purchase or do they consider in this case the customer in Florida as the destination of the transaction. From what I've read (included all the resources in this description), the supplier would consider the customer in Florida (where the item is ultimately going to go) as the destination. So I would be charged Florida sales tax. Unless I present a Florida resale certificate. This is based on how I'm selling the t-shirts. Which is print on demand.
3. Regarding the topic of resale certificates once again. I said that as a seller we potentially would have to get a resale certificate for 45 states plus Washington D.C. This is not incorrect but unnecessary. There are 36 states that permit the use of an out of state resale certificate. Texas (where I am is one of them) permits the use of an out of state resale certificate. So potentially one would need a resale certificate from 9 states (10 for me with one from Texas) and Washington D.C.
The topic as sales tax is extremely confusing. As you can see, there's a lot that I get wrong and still don't understand. My intent is that this can serve as a general guide to help you all out there understand sales tax better. However, do your own research and please correct me if I get anything wrong.
Questions/Comments:
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Resources:
https://www.salestaxinstitute.com/sales_tax_faqs/what_states_impose_sales_use_tax
https://comptroller.texas.gov/taxes/sales/use-tax.php
https://blog.taxjar.com/charging-sales-tax-rates/
https://blog.taxjar.com/sales-tax-nexus-definition/
https://www.ncdor.gov/taxes-forms/sales-and-use-tax/remote-sales
https://thetaxvalet.com/blog/where-should-dropshippers-get-sales-tax-permits/
https://www.bigcommerce.com/blog/resale-certificates/#undefined
