Do I Have to Collect Sales Tax for Out-of-State Sales?
It depends, and it's complicated.
State governments would like to collect as much sales tax as possible and, with declining revenues over the last several years, are looking to every possible source. One such source is to charge sales tax on purchases made by their residents and out-of-state businesses.
States are becoming more aggressive in pursuit of revenue and are reaching even further than before. You must collect, file a report and remit sales tax in a state where you are considered to have a presence or "Nexus." Here's where it gets tricky. Nexus is defined differently in each state and sometimes quite obtusely.
For instance, any one of the following might create Nexus requiring you to collect, report and remit sales tax for sales in that state, should you have this type of connection to that state:
- An office
- A warehouse
- An employee who solicits business
- An independent contractor working for you
- An Internet sale
And, believe it or not, the following also are being implemented or considered:
- Trade show attendance
- Payment or credit card processor is in that state
- A marketing affiliate (such as income from a click through revenue source) is in that state
These laws are known as "Amazon Laws," named after the Internet marketing giant. The reach is wide, but it will remain to be seen which parts are upheld in court as various challenges arise.
Suffice it to say that you, as a distributor, need to be aware of these developments.
To determine if you need to collect sales tax for a state, get in touch with its revenue department and ask for the definition of Nexus in the state. There also are several companies out there that specialize in keeping current with each state's sales tax laws—as it is a full-time job. You would be wise to look at your sales to see which states might require you to collect and remit sales tax to them—keeping in mind that the definition is ever-changing.
Please email accounting questions you would like considered for the column to HGatter@AccountingSupportLLC.com with the subject line of “Ask the Accountant.”
Harriet Gatter, owner of Accounting Support LLC, was an ad specialty distributor for 23 years and an adjunct professor of accounting at Neumann University. She sold her ad specialty business in 2012, became certified as a QuickBooks ProAdvisor, and now works exclusively with ad specialty distributors nationwide on their QuickBooks, order management and accounting needs.