Internet Sales Taxes: Who Pays What & When?

[Stephen Tashi]

A recent headline story in the USA is that the Supreme Court decided in favor of requiring online sellers to collect state taxes - subject to certain restrictions on how the state facilitates this.

What determines which state taxes apply? Is it the physical location of the buyer when the sale is made? - or the state where the buyer is a citizen? - or the physical location of the seller? - or something else?

 

[CWatters]

It appears to depend on where the seller has a physical presence see...

https://www.milesconsultinggroup.co...e-their-tax-treatment-to-mail-order-catalogs/

 

[rootone]

If any transaction involving physical transport of stuff happens then sure this makes sense;
Laws which apply locally to the seller should apply.
If there are different laws for the buyer, that is something else. and they should know that.
Once upon a time inquired out of curiosity if a reputable Chinese company sell LSD to me.
Yes they could. but I would need to purchase at least one kg at a cost of around. 2k Euros or Dollars_
The mind boggles.

 

[Stephen Tashi]

It appears to depend on where the seller has a physical presence see...

If the seller has a physical presence in several states, can all those states collect sales taxes on a given sale?

 

[rootone]

I suggest that the state which is the original producer is the responsible authority for taxation or whatever

 

[jbriggs444]

It appears to depend on where the seller has a physical presence see...
https://www.milesconsultinggroup.co...e-their-tax-treatment-to-mail-order-catalogs/

That was the state of things pre-decision. [Note the date in the URL].

Now the landscape has changed. Physical presence is still sufficient to trigger a tax nexus, but no longer necessary.
https://www.milesconsultinggroup.com/blog/2018/06/22/u-s-supreme-court-goodbye-quill-hello-wayfair/

 

[jbriggs444]

If the seller has a physical presence in several states, can all those states collect sales taxes on a given sale?

The typical consumer transaction is FOB destination.

 

[Nugatory]

A
What determines which state taxes apply? Is it the physical location of the buyer when the sale is made? - or the state where the buyer is a citizen? - or the physical location of the seller? - or something else?

It is the state in which the buyer is a citizen, and this is not new. Most states that have sales taxes have always required their citizens to pay a sales tax on all taxable purchases, whether the seller is in the state or not. (In my state this is handled as part of your state income tax filing - there's a section where you declare the purchases on which you did not pay the tax at the time of sale).

What is new is that states can now pass laws requiring that out-of-state sellers must collect the tax at the time of sale. Before the recent ruling, such laws could only apply to those sellers who had a physical presence in the state (which is why you found sales tax added on to some of your internet purchases but not others).

 

[Nugatory]

If the seller has a physical presence in several states, can all those states collect sales taxes on a given sale?

No. The tax is owed by the buyer, to the state of which they are a citizen. The seller is just collecting the tax and sending it on. What's changed with this ruling is that more sellers can be required to do this.

 

[Stephen Tashi]

No. The tax is owed by the buyer, to the state of which they are a citizen.

It that rule only applicable to sales by mail and by the internet? (Whenever I visit another state and buy something, I am charged the state and local taxes of the state where the transaction takes place.)

 

[CWatters]

So how mch paperwork would a seller have to do to pay tax to every state they sell to?

 

[Vanadium 50]

So how mch paperwork would a seller have to do to pay tax to every state they sell to?

Rather a lot. One of the Op Eds following this decision was a complaint that his tax compliance costs were over $100,000, well over his tax liability costs.

 

[Nugatory]

It that rule only applicable to sales by mail and by the internet?

No, but in practice those are the transactions in which sales taxes are most often being avoided, so of most interest to state governments.

(Whenever I visit another state and buy something, I am charged the state and local taxes of the state where the transaction takes place.)

The details depend on your state's laws. For example, my state exempts you from the use tax if you've paid sales tax in another state.

 

[Nugatory]

So how mch paperwork would a seller have to do to pay tax to every state they sell to?

Rather a lot. One of the Op Eds following this decision was a complaint that his tax compliance costs were over $100,000, well over his tax liability costs.

This is a good point. The Court did not rule on whether it was wise or economically sound policy for states to collect sales tax from out-of-state sellers. They ruled on whether the states were constitutionally prohibited from doing so, and concluded that in the absence of Congressional action (Congress, under the commerce and supremacy clauses, has policy-making authority here) they are not.

 

[jim mcnamara]

The US state Oregon has zero sales tax. Washington state has sales tax. Example: citizens of Vancouver, Washington make major purchases (cars, boats, RV's, large appliances) and often grocery shop -- just over the I5 bridge in Portland Oregon. All to avoid sales tax.

The impact to Oregon merchants will be what? FOB on a major appliance should be the delivery and/or installation address.

 

[jtbell]

It that rule only applicable to sales by mail and by the internet? (Whenever I visit another state and buy something, I am charged the state and local taxes of the state where the transaction takes place.)

In South Carolina:

The purchase of tangible goods for use in South Carolina, on which no South Carolina sales and use tax has been paid, are subject to the use tax. Examples include: catalog purchases, goods bought online over the internet, or furniture purchased out of state and delivered to South Carolina on which no (or insufficient) South Carolina tax was paid.
Anyone who buys tangible personal property from out-of-state and brings it into South Carolina is responsible for paying a use tax of 6% on the sales price of the property. Businesses that regularly make non-taxed purchases from out of state report and pay the use tax on their monthly sales and use tax return. A use tax credit will be allowed for sales tax paid and due in another state, if the other state has similar reciprocity with South Carolina. The same rules for sales tax also apply to use tax.

(boldface added)

In practice, I've never heard of SC coming after people for use tax on ordinary out-of-state purchases, e.g. if I buy books or clothing when I visit Asheville or Charlotte, and bring them back to SC. I suspect this would be more likely to happen with a car or other vehicle, which a SC resident would have to register in SC even if he bought it in NC.

 

[BillTre]

I live on Oregon and once when I went to Seattle (in Washington state) and made a purchase, the clerk told me I didn't have to pay the Washington state sales tax.
I was surprised. She said it was not widely known, but true. (I did not pay the tax that time).
As I recall, it had something to do with some agreement between the two states. Or maybe it was to promote Oregonians making purchases in Washington.

Also I guess I should not have to pay sales tax on any internet purchases (which I don't recall doing)!

 

[jbriggs444]

Also I guess I should not have to pay sales tax on any internet purchases (which I don't recall doing)!

It is the customer's responsibility to pay sales tax directly to their state when the vendor does collect the taxes on the state's behalf.

[Not that I've ever heard of a customer doing so]

 

[BillTre]

It is the customer's responsibility to pay sales tax directly to their state when the vendor does collect the taxes on the state's behalf.

Point is Oregon does not have sale tax.

 

[Bystander]

[Not that I've ever heard of a customer doing so]

"They want ME to do THEIR bookkeeping for them?" It's "six of one, a half dozen of the other" as far as earmarked public services go --- and, e-commerce can't do everything.

 

[russ_watters]

In practice, I've never heard of SC coming after people for use tax on ordinary out-of-state purchases...

They do in PA, for alcohol from Delaware:
http://www.delcotimes.com/general-n...target-bootleggers-who-buy-liquor-in-delaware

 

[Bystander]

in PA, for alcohol from Delaware:

That's a whole different thing; "State Stores." https://www.google.com/search?q="st...ome..69i57.23682j0j8&sourceid=chrome&ie=UTF-8

 

[BillTre]

I used to live outside of DC (no liquor tax at the time) when I was a kid.
My Dad would make trips into DC to buy booze, but felt he had to take a circuitous route back home to avoid detection.

His Dad did similar things when they lived in Detroit and went south into Windsor, Canada (a good trivia question) to get alcohol.
Part of the great American tradition of avoiding the tax man.

 

[russ_watters]

That's a whole different thing; "State Stores."

In PA we see it as an extreme case of the same issue: it's about collecting taxes from us.

 

[Nugatory]

It is the customer's responsibility to pay sales tax directly to their state when the vendor does collect the taxes on the state's behalf.

[Not that I've ever heard of a customer doing so]

North Carolina's income tax form requires you to declare the amount you spent on untaxed out of state purchases during the year (or to declare a default amount that the Department of Revenue calculates on the assumption that your spending habits are average for your income). It's unlikely that declaring that amount to be zero will get you audited, but if you are audited for some other reason and it's zero they're likely to challenge it.

 

[Bystander]

In PA we see it as an extreme case of the same issue: it's about collecting taxes from us.

They still lining up state troopers to play "Untouchables?" Blue Hens used to complain about trooper traffic jams across the line into Pennsylvania --- you don't suppose that's the original motive behind the Mason-Dixon Line, do you? I know there were "ticket wars" between Delaware and Pennsylvania troopers on a fairly regular basis while I was in grad school.

 

[Stephen Tashi]

In practice, I've never heard of SC coming after people for use tax on ordinary out-of-state purchases, e.g. if I buy books or clothing when I visit Asheville or Charlotte, and bring them back to SC.

Amd on those purchases you probably pay NC state taxes plus and NC city and country taxes - correct?

 

[jtbell]

Sure. If I decided to declare those purchases on my SC tax return, and pay SC tax on them, I could then claim a credit for the NC taxes that I paid, assuming that NC and SC have a reciprocal agreement about this, as mentioned in the quoted reference. That way I wouldn't pay sales/use tax twice on the same purchase.

I suspect that in practice the credit would pretty much offset the SC use tax so the net change in my tax bill would be nearly zero. I wonder if SC would then ask NC to pay them the credited amount? The same considerations would presumably apply in the other direction for purchases made in SC by NC residents.

I'll have to look through the instructions for that section of form SC-1040 to see what actually happens. I've never actually declared sales/use tax myself (or have TurboTax do it).

 

[Averagesupernova]

I live in a state where there is a sales tax on EVERYTHING and no state income tax. Any vehicle that has a title gets sales tax paid on it in my state regardless where it is purchased. The tax is paid at the time the title is transferred. I have been hooked for large purchases that I have made out of state. I am talking about up to $100,000 purchases. Neighboring states allow my state to come in and audit their books and find customers who have bought out of state and then collect the sales tax from the customer. I also cannot understand why neighboring states bend over backwards to allow my state to do this. I also cannot understand how one state can expect another to collect sales tax for them at no cost. To me this is a recipe for a total mess. What if I am a small seller in my state and I fail to collect another states sales tax? I don't see how this can be enforced unless it all goes through something federally.