The rule of thumb is that if you used the items and then sold them for less than you bought them for, then you owe no taxes on the sale. However, if you sold an antique or collectible that had appreciated since you first acquired it, you likely would be on the hook for taxes on the profit. You may be able to get a sales and use tax exemption certificate if your state belongs to the Streamlined Sales Tax Registration System, or go to your state’s revenue department for more information. If the retailer cannot provide their vendor a resale certificate that is valid in the ship-to state, the vendor has no choice but to charge tax on their sale to the retailer. For this article I will address the effectiveness of three following methods. Both of these can be difficult questions to resolve because the rules can vary widely by state.

Taxations across multiple countries that impose either a “GST” or “VAT” are so vastly different that neither word can properly define them. The countries that define their “sales tax” as a GST are Spain, Greece, India, Canada, Singapore, and Malaysia. Most e-commerce platforms look up the customer’s address automatically and charge the applicable tax rate. You’re only responsible for selecting the jurisdictions for which you must collect the taxes. Obtaining federal tax-exempt status from the IRS can be an exhaustive process.

What Is a Tax Sale?

The business or individual selling goods or providing services is responsible for the sales and use tax that the taxing state charges. The sales and use tax, as seen when buying a new iPhone, is often passed on to the customer during purchase and tracked by the seller for end-of-the-year tax purposes. For certain small businesses or individuals selling goods in low amounts, not passing the tax on to the customer may be a business decision to keep the cost of your goods low. If you choose this option, you should calculate the sales tax at the end of the year to determine how much you owe your connected states. If your business uses a piece of inventory property for display or demonstration purposes (“demos”), no sales or use tax will be incurred. However, if you later sell or donate this property to charity, you will almost certainly be hit with sales or use taxes even if the sales price is discounted.

State and local government entities are also often exempt – but not always. The Federation of Tax Authorities (FTA) has a list of all state revenue departments and state taxing authorities. They also have a list of state sales tax rates, including food and drug exemptions. Each state may include or exclude certain products from sales taxes based on their own rules, so the taxability of digital products varies greatly by state. Currently, if a state wants to tax digital products, they label as tangible personal property. Just to show you an example of how complex this product/service issue is, consider the state of Connecticut.

Drop shipments create challenges when a seller isn’t registered in the customer state, but the shipper might be. There are many different factors that go into answering this question depending on what you sell. However, there are some trusty general guidelines to follow that will help you determine whether something is taxable or exempt.

How Can a 501(c)( Also Be Sales Tax Exempt?

Your supplier, assuming they have nexus in the ship-to state, is obligated to charge you sales tax until you can satisfy the state’s requirement for providing a valid resale certificate. If you were charged tax, it means that you did not provide your supplier with a valid resale certificate. If you have nexus in the ship-to state then your company is obligated to collect and remit the tax due. If you have charged tax on the retail sales price of the property sold, then you need to remit to the state the tax on the ‘mark-up’ since you were already charged tax on the wholesale price. In the future, you would be advised to provide your supplier with a valid resale certificate to avoid being charged tax. If your vendors are charging you sales tax on the purchases you make from them, it means that you have not provided them with a resale certificate that is valid in the state where the property is sent.

Important Concepts in Sales Tax Administration

One more detail to consider is… Are you the one making your own sales or are you selling through a marketplace? Marketplace nexus requires online marketplace facilitators to collect tax and remit tax on behalf of sellers operating through their systems. If you’re using a marketplace, make sure you confirm who is collecting the tax so that it doesn’t end up over or under collected. You can search your state’s department of revenue to see if you can find specifics. If you are registered to collect sales tax in your state, you should be able to receive updates.

When to Charge Another State’s Tax

The states with the lowest average sales taxes are Hawai’i (4.44%), Wyoming (5.36%), and Alaska (1.76%). In addition, four states (Delaware, New Hampshire, Oregon, and Montana) do not allow any sales tax to be charged at all. A state might have a 4% sales tax, a county 2%, and a city 1.5%, so that residents of that city pay 7.5% in total. If a sales tax is paid by the reseller and the sales tax could have been avoided, the sales tax would have to be expensed immediately. However, each of these states may have a different idea of what an allowable trade-in is. You must retain the resale certificates in your records (for four years) that you accept to substantiate claims that a sale was for resale and therefore exempt from tax.

The jurisdiction that has the right to tax a transaction depends on situs, or the legal location of the transaction. Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. Examples can include schools, churches, nonprofit hospitals, and charitable organizations. Whether you are starting your first company or you are a dedicated entrepreneur diving into a new venture, Bizfluent is here to equip you with the tactics, tools and information to establish and run your ventures.

Local Government

Each state sets its own policies, but typically, businesses will apply for a resale license, if one is needed, at the time of obtaining other necessary licenses and registrations. Sales taxes are collected by businesses and then calculated and submitted to state revenue departments on a regular basis, along with documentation of the business’s sales for that period. Modern cash registers and point-of-sale systems are programmed to allow for tax-exempt purchases. Also, states, counties, and municipalities may levy sales taxes of their own. This can make the purchase price of the same item in different locations differ.

If the organization makes sales that compete with for-profit companies, their sales are generally subject to sales tax which would require them to be registered for sales tax. Many governmental entities are not required to pay sales tax on purchases. For example, states are prohibited from taxing sales directly made to the Federal Government.

He adds that interstate ecommerce transactions further complicate things. It’s important to note that you’ll need a copy of your resale certificate for every instance in which you use one. That means if you do business with multiple wholesalers, you’ll need a resale certificate for each one. Our partners cannot pay us to guarantee favorable reviews of their products or services.

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