South Dakota v. Wayfair – Selling Online in Florida —- Do I Need to Collect Sales Tax?
The June Supreme Court decision, South Dakota v. Wayfair, is fairly complex, but can be boiled down to some fairly simple terms for determining if and how this will affect your business. Currently, remote retailers are not required to collect and remit sales tax in Florida. This could change as Florida’s rules regarding sales and use tax evolve due to this decision, but has not as of the date of this article.
When trying to decide if the changes could apply to you, first consider, do you sell taxable tangible property? If the answer to this is no, the ruling should not change your business practices; however, you may still need to remit or discontinue remitting use taxes. More on use tax will be discussed later in this article.
Next, if you determine that you do sell taxable tangible goods, do you only sell them in the state of Florida? If the answer is yes, your sales tax practice will not have changes. If you sell taxable tangible goods online to other states you may be affected by that state’s nexus laws. What is nexus, and do I have it in a state other than Florida?, is your next question. Always consult your tax advisor before deciding if one of the following applies to having nexus in another state: having an office location, employees, a warehouse, storing of inventory; 200 or more separate transactions being delivered in a state; gross sales exceed $100,000; performing tradeshows; rental/leases/licenses for personal property used; providing taxable services (nonresidential cleaning, lawn services, crime protection services, etc.). If you think that one of the areas that cause nexus may apply to you, you may be required to collect and remit sales tax for online sales.
Following the Wayfair decision, three states, Hawaii, Kentucky, and Vermont, announced they will begin enforcing economic nexus for online sales July 1st, 2018. More states will start enforcing economic nexus laws later this year. Alabama, Illinois, Indiana, Minnesota, North Dakota, and Wisconsin’s nexus laws are set to go into effect October 1st, 2018. Connecticut will enact theirs December 1, 2018. Many states are still determining how the South Dakota v. Wayfair, Inc. decision impacts their laws. The real question is, do you have economic nexus in any of these states?
This is also important to keep in mind when you are purchasing items. Purchasing an item and not paying sales tax may require you to pay use tax. The next section of this article discusses use tax and when it should be paid.
Use Tax
What is use tax? Use tax is a sales tax on purchases made for taxable items that will be used, stored or consumed on which no tax was collected at the time of purchase. An example is the purchase of a desk online for use in your business. If the online retailer does not charge you sales tax and you place the desk in use at your business, you must remit use tax.
Now, how could South Dakota v. Wayfair affect use tax? Products purchased that were previously subject to use tax may be subject to sales tax. You may have to provide retail vendors your resale certificate if you are reselling merchandise and not using it in the course of doing business. Not providing the resale certificate may in fact cause you to pay sales tax on items purchased. Then upon the sale of those items you will be required to charge sales tax. The next question would be, if I paid sales tax, can I use the amount paid to offset the amount I owe for reselling the item? The answer is no. The fact that you paid sales tax on your business purchases and then resold the items does not give you a credit when it comes to sales tax.
Do I Have to Pay and Charge Sales Tax on the Same Item?
You bought an item that you plan to resell in the course of business, but you’ve been charged sales tax by the vendor. What should you do if you purchased an item and should not have been charged sales tax? First, contact the vendor as soon as you see that sales tax has been charged to you. The vendor may have been affected by the Supreme Court ruling and started charging and remitting sales tax on all tangible online products. Upon providing the vendor with your resale certificate, ask for a new invoice to be issued.
Certain industries will be affected by this more than others, so if you suspect you could end up in this situation, be proactive. The best approach to the new law is to be preemptive and provide a copy of your resale certificate to each new vendor that is out of state and will be providing you with products from online purchases that you intend to resell in the course of doing business. If it turns out you need to use that product in the course of doing business you must then remit use tax on that item.
It is important to always consult a tax advisor who is well versed in sales tax laws before deciding if a product or service is taxable. We at Crippen hope to be of help for this and all other sales tax questions you may have. Contact our office today for more information.