We know that you read our first blog in this series and look forward to sharing more information about the world of tax resale certificates. We understand that it is important for a responsible business owner to get as much information as necessary to make an informed decision.
What Happens To Goods That I Do Not Sell?
You might be wondering what becomes of goods you do not sell on which a sales tax has not been collected. These goods could be subject to a use tax.
What Is The Use Tax?
Use tax applies to purchases made outside the taxing jurisdiction but used within the state. Use tax also applies to items purchased exempt from tax which is subsequently used in a taxable manner.
How Do I Know If I Need To Pay Sales Tax In A Given State?
In order to establish whether or not a state can impose a sales tax upon your business there first needs to be nexus. Nexus relating to state sales tax is established by a connection between the state and your business. How this connection is defined has been subject to fairly recent changes that reflect changes the way business is conducted in modern times.
Traditionally, nexus has been established by the business actually having a physical presence in the state. However, due to the explosion of e-commerce, physical presence within a state is no longer a requirement for sales tax nexus. In the case of South Dakota v. Wayfair, the courts actually eliminated physical presence as the major requirement for creating nexus. It still should be noted that physical presence is considered an important requirement to allow a state to collect sales tax and is still one of the first considerations for sales tax.
What Are The Different Methods In Which The States Establish Sales Tax Nexus?
The definition of sales nexus can vary greatly from state to state. Here is a list of the different ways in which states can determine sales tax nexus:
- Click-Through Nexus legislation
- Affiliate Nexus legislation
- Marketplace Nexus legislation
- Notice and Reporting Requirements
- Economic Nexus
Click-Through Nexus legislation- This usually requires a remote seller to meet a minimum sales requirement in the state resulting from an in-state referral agent who is a resident of the state. The agent must be making commission payments to the referral agent for any sales that are the result of the click-through referrals from the agent’s website.
Affiliate Nexus legislation– A remote retailers hold a substantial interest or are owned by a retailer that is located within the state and sells a similar type of product under a similar business name. Instate retailers can also be used to promote or market the product to in-state customers. Affiliate nexus does not require common ownership and may not include services such as sales and delivery.
Marketplace Nexus legislation– This definition applies to marketplace facilitators who operate a business in the state and provides e-commerce infrastructure, customer service, payment processing, and marketing services to individual sellers. The facilitator is the one that is required to register with the state and collect the sales tax rather than the individual sellers.
Notice and Reporting Requirements– This legislation requires that a retailer does not collect the state sales tax themselves but notify their buyers that they must report state use tax on all their purchases. The retailer might be required to send the purchaser a statement of all their purchases.
Economic Nexus- An out-of-state retailer generally is required to collect and remit sales tax once the retailer meets a set level of sales transactions or gross receipts activity (a threshold) within the state. No physical presence is required.
To find out more about state sales tax please visit the sales tax institute.
Remember To Verify Any Tax Resale Certificate Presented To You
In the first part of our series, we mentioned that a vendor can refuse a tax resale certificate. This is because the vendor will be the one liable to the state government should anything be remiss. That is why you should always take the following steps to assure that anything presented to you is valid.
- Make certain that the certificate is properly filled out and signed by the business owner
- You should be able to verify the certificate online by using the certificate
- You should also be able to verify online if the certificate has expired
- Be award of purchase that seem suspicious and do not relate to the customer’s business in a logical manner
- It is important that you keep the certificate on file for at least 5 years in case of a tax audit.
Make Sure You Understand The Specific Guidelines Of Your State
A tax resale certificate is a wonderful way a business can avoid unnecessary taxes. However, we understand the there are a lot of rules and regulations, which can be very confusing to any business owner.
That Is Why We Are Here To Help
It is understandable that all this information can be very daunting. Not correctly understanding sales tax and the benefits of a tax resale certificate can lead to a great deal of trouble. A retailer could lose out on extremely beneficial sales tax exemptions status. A savvy business owner will understand that having a tax resale certificate will save them a good deal of money but leave the actual headache of registration to someone else.
On the other hand, misunderstanding and not paying the correct sales tax to a state government could very much hurt a business’s standing and reputation. At Tax Resale Certificate, we make the process as easy as possible. Just take advantage of our user-friendly interface to help take the headache of applying for a tax resale certificate off your plate.
We provide a tax resale certificate for the top states that include:
- New York
- New Jersey
Let us handle the hassle so you can go about the important work of leading your retail business to great success.