Navigating Internet Sales Tax, Your Business, and Essential
First let me be very clear: I am a marketing professional, not a tax professional or attorney, and I have two goals in writing this blog: First, what I am writing below is intended to give you some resources so you can begin – or continue – your work in dealing with the rise of internet sales tax due to all the different taxing authorities in the country. Second, if you are not in the business of reselling our products, you may want to skip this dry and boring discussion of an internet sales tax and its implications.
South Dakota vs. Wayfair
So now the history lesson.
In 2018 the Supreme Court ruled in the case of South Dakota vs. Wayfair that tax jurisdictions may collect sales tax on products shipped to their state/city/county (referred to as a tax nexus) regardless of whether or not the company has a physical presence in that jurisdiction. For us in Oregon, where there is no sales tax, we are now required to collect sales tax for purchases sent out of state to one of the many jurisdictions that have said: “yes, we want to collect sales tax”. The amount of tax collected is based on the shipping address where the product will be sent, rather than the point of purchase, which in our case, is Portland, Oregon. The sales tax charged to you will depend solely on the shipping address or addresses, and regulations vary between states and even counties or cities. This means you will need to pay taxes to any taxing authority where you 1) send product and 2) meet the thresholds and criteria for that jurisdiction. You can find a list of all the state nexus here on the Avalara website, along with information that helps you determine if you are required to remit taxes. For instance, in Alabama, if you sell $250,000 of product into the state you need to collect and remit sales tax. Once you have a sense about where you might have nexus, you may need to talk with your tax professional to understand your options.
So that’s step one: Know how much money you collect per year on the products you send to each jurisdiction. Now you can talk with your tax person and work with your selling platforms.
The basic premise is that consumers pay sales tax on most goods and services they buy. The tax owed is based on the tax jurisdiction they are in. As a business, however, your job is to collect and then remit that sales tax. As a business, you are also allowed to purchase products you intend to sell to a consumer (or other business) without paying sales tax when you purchase the products you sell. To take advantage of that, though, you will need to have a Reseller’s Certificate or Tax Certificate, from the jurisdiction governing your shipping addresses on file with your supplier. With a valid reseller certificate, you will not have to pay sales tax on that order provided your Reseller Certificates are on file with the vendor prior to placing your order. We (nor any other vendor) cannot retroactively waive your tax liability.
Sales tax and Essential Wholesale & Labs
The Wayfair decision, in a nutshell, says that your vendor’s physical location — for us that’s Portland, Oregon – does not determine if sales tax is to be collected. The taxes owed is based on where the product is sent and the sales tax for that locale. As a business, we no longer get to be ‘sales tax’ free because we’re in Oregon (a sales-tax-free state). In order to avoid the requirement to pay sales tax to us, you will need to have Reseller Certificates (and Taxpayer IDs) for every jurisdiction where you ask us to send product you will resell. Unless of course, that product is being sent to one of the four no-sales-tax states. Which is good news for those of you who pick up in our Will Call facility. What that means for everyone else is a little more complex. For instance, if you place an order with us and we are sending some to Los Angeles and some to Atlanta, we will charge you the individual and separate sales tax for each jurisdiction unless you have a valid reseller certificate on file for each jurisdiction.
We have partnered with tax software leader, Avalara, to help make this a smoother process for you. The tax system to enter your license number goes live on Aug 16, 2019.
Submitting your Reseller Certificate to Essential
In order for you to avoid sales tax liability on items purchased from us, you’ll need to provide your Reseller Certificate for each jurisdiction where we will send you your products. To do that, you’ll be asked to input the certificates into our eCommerce system. Once our tax system goes live on Aug 16th, you will get an email asking you to ‘add your reseller certificate’ to our eCommerce platform. (Please don’t try to fax them or email them to us.) They MUST be submitted and verified through our site.
If you are unable to secure your reseller’s certificate for a specific state in time, you can of course still order from us but legally we must still collect applicable sales tax and cannot retroactively return or credit any sales tax collected. Even if you have a license if the number is not in our system at the time of purchase we must still collect sales tax until your Reseller Certificate(s) are in our system. You must enter the license number into Avalara (our sales tax system) before we can process your order without sales tax. We realize this is a bit chicken and egg here, but we’re dealing with realities beyond our control.
Please also note that given that Amazon.com’s distribution center assignments can be unpredictable; you may need to get a new Reseller Certificate for wherever the distribution center is if we ship to them directly from our facility.
Thank you for bearing with us as we adapt to these new regulations and we will do our best to make this as smooth and stress-free as possible.
We’ve added a short FAQ here to help answer other questions.
Q: Can I just give my reseller certificate information to my account executive or customer service representative?
A: No. Avalara confirms that reseller certificates are valid and they manage renewal notifications. We cannot enter your number for you in their system as you are required to have your own Avalara account.
Q: Where do I get a Reseller or Tax Certificate? Can I get them from Avalara?
A: Reseller or Tax Certificates are issued only from taxing authorities. You will need to check with the tax authorities for the addresses where you have us ship products. Some have an online form, and some require you to physically mail in paperwork and go through a lengthy process.
Q: I need to place an order and don’t have my reseller certificate in your system yet. Can’t you just remove my taxes? Or refund me?
A: Unfortunately, we are required to follow tax laws and we must collect and remit sales tax to each taxing authority if the Reseller Certificate is not validated and in our system prior to your order. Once your order has been placed, we are required to submit all taxes collected and cannot refund them to you if you submit a reseller certificate after your order is placed. Once submitted, your next order to that location will not have sales tax. You will need to submit a Reseller certificate for every location you have us ship.
Q: Oregon has no sales tax so why do I have to pay now when I buy from you? I never used to have to do that. What changed?
A: In 2018 many state and local taxing authorities began assessing sales tax on goods bought in other states and shipped to them due to the Supreme Court decision in South Dakota vs Wayfair. Unless we are sending the product to you in a state without sales tax, such as Oregon, the taxing authority governing the address we are sending your product to sets the tax amounts we collect and remit.
Q: What if I have to change my shipping address after I’ve placed my order?
A: An updated sales tax will be calculated and if money is owed, we’ll ask you for that before we ship. If the sales tax owed is less than originally charged, you’ll be charged the lesser amount when we ship.
Q: If I pick up at your facility in Will Call, or have you send to me in Oregon, do I need a Reseller Certificate?
A: You will not need to have one on file for us as there is no sales tax due on products sent to Oregon from an Oregon company.
Q: I sell on Amazon. How do I know what tax jurisdictions I need?
A: Unfortunately, we don’t have any visibility into that. You’ll want to check at Amazon Seller Central and search for Shipping to Amazon for the latest information and services for you.
Q: Do I have to charge sales tax to my customers now?
A: That is not something we can answer. You’ll want to talk with your tax accountant or tax attorney to help you understand what is right for your business.