sales tax on interstate purchases

[HowardH]

Over on the Woodnet site, there was some discussion some time ago about the collection of sales tax on interstate purchases of Festool products.  Some say it is treated like anything else and no tax is collected and other say it is.  I noticed on Bob's website that it says that no sales tax is charged but I thought I read some time ago that it doesn't matter, sales tax is collected regardless.  With 8.25% tax in the Dallas area, getting something through the internet is a fairly significant savings, especially with free shipping. What's the real deal?

 

[Bob Marino]

Over on the Woodnet site, there was some discussion some time ago about the collection of sales tax on interstate purchases of Festool products.  Some say it is treated like anything else and no tax is collected and other say it is.  I noticed on Bob's website that it says that no sales tax is charged but I thought I read some time ago that it doesn't matter, sales tax is collected regardless.  With 8.25% tax in the Dallas area, getting something through the internet is a fairly significant savings, especially with free shipping. What's the real deal?
[/quote

Howard,

Here's the deal. Up until a few ago, all Festool tools were stocked and shipped by Festool. There were no Festool dealers, people selling Festool tools were  referred to as Independent Sales Agents (ISA's). ISA's did not stock tools, only accessories. Since, (at that time) Festool USA owned the tools and shipped the tools, they were obligated to charge, collect and remit the sales tax to each and every state that had a Festool ISA in that state - this was considered as having a sales presense in that state. There were only a handful of states that Festool did not have a sales presense in.
A couple of years back, Festool allowed ISA's to stock and ship directly to the customer. Now, those ISA' s were referred to as dealers or retailers. Some ISA's decided to become dealers and stock and ship the tools directly and others chose to remain ISA's and have Festool ship for them. Since each stocking dealer had possession of the tool, they were not obligated to charge, collect and remit sales tax to states that they did not have a sales presense in. Effectively this meant that for sales outside of the state that the dealer presided, sales tax was not charged, or rather, the dealer was not oblogated to charge the tax. My limited understanding is that at tax time, people are still required to claim internet sales on their tax returns.
Effective January 1, 2007, Festool changed the way the tools would be sold. There were no more ISA's - all became dealers. As such, everyone could stock the tools if they chose to. Festool, would drop ship if the dealer wanted, or the dealer could drop ship themselves.
Before, when an ISA took an order, Festool would process the credit card - because Festool "owned " the tools. Now, credit cards are processed by the dealer. The tools "belong to" are "owned" by the dealer - Festool USA is merely a shipping agent for  the dealer.
So, now that each dealer "owns" the tools, they are not oligate to charge sales tax outside of the state where they preside. A bit long winded, but that's pretty much the story.

Bob

 

[HowardH]

Thanks, Bob.  That's exactly the answer I had hoped for!  ;D Saving 8.25% and having your expertise available is worth the wait for shipping.  I have a lot to learn so I appreciate your support.

 

[Dan Lyke]

Be warned that your state thinks you owe them sales tax on that out-of-state purchase, if they ever get wind of it (ie: you claim a deduction on it, or get audited, etc). So... uh... do what your conscience and legal counsel tells you...

 

[HowardH]

purchase??? What purchase?  I haven't the foggiest idea of what you are speaking about...

 

[Bob Marino]

Be warned that your state thinks you owe them sales tax on that out-of-state purchase, if they ever get wind of it (ie: you claim a deduction on it, or get audited, etc). So... uh... do what your conscience and legal counsel tells you...

\

Dan,

  I am in agreement with you - see "My limited understanding is that at tax time, people are still required to claim internet sales on their tax returns."
But, for whatever reason/reasons, states haven't made a huge issue of it to the point where just about every business (not just the tool business) freely and conspicuously advertises "no sales tax charged on out of state sales."

Bob

 

[HowardH]

All kidding aside, as we all know, this has been a huge topic in congress as our pols have seen this as an opportunity to collect billions in additional tax revenue.  Every time it has come up though, I have heard that it never gets too far.  My understanding is that if a vendor has a brick and mortar sales outlet in your residence state, tax must be collected, regardless of where it came from.  However, purchases made in another state that doesn't have a presence in your state are currently not taxable.  This is NOT a federal income tax issue but a STATE tax issue. 

 

[Dan Lyke]

However, purchases made in another state that doesn't have a presence in your state are currently not taxable.

We're mostly in violent agreement here, but I'd clarify that your "not taxable" means "the vendor doesn't have to collect taxes". It's still taxable, here in California the tax board expects you to get a state resale tax ID number and report those sales and pay the taxes yourself.

Whether that's a risk you're willing to take is a personal choice, and as we've seen not only is enforcement fairly lax, it'd be incredibly difficult for the state to do enforcement, except perhaps as a side effect of an audit or following up on something else. It'd be like nailing Al Capone on income tax fraud. Keep your nose clean otherwise (ever notice how so many of those busts happen after "routine traffic stops"?) and life is good.

(Although, not to digress too far, but I've seen one of those operations described later in the media as a "routine traffic stop", and it involved 40 police cruisers parked on an overpass with their lights off waiting for the car to come by on a stretch of rural interstate where everybody was speeding, but that's a tale for a different time...)

If I weren't driving four hours each way for personal reasons this weekend, I'd be ordering my parts from Bob, and I'll plead the fifth on whether or not I'd report those purchases (if I can figure out how to make money with these tools and deduct them, then I'll probably have to get a resale ID anyway for that venture, if not then it's just too much paperwork), but since there's a really good Festool vendor where I'm going anyway, I'll pay my extra taxes and be happy with it.

 

[HowardH]

you bring up an interesting point.  Are the tools purchased intended for business use, personal use, or resale?  If they are for business use, say you are a contractor, I would imagine they would fall under section 179 and could be expensed the year they were purchased rather than capitalized and depreciated.  Under those circumstances,  then the sales tax on the initial purchase would be required? (i'm not a CPA by any stretch, so I'm just postulating here)  For personal use, it would never show up on a Sch C, 1120, 1120(s) or 1165 so enforcement would be almost impossible. 

 

[Bob Marino]

However, purchases made in another state that doesn't have a presence in your state are currently not taxable.

We're mostly in violent agreement here, but I'd clarify that your "not taxable" means "the vendor doesn't have to collect taxes". It's still taxable,

Dan,

This is correct.

Bob

 

[HowardH]

Learn something new everyday!  In the beginning, no one ever could imagine the growth of sales over the net.  Now it would be such a huge number it would boggle the mind!

 

[Dave Ronyak]

I have no idea what the tax laws are in TX, but in Ohio, residents are expected to pay sales or use taxes on products that are purchased outside of Ohio.  That state includes a line on its state income tax return in which to fill in the amount you owe, and a work sheet in the instructions booklet.  A further complication occurs because Ohio allows cities and other taxing districts (counties and others) to impose their own sales tax on top of that of the state.  Lets all move to NH which does not have a sales tax.  Here's link to a lenthy listing that summarizes the taxes of all states of the USA. http://www.retirementliving.com/RLstate2.html

 

[Administrator_JSVN]

Really it just comes down to where the responsibility of sales tax remittance falls.  As a retailer, we must collect the sales tax for all orders shipped to a Virginia address (since we are located in VA).  If the product is shipped outside of Virginia, it becomes the customers responsibility.

 

[Lou Miller]

  My limited understanding is that at tax time, people are still required to claim internet sales on their tax returns.

LOL, that's funny... We may be "required" to claim those taxes, but how many of us do?

Yeah, sure I gladly give the government their tax money... They don't collect taxes on enough as it is, they need that money from me.  :

 

[Bob Marino]

  My limited understanding is that at tax time, people are still required to claim internet sales on their tax returns.

LOL, that's funny... We may be "required" to claim those taxes, but how many of us do?

Yeah, sure I gladly give the government their tax money... They don't collect taxes on enough as it is, they need that money from me.  :

  Lou,

How bout' we are "supposed to"? ;D ;D. Hey, I'm only repeating a nasty rumor. ;D

Bob

 

[LaserGecko]

Most states that have sales tax also have some sort of a "use tax" system in place to "protect businesses in that state from unfair competition from out of state vendors". Use tax is usually voluntarily reported unless the item requires some sort of registration with the state (like a vehicle).

If the company from out of state has a store in your state, then they're not really from out of state. Luckily for those of us in Nevada just about every friggin' internet company has some sort of warehouse or shipping center here since Nevada doesn't tax inventory (or something like that) and we're a convenient distribution point for the west coast.

So, we get to pay tax on Amazon.com purchases (and about a million others). On the upside, we get everything in 1-2 days via ground. This "business presence" bit

But yeah, go down to your local state tax office and ask about how to pay taxes on that $20 gadget you ordered online...like they don't have anything better to do.

Speaking of taxes, does anyone know what's involved tax wise with buying something, then transferring it to your business? I'd rather not wait to get the business paperwork all setup, but if it would save a lot of hassle (and raised eyebrows), I guess I could. (Just looking for some insight here, I won't hold you to the fire over any answers.)

 

[Tinker]

As far as I am concerned, even tho the sales tax is just about the most idiotic and unfair tax to come down the pike, there are a few of our trusted  ;D polititians who would agree.  they would like to abolish it completetely.  AAAANNNNDDDD they would love to implement a VAT tax.  How sneaky can they get?  If you do know what VAT tax is, you know to keep on the lookout.  If you don't know what VAT tax is, be doubly on the lookout.  It would make the sales tax look like a tremendous bargain. 
Tinker

 

[AHoman]

The tools "belong to" are "owned" by the dealer - Festool USA is merely a shipping agent for  the dealer.

Hi Bob,
So does that mean that you actually keep an inventory at Festool, as in, they have a list of goods that are yours, or is it that in theory, anything someone buys from you is instantly reserved for you at Festool?
It's an interesting way to set up the business.  At any rate, it is effective.
-Andy

 

[Loren Hedahl]

Trouble is when I lived in NH, briefly, they had a "Head" tax.

Don't know if they still do, but it seemed pretty arcane at the time!

Remember, it all those government 'civil servants' have salary expectations, just as you and I do.  They either get paid via taxation, or in many countries, by bribery.

Take your pick.

Loren

I have no idea what the tax laws are in TX, but in Ohio, residents are expected to pay sales or use taxes on products that are purchased outside of Ohio.  That state includes a line on its state income tax return in which to fill in the amount you owe, and a work sheet in the instructions booklet.  A further complication occurs because Ohio allows cities and other taxing districts (counties and others) to impose their own sales tax on top of that of the state.  Lets all move to NH which does not have a sales tax.  Here's link to a lenthy listing that summarizes the taxes of all states of the USA. http://www.retirementliving.com/RLstate2.html

 

[HowardH]

presumably, if they institute a VAT tax, they would do away with FIT.  Fat chance.  They would do both...    I would much rather pay a consumption tax than income tax.  The amount I pay would be completely up to me, not some stinking politician.  Low income folks can't afford to buy much so they don't pay much, wealthy folks like buying expensive things, ie. festool tools!    Very fair, I would think.  Democrats wouldn't like it though.  They like keeping low income folks voting for them by claiming they are socking it to the "rich".