I live in Florida. If I buy something by mail order or telephone from an out of state company that does not have a physical location in my home state, (such as LL Bean based in Maine) they do not charge sales tax (neither Maine’s nor Florida’s).
Now if Florida finds out that I bought something from out of state they will charge me a “Use Tax”, the same 6 per cent as the state sales tax. I am aware of this because our company has just been audited by the great state of Florida and that was the only thing they found that that they could nail us for, some out of state purchases that we didn’t pay sales tax on.
We only sell wholesale, so we don’t collect sales tax anywhere, in Florida or out. But we still had to provide copies of our customers sales tax exemption certificates from all over the country to the auditor.
I asked our accountant, why would they ask for the out of state customers tax exemptions? He told me that if any of them turned out not to be tax exempt, the state would charge us the “Use Tax”.
When I pointed out that LL Bean didn’t charge me tax for my plaid shirt because the Federal government has not passed a law allowing interstate taxes, he said he’d check it out and get back to me. That was 3 weeks ago.
I’ve looked through umpteen web pages looking for the specific law that disallows interstate taxes. Can anybody help me look in the right direction?
The use tax is not an interstate tax. It is a tax levied by the state in which the property is used, and the consumer is legally obligated to pay it–the seller is not legally obligated to collect it. States could audit consumers for the use tax, but it would be neither politically nor fiscally responsible.
Every state that has a sales tax has a compensating use tax–there is nothing abnormal about that. What is (generally) abnormal is any consumer actually paying the use tax.
If it’s taxible when bought in state, it’s generally still taxable if bought out of state. There is just no good way to collect the tax unless the seller has an in-state location. The state can sue the in-state location under state law for the tax. This forces the seller to collect the tax, even if you are sending your money to an out of state location.
If the seller does not have an in-state location, there is no one for the state to sue under state law. You, the buyer, are liable for the tax, but it is not cost effective to go after each buyer. For items such as cars which require registration, the state may make you pay the tax when you register the car.
All the federal internet tax will do is let a state sue an out of state seller under federal law to collect the tax.
In case you’re curious, this is an issue in tax policy. Sub-national jurisdictions are tempted to grab taxes from non-residents (or to put it kindly face a dilemma in where to draw the line) and this can lead to locational distortions. US state sales taxes are IIRC retail taxes rather than value added taxes. One advantage of VATs is that they are destination-based and lend themselves to harmonisation between regions. With an origin-based RST there is no clear way to administer the tax so as to only tax within-jurisdiction consumption. This leads to the messiness you are experiencing - different jusrisdictions treat cross-border transactions inconsistently.
HUH??? Florida should not be concerned with your out of state sales so long as your sales agreement requires you to ship the product to a destination outside the state. Those fall under interstate commerce transactions and Florida cannot tax those sales regardless of whether the customer was exempt. A skilled auditor would probably want to see shipping documents to verify that the product left the state.
One exception: if your sales agreement calls for title to pass prior to shipping, Florida could argue that title passed within the state of Florida. In that case though, a sales tax would be assessed against you, not a use tax. I’ve only seen one state try this though (Tennessee) and it was only against a customer whose sales agreement was so specific about transfer of title that they shot themselves in the foot when it came to determining in which state the sale was consumated.