I live in NC and bought an UK item online and they charged me state sales tax. It is a new item. Is this required for state sales tax? I don’t think I was charged tax when I bought a book from the UK. They said there is no customs duty or taxes.
A lot of jurisdictions with sales taxes also apply it to products bought outside the jurisdiction and brought into it. If that’s the case here, you’re not paying a UK tax or US customs, but a state sales tax to North Carolina.
Looks like NC collects sales tax on purchases from “remote sellers”.
From the FAQ:
Are remote sellers required to collect sales and use tax on sales made via the Internet?
A remote seller that has met the Threshold is generally required to collect and remit tax on all taxable remote sales sourced to North Carolina, including sales made online.
There’s some other stuff on that page, but that’s the gist of it.
The same problem is now being experienced by UK residents importing goods from the EU. Of course, these just had the sales tax of the supplying country added, and since the tax was included in the price it was invisible.
Now, post-Brexit, some imported goods not only have to have UK VAT added but also duty.
I guess it will settle down eventually, but some people are being caught out, especially if they did not realise that the goods they ordered from a UK website were actually being sent from abroad.
when I do NC taxes they ask me if I bought anything from out of state without paying sales tax. I think very few people admit that , I don’t. Never heard of anyone getting in trouble for that . I guess it could come up if you are audited.
I remember years ago, New York State looked at the customs declarations of state residents who returned from overseas trips and declared expensive purchases, comparing that to what they paid in sales and use taxes. This thirty-year-old article from the New York Times (paywall warning) describes this, including one extreme example of someone who sent in a check for over half a million after being sent a bill for purchases in 1989.
I recall reading something about internet taxes - that a company with a “presence” in the state was obliged to collect state taxes. At the time, this was a complaint that for example, Barnesandnoble.com would charge state sales taxes for online sales, since they usually had a bricks-and-mortar store in the state also; whereas Amazon did not, so no tax. Some companies deliberately established a stand-alone online presence in a state with no sales tax to minimize the hassle of collecting up to 50 different state taxes and assorted city taxes. It was pointed out that if Barnes and Noble did this, then for example, as two separate entities online purchases could not be picked up or returned to local stores. (ditto for walmart.com vs. Amazon) Plus there’s the hassle of tracking every tax and what it covers and what is exempt, and when the rates are changed.
I’m not sure what the current state of internet taxation is, since there are always new proposals to deal with this dilemma, that if sales taxes are high enough, people will find it cheaper to order online over local merchants - as if variety and list price were not enough incentive.
it’s not just online. When my brother moved to Ottawa, he went to a furniture store - he was told “if you drive across the river into Quebec and pick your purchase up at our store there, Quebec unlike Ontario does not have provincial sales tax on furniture.” A savings of 8%.
I have heard that some states are requesting (subpoenaing?) sales records for retailers like Amazon to assess whether state residents have been honest on their declarations - if you bought it out of state you must declare and pay sales tax on your income tax form.
Right, but this also answers your question from the OP.
You have an obligation to pay sales tax on items purchased from outside of North Carolina, no matter who sells it to you. If the seller charges you the sales tax when you order, your obligation is fulfilled. If the seller doesn’t charge you sales tax when you order, then you’re supposed to declare it on your state tax return and pay it directly to the state yourself. Heaps of states have a similar set of rules.
The state also has a set of rules about which out-of-state sellers are, and are not required to collect taxes when making internet sales in NC. The general rule, as @md-2000 suggests, was generally that a business had to have a physical presence in the state for the state to be allowed to require sales tax collection. This system was put in place by the Supreme Court in 1967, when it ruled that a state could not require an out-of-state seller to collect sales tax unless it had a physical presence in the state. The Supreme Court upheld this ruling in Quill Corp. v. North Dakota, in 1992.
The rise of internet commerce led more and more states to become concerned about the amount of out-of-state purchasing that was going on, because this was leading to declining state sales tax revenues. They also argued that it gave big out-of-state sellers a competitive advantage over in-state sellers. Why buy a $150 hard drive from the local computer store, if you have to add 8% sales tax, when you can order from an out-of-state retailer and get it without the tax?
In 2018, in South Dakota v. Wayfair, Inc., the Supreme Court overturned its previous decisions, and argued that, while the seller still needs to have a “substantial nexus” in the state, this does not require an actual physical presence. This was decided 5-4, with Kennedy writing the opinion for the majority, joined by Thomas, Alito, Gorsuch, and Ginsburg. Thomas and Gorsuch wrote concurrences, and Roberts wrote a dissent, in which he was joined by Breyer, Sotomayor, and Kagan.
It’s worth noting that an out-of-state seller may collect sales tax, even if it is not required to do so by law. If an out-of-state seller wants to take on the administrative and paperwork costs and inconvenience of collecting NC sales tax on your purchases, there’s nothing stopping it, as long as it actually remits the taxes to the state and doesn’t pocket them as profit.
On the New Jersey state income tax return, this is referred to as a “use tax”. The rate is always exactly the same as the sales tax, but with a new name.
When you say you bought a UK item online, what exactly do you mean? I doubt very much that a UK seller with no business presence in NC has gone to the effort to make arrangements to collect NC sales tax for items shipped from the UK , simply because it is unlikely that they meet certain sales thresholds ( gross sales of at least $100K or 200 transactions in a year to NC residents) and there isn’t any reason for them to voluntarily do so if it’s not required. Did you buy from a UK based seller who used a service similar to " fulfilled by Amazon" which resulted in your purchase being shipped from a warehouse in NC? Then the seller stored inventory in NC and is almost certainly required to collect NC sales tax. Did you buy a UK made product from a US company with some sort of presence in NC ?( and “presence” can include having remote employees there)
I assume this is the reason that in practice over the past couple of years we’re seeing more and more online vendors adding sales tax?
It does seem counter to the operation of a fair market that evidenty some vendors still feel that it’s legally defensible to not collect sales tax. Is the SC ruling sufficient that there will eventually be some definitive resolution to this through test cases and a level playing field will be established, or is legislation required?
Well, the Supreme Court did not set out any clear and objective rule about what constitutes a “substantial nexus,” so this is still an issue for litigation. What a lot of states have done, in the wake of the Wayfair decision, is set their requirements for collecting sales tax at the same level that South Dakota set. The logic is that, if South Dakota’s law passed muster with the court, then we should just copy the law. South Dakota’s law requires the collection of sales tax from companies that sell more than $100,000 worth of merchandise in the state, or that make more than 200 deliveries into the state in a year.
One way to set a national standard would be for Congress to pass a law setting a limit. Congress has the constitutional authority to regulate interstate commerce, and it would probably be OK for Congress to create a threshold for states to collect taxes on interstate sales. That’s my understanding, at least, but I admit that I’m not an expert on the limits of the commerce clause.
So if similar legislation applied everywhere, this would allow online sellers with national sales up to a few million to avoid collecting sales tax. Obviously it’s a logistical burden to collect for 50 states if you’re small. But I’m not sure how fair it is that a small company should be allowed this advantage. On the one hand, it might be desirable for choice and competition to give small online sellers an edge over Amazon and Wayfair. But small online companies are not just competing with large online companies, they are also competing with small bricks-and-mortar stores.
I bought a guitar pedal direct from the UK amp company Hiwatt who mainly sells guitar amps. Based on tracking it was shipped from Canada so that might be a distributor.
who song:
The place is really jumping to the high-watt amps,
'Til a 20-inch cymbal fell and cut the lamps,
In the blackout they dance right into the aisle,
And as the doors fly open even the promoter smiles,
Someone takes his pants off and the rafters knock,
Rock is dead, they say,
Long live rock, long live rock, long live rock.
Manufacturers typically do not sell direct to consumers ( it tends to annoy the distributors/dealers) - is it possible that your order went through a distributor that does have a US presence?
possibly but it seems the distributor is in Canada
Now with websites it’s not that odd to sell direct to customers , Merrill Shoes is 1 example.