I’m looking for a clarification on how taxes work with purchases out-of-state. When I buy something at the local five-and-dime, I pay sales tax as levied by the state. When purchasing something from out-of-state, to be shipped to me, I don’t.
I’ve been looking for an HDTV on eBay, a CRT-based model that would be quite heavy. Of course, I’d rather pick it up from a (relatively) local source than pay a hundred dollars shipping. Many of these auctions state that if I choose to pick up the item from the seller’s warehouse, I’d have to pay local sales tax. Specifically, one business is in VA, while I live in MD.
Is this a legal requirement? I fail to see the diference between, for instance, paying for the TV via an electronic transfer and then arranging for UPS to pick it up and paying electronically and then asking my friend to drive down with his pickup and load up the TV himself.
A friend used to have a local computer and software business.
The general rule is that if an item is SHIPPED out of state, he didn’t have to collect sales tax. His records reflected no tax collected and listed the shipping charges etc. These records could be used to justify no tax collected if he was audited by the state dept. of revenue.
If you lived out of state and took delivery at his shop, he collected sales tax.
If you order product by phone or mail, or Internet for that matter, tax will not be due unless the seller has a business location in your state. If they do, then they are supposed to collect the tax. If you read the small print on catalog order forms, sometimes you’ll see a list of sates and applicable tax rates. Not all states are usually listed.
Some states, Missouri is one, have special forms with your state tax package where you are supposed to list “out of state” purchases and remit applicable sales tax.
Thanks - I googled a little and see that you’re supposed to self-report taxes on OOS purchases in some states.
What I’m not getting is the legal definition that protects UPS/FedEx from having to pay the taxes when they pick up my merchandise, whereas my buddy would have to pay if he went with his truck to make the pickup.
What you’re missing here is that your state would really, really like you to pay that sales tax. In fact, you’re supposed to pay a use tax on everything you buy out of state.
This is a requirement that is largely ignored by everyone, however the states are feeling a pinch nowadays and are getting uppity about collecting use taxes. They are trying to collect information from at least some on-line merchants so that they can track down and collect from people who buy expensive items over the internet. I’m not sure how successful this effort has been as of yet.
Well, UPS/FedEx is not buying the product. The person they are going to transport it to has already made payment arrangements.
Your buddy might not have to pay if his truck was taking the product out of state. I do suspect however that if he just shows up in a pickup and says “I’m here for Alvis’ package”, it might not go too smoothly. Maybe it needs to be a recognized shipper?
The presumption is that shippers are businesses in their own right, and are registered with DOT, pay interstate fuel taxes, drivers have evidence of having passed a DOT physical, etc.
When it comes to taxes, New York is in the lead. Forget the bother of figuring out the theoretical sales tax you’d owe for purchases you made out of state. New York just charges everyone an additional payment on top of their income tax on the assumption that everyone must have bought something and not paid sales tax for it.
What!! Do you mean this literally? How do they do it? How do you get out of it?
I guess this is outside the scope of GQ a little bit, so I’ll phrase it in a tricky way: Wouldn’t the whole problem disappear if states simply mandated that shipments out of state must be taxed at the normal, in-state rate? You know, just as if they’d charge me if I went to Ohio and bought something. Then they wouldn’t need stupid interstate tax compacts, and it would drive business to states with the lowest local taxes.
Hmmm… so do I now owe a use tax and every, single thing I buy here in Hermosillo? Or only if I take it back to Michigan?
My NYS tax return last year gave me the option of paying the use tax either as a flat rate based on my income- or I could pay the actual amount due if i had records and wanted to figure it out myself Never said that I had to pay if I didn’t owe tax on any out of state or on-line purchases.
Technically, if I buy a toothbrush in NJ and bring it back to NY, I owe NY for the difference between the NJ tax and the NY tax. If I leave the toothbrush in NJ, I don’t owe NY anything. Realistically, the state can’t go after small, especially cash, purchases. They can go after bigger ones- like cars. Or someone I know who bought a piano in NJ, had it delivered to NY, and got a bill for the tax due.
And this is one of the reasons that it will never happen. NY doesn’t want to let me drive half an hour to the Ikea in Elizabeth, NJ, buy a couple thousand dollars of furniture , have it delivered to NY and only pay the 3% NJ sales tax that applies in that special zone, with NY getting nothing. They’d rather I couldn’t buy it and bring it home myself, but they have been unsuccessful in enforcing that-although they have tried. Once, photos were taken of cars with NY plates in NJ mall lots, and letter were sent to the owners saying that they might owe NY tax on their recent purchase.
The difference can most readily be grasped by thinking about what would happen if your package is lost or destroyed in transit. If you or your buddy cruises over to pick up the merchandise in person, and your buddy drops and breaks it on the way home, the merchant will tell you tough patooties. His responsibility ended when he handed the package over the counter. From his state’s point of view, this is a sale, and he is required to remit sales tax–and therefore he’ll collect the tax from you.
If UPS or Fedex loses the package, the merchant will send another one. (And presumably get reimbursed by the shipper.) The transaction isn’t complete until the package arrives at your door. This is a shipment; the sales tax is owed to your state, and your state can’t force the merchant to remit it unless he has a physical presence of some sort in your state. In theory they can force you to remit it, but they haven’t yet found a practical way to do so.
New York City recently sent out tax due notices to hundreds of people that bought cigarettes over the internet. For every carton purchased for $30.00, NYC wants its $4.00 per pack city tax. People were interviewed in the NY Daily news, and some had gotten bills upwards of $900.00. It seems that a site in Virginia was closed down (reason wasn’t stated ) and the city got access to their mailing and billing lists.
Taxes on cigarettes are excise taxes, which are a bit different from normal sales taxes. There are regulations on interstate shipping of items subject to excise taxes, although I’m not clear on most of them. It’s always been legal to bring cigarettes back from Virginia for personal use. I think it is limited to 5 cartons of a single brand. More than that and you’re considered a dealer and subject to excise taxes.
I don’t know the exact laws, but the Virginia firm must have broken some laws about interstate shipping of excise taxed items and that is why their operation was shut down and their records subject to seizure resulting in tax notices sent to their customers. So far, I don’t think NYS or NYC has figured out a way to get into the records of Indian Reservations, but I wouldn’t bank on them remaining a “safe” source for cheap cigarettes for long.
I’ve just been notified by the 3 Indian web sites I frequent (all in N.Y. ) that, effective February 1, 2005, they are no longer allowed to accept credit cards for payment. I must now send my order via snail mail, and enclose a certified check, or a money order. One notification mentioned Attorney General Elliot Spitzer as the person behind it.
Yesbut; out-of-state (“intERstate”) sales taxes were held by SCOTUS to be UnConstitutional… It seems to me that calling the exact same tax a “use” tax fails the "duck’ test, and is of doubtful Constitutionality.
But what were the provisions of the out of state sales tax, and which was unconstitutional? Was the unconstitutionality because State A was trying to force a retailer in State B to collect sales tax on sales to State A? Or because State A was trying to collect the taxes from state A residents, without the retailer being involved at all?
No, they weren’t. The only constraint imposed on out-of-state sales taxes is that states cannot conscript a merchant into acting as a collection agent for the tax if the merchant has no physical presence within the state’s borders.
I’ve read some Supreme Court decisions on the subject, and they were picky about state sales taxes being non-discriminatory. A state can’t favor in-state merchants at the expense of out-of-state merchants when setting rates for sales/use taxes.