Why are states picking and choosing who to tax for online sales?

[doreen]

@JcWoman

I find these “destination nexus” states interesting. My understanding is that if you have a chance of delivering goods to a customer in that state, then you need to collect/remit the tax for those sales to that state. But you have to register first, which means you need to know in advance that you’ll have sales in that state. For a new business like me, that means predicting the future by rolling dice because I had no prior data to base a forecast on. But if you don’t register, how do they know? I don’t think they have any way of knowing that unregistered businesses are “operating” in their state.

According to everything I could find, the difference between “origin based” and “destination based” doesn’t have anything to do with collecting sales tax for a state where you don’t have a nexus. So for example, New York is a destination state. If you are located in Nassau County and ship or deliver something to me in NYC, you must collect the NYC tax rate- not the Nassau County rate. Pennsylvania is an origin state - if you are located in Philadelphia and ship or deliver something to Pittsburgh, you collect the Philadelphia rate.

The rules are confusing if you are a remote seller with a sales tax nexus in the state where delivery takes place - because “origin” states sometimes flip to “destination” states for remote sellers.

If you have no nexus in a state, you don’t everhave to collect sales tax for that state. But if I buy something in a NJ store ( say a washing machine) and they deliver it to me in NY using their own truck (rather than a common carrier) that may be enough to establish nexus. And apparently keeping stock in an Amazon warehouse is enough, too.

I mean, it’s *possible *your online shop has nexus in multiple states- but I kind of doubt it (unless you have some sort of “Fulfilled by Amazon type” deal) I think that maybe you misunderstood the whole “origin” vs “destination” thing and believe that as the seller you must collect the tax for a destination state where you have no nexus.

Check this out- Origin-Based and Destination-Based Sales Tax Rate - TaxJar

And it has links to a guide for each stat.

[JcWoman]

I use a combination of drop shippers and in-house inventory, none in NY, though. I did reference the Taxjar information when I was setting up, and it was a little bit helpful. The entire issue is just fraught with difficulty and confusion, though. It desperately needs to be streamlined if the governments want to collect the revenues they feel entitled to.

I should add one more detail to all of the above: some state laws say that you only have to collect/remit sales tax if your sales in that jurisdiction are over a certain amount. For example, I believe Virginia has a $2000/year threshold. Which again, requires a new business to roll dice to forecast sales to that state in order to know if they need to register. (Or, just not bother until you have a couple years behind your belt and can more accurately forecast.)