QUESTION on Paying Sales Tax in Every State
My partners and I recently started a business selling IT products and services. I live in Colorado, my partners in Maryland and Virginia. For various reasons we registered our Company in Delaware through MyCorp services as a corporation. We have just received our first purchase order and are about to invoice our first sale. The sale is to a company in Virginia that will resell our IT product. Do we need to charge sales tax for this transaction (I assume no as they will resell it)? Also, we anticipate future sales (IT product sales) to end users across the country. Do we need a sales tax license for every state we close a sale in? Finally, it appears to me that as a Delaware corporation, we do not need a sales tax license for sales in Delaware but might need one for sales outside the state of Delaware, is this correct? Thank you for time and help.
ADVICE by Mark Henricks
You’re right that you probably won’t have to collect or pay the tax on a sale to a reseller, as sales taxes are almost exclusively limited to retail sales to end users. This is subject to interpretation, however, so you’ll have to check with the department of taxation in the state to be sure. Even if you’re selling to end users, you won’t be required to collect or pay sales tax unless you have a physical presence in the state.
Your partner’s presence in Virginia may trigger this for sales in that state, as what constitutes a physical presence is also open to interpretation. You normally won’t have to register in every state in which you have a customer as long as you are just doing business through the mail or Internet or otherwise without having a presence in the state.
Again, you’ll have to contact the department of taxation in individual states to be absolutely sure on this. Many states are acting creatively to collect some kind of tax on catalog or Internet sales to their residents, although you can generally avoid it if, again, you don’t have a physical presence.
The usual caveats about getting legal or tax advice only from qualified professional advisors apply strongly here, as violating sales tax regulations is a criminal act in some states.
I suggest you check out these books:
- U.S. Master Sales and Use Tax Guide (2016)
- A Guide to Sales and Use Tax: You’ll discover vital information on important topics ranging from opening a tax account to surviving a state audit.
- The Small Business Owner’s Guide to Taxation: Income, Payroll, Sales, Excise, and Use Taxes Explained
That ought to do it.
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Category: Q & A