Author Topic: Sales Tax Questions  (Read 903 times)

v8rx7guy

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Sales Tax Questions
« on: December 14, 2017, 09:54:53 AM »
I am throwing this out there to my fellow MMM'ers who might have a clue as to how I deal with collecting sales tax on my somewhat convoluted start-up business, my business is run out of Washington State.

In it's essence, I have created a small business that sells gift boxes filled with 3-8 items and ships them to whoever the purchaser wants it to go.  Here's where it starts to get complicated, the boxes are filled with both packaged food items as well as novelty items which are not food.  From what I understand (?) I do not need to collect sales on food items, but I do have to collect it for non-food items.  So here are my questions:

1. If the "buyer" of the box (usually a Washington resident) is having the box shipped to another state, do I need to collect sales tax on the box?  So in other words what triggers when I need to charge sales tax, where person who purchases the box lives, or where the box is going.

2.  If I am sending out a box for someone that contains, for instance, 4 food items and one non-food item, do I charge sales tax on the entire box amount, or do I only charge sales tax on the value of the non-food item, or possibly some even more complicated method?  Possibly something like I need to charge sales tax on 1/5 of the total box value?

This is a bit of a Hail Mary here, I am hoping that since there are so many brains here that someone probably has a better idea than I do on how to do this properly.  Thanks!
« Last Edit: December 14, 2017, 10:01:23 AM by v8rx7guy »

Papa bear

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Re: Sales Tax Questions
« Reply #1 on: December 14, 2017, 10:23:36 AM »
I've been out of the tax game for awhile. But what you are asking for is if you have nexus in the location where the economic transaction happens. 

I recall that it is usually based off of three criteria, sales, physical presence, and employees in the location.  Each area has its own rules.

Good luck and read up on nexus!


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robartsd

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Re: Sales Tax Questions
« Reply #2 on: December 14, 2017, 01:23:47 PM »
If customers select items to include in each box from a catalog of items with a price per item, each item should be considered for tax status separately. If there is an additional charge for packaging the items together as a gift, this charge would also be taxable.

I'm not sure but, you probably have to collect state sales tax if the customer is in state even if the shipping address is out of state. I would collect the tax and remit it to the state unless you have a customer who is willing to do the research to prove to you that the tax is not required. If a significant portion of your customers or shipments involve a particular state, you may need to research the tax laws for that state as well.

[url]/https://dor.wa.gov/doing-business/business-types/industry-guides/convenience-stores/when-charge-sales-tax-food-item[url]

If the above does not answer your questions, consult a local expert. If your gift boxes are pre-determined sets sold as a unit, I think you'll need to determine if the resulting product is considered taxable by the state or not. It would likely be either entirely subject to tax or entirely exempt from tax.

SeattleCPA

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Re: Sales Tax Questions
« Reply #3 on: December 14, 2017, 09:09:19 PM »
I've been out of the tax game for awhile. But what you are asking for is if you have nexus in the location where the economic transaction happens. 

I recall that it is usually based off of three criteria, sales, physical presence, and employees in the location.  Each area has its own rules.

Good luck and read up on nexus!


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These are actually the general rules for income tax nexus and the three factors for the "traditional" multistate apportionment formula used to allocate income among states:

https://evergreensmallbusiness.com/small-business-multistate-taxation-short-primer/

All a vendor needs for sales tax nexus is (in general) physical presence in a state. I did this post about Amazon FBA businesses which will probably answer your questions:

https://evergreensmallbusiness.com/amazon-fba-sales-tax-reality-sandwich/

Papa bear

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Re: Sales Tax Questions
« Reply #4 on: December 15, 2017, 01:52:53 PM »
I've been out of the tax game for awhile. But what you are asking for is if you have nexus in the location where the economic transaction happens. 

I recall that it is usually based off of three criteria, sales, physical presence, and employees in the location.  Each area has its own rules.

Good luck and read up on nexus!


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These are actually the general rules for income tax nexus and the three factors for the "traditional" multistate apportionment formula used to allocate income among states:

https://evergreensmallbusiness.com/small-business-multistate-taxation-short-primer/

All a vendor needs for sales tax nexus is (in general) physical presence in a state. I did this post about Amazon FBA businesses which will probably answer your questions:

https://evergreensmallbusiness.com/amazon-fba-sales-tax-reality-sandwich/

And that's why you have CPA next to your name and I got out of the industry =) thanks for the correction.


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v8rx7guy

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Re: Sales Tax Questions
« Reply #5 on: December 15, 2017, 02:50:25 PM »
Hi everyone, thanks for the responses... it always surprises me, the breadth of knowledge we have at this forum.  I did a little researching and I found some pretty interesting info regarding some of my questions.

First, it seems I do not need to charge sales tax on most of my boxes, irrespective of the food vs. non-food items.  This is because Washington is as destination-based sales tax rate (as opposed to a origin-based sales tax state).  This means that even though most of my customers are Washington residents and use a Washington billing address, since the destination for my box is almost always out of my state (Washington is my only Nexus) the I do not need to charge tax since the transaction is considered to take place where the box is delivered.  Here's some good reading on the matter:

https://blog.taxjar.com/use-billing-address-shipping-address-calculating-sales-tax/

https://taxify.co/2015/08/19/origin-vs-destination-based-sales-tax/
^this one is interesting since it actually uses WA in the example

Second, I have discovered that my product is considered a "combined" sale according to this page:

http://apps.leg.wa.gov/wac/default.aspx?cite=458-20-244

Where it gives a really interesting example:
"(5) How are combined sales of taxable and exempt items taxed?

(a) Combined sales. Where two or more distinct and identifiable items of tangible personal property, at least one of which is a food or food ingredient, are sold for one nonitemized price that does not vary based on the selection by the purchaser of items included in the transaction:
The entire transaction is taxable if the seller's purchase price or sales price of the taxable items is greater than fifty percent of the combined purchase price or sales price; and
The entire transaction is exempt from retail sales tax if the seller's purchase price or sales price of the taxable items is fifty percent or less of the combined purchase price or sales price.
The seller may make the determination based on either purchase price or sales price, but may not use a combination of the purchase price and sales price.

(b) Example.
A combination wine and cheese picnic basket contains four items packaged together: A bottle of wine, a wine opener, single-serving cheeses, and the picnic basket holding these items. The seller's purchase price for the wine, wine-opener, and picnic basket totals ten dollars. The seller's purchase price for the cheeses is two dollars. The seller must collect retail sales taxes on the entire package, because the seller's purchase price for the taxable items (ten dollars) is greater than fifty percent of the combined purchase price (twelve dollars)."

So it seems that as long as the non-taxable items in each box are valued at more than 50% the total box items value, then the entire box is not subject to sales tax.  This will be very valuable to me if I decide to do a "valentines" box next year in which I will probably see boxes purchased by Washington residents and delivered to Washington residents.

Thoughts?