Sellers Now Required to Collect Sales Tax Based on Customer Location
Do you sell merchandise or services by mail or online? If so, you may be required to collect sales tax imposed at the customer’s location.
Traditionally sellers were required to collect a state’s sales tax only if the seller had a physical presence in the customer’s state (a store, office, warehouse, etc.). That all changed when the US Supreme Court in 2018 decided a case South Dakota v. Wayfair. The Supreme Court decision approved a state law that required sellers to collect the sales tax charged by the customer’s state if the seller had a substantial economic connection to the customer’s state (even if it had no physical presence in that state).
Each state that has a sales tax is starting to establish rules defining the sales tax collection responsibilities of out of state businesses that sell to customers in that state. For example, Pennsylvania has adopted a rule, effective July 1, 2019, that if a non-Pennsylvania business has $100,000 of sales to Pennsylvania customers within the last 12 months, that seller must collect Pennsylvania sales tax on the sales to Pennsylvania customers.
There are sales taxes in 45 states (Alaska, Delaware, Montana, New Hampshire and Oregon don’t have a sales tax) and in many states there are city or county sales taxes in addition to the state sales tax. Sales taxes also vary place to place in defining what products or services are subject to sales tax. As those different states and localities start enforcing sales taxes on sales to their residents, a seller has a challenge understanding many different rules in different places. Fortunately, there are software programs and services that can help determine whether the sale of a particular product or service is subject to sales tax in a particular place, and states are expected to be lenient if the seller relies on software or a service like that. For example, the July 1, 2019 Pennsylvania rule says that a seller relied on a Pennsylvania-approved software or service vendor to determine whether the sale of a particular product or service is subject to sales tax in Pennsylvania, the seller is not liable on a sales tax audit by the Pennsylvania Department of Revenue.
If you have questions about your responsibility to collect Pennsylvania sales tax on sales to Pennsylvania customers, contact us today to speak with an experienced business and tax attorney who can help answer your questions.