Do i have to pay sales tax on an ecommerce business?

FLORIDA SALES TAX FOR OUT-OF-STATE ECOMMERCE

• I have a sole proprietorship in Pennsylvania (home-based business). I am required to pay PA sales tax on goods & services sold to PA residents, but am not required to collect sales tax on out-of-state customers (I am near the MD border so do get quite a few). I am now expanding my business to e-commerce, so obviously will have many more out-of-state customers. I will be using a drop-shipper based in Florida for this new line of products. The customer will pay me the retail price with their credit card. I will forward my orders to the drop-shipper, and pay him the wholesale price with my credit card. He will then place orders with various manufacturers & distributors in many different states, and have the goods shipped direct to my customer. It was my understanding that I still only had to charge sales tax to PA customers. However, I recently received an email from my drop-shipper saying "all shipments with destinations in Florida, regardless of where they ship FROM, will be charged 7% sales tax." Technically, since I am paying him with my credit card, he is selling to a PA customer, not a Florida customer, even though it may be shipping to a Florida address. What's the deal - do I have to charge Florida sales tax for my Florida customers or not? Is there a chapter & verse in the Florida tax code I can quote him to convince him not to charge tax?

• Answer:

  My research suggests that if you obtain a valid state exemption certificate from the State of Florida, then your drop shipper will not be liable for sales tax on shipments to Florida addresses. Your best bet is to contact Florida Taxpayer Services at 800-352-3671 to find out precisely how to handle your situation and how to obtain such a certificate. You may also be able to structure your businesss relationship with the drop shipper so that they are not liable for Florida sales tax. Sincerely, Wonko Sources: ""My eBay business is based out of my home in New York, but I sell products that several, large, out-of-state distributors drop ship for me. If I sell to a buyer located in the same state as one of these distributors, do I have to charge that state's sales tax?" When you use a drop shipper, you're selling products that are shipped directly from that company's warehouse. Once you've notified them you've made a sale, they ship the goods to the buyer. Technically, if the drop shipper is using its own address labels on the packages and is accepting returns of damaged or defective items, then they, not you, are the real seller of the items, and they should be charging sales tax to buyers living in any state where they have manufacturing, warehouse or office facilities (not just to buyers located in the same state as the facility you're dealing with). Ask if the drop shipper will use your address labels with your New York address and let you accept returns for credit. If they won't do that for you, then make sure your drop shipper agrees in writing to pay all sales taxes that may be due on sales you generate for them." "Frequently Asked eBay Tax Questions" by Cliff Ennico, Entrepreneur (October 31, 2005) http://www.entrepreneur.com/article/0,4621,324214,00.html "Here are some examples of business activities, product uses, and consumptions requiring the collection of sales tax or the payment of use tax: Sales of taxable items at retail. Repairs or alterations of tangible personal property. Rentals, leases, or licenses to use real property (for example, commercial office space, mini-warehouses, or short-term living accommodations). Rental or lease of personal property (for example, vehicles, machinery, equipment, or other goods). Charges for admission to any place of amusement, sport, or recreation. Operating private membership clubs that provide recreational or physical fitness facilities. Manufacturing or producing goods for sale at retail. Importing goods from any state or foreign country, for sale at retail or for use in the business. Selling service warranty contracts. Ordering and using, on a regular basis, mail-order products on which no sales tax was charged. Operating vending or amusement machines. Providing taxable services (for example, investigative and crime protection services, interior nonresidential cleaning services, and nonresidential pest control services). If you are unsure whether your business is required to register to collect sales tax, contact Taxpayer Services (see "Whom to Call")." "Florida Sales and Use Tax" State of Florida http://www.myflorida.com/dor/taxes/sales_tax.html "Tax Exemption Basics Manufacturers sell products to distributors. Sometimes the manufacturer ships the product to the distributor's office in the distributor's home state. Sometimes the manufacturer drop ships the product to the end user on behalf of the distributor, and the end user is in the distributor's home state. In these two situations, the distributor should provide the manufacturer with a copy of the Tax Exemption Certificate for the distributor's home state. This provides the manufacturer with evidence that the distributor has registered with his home state as a business that distributes product for resale. This allows the manufacturer to waive charging tax on product shipped to that distributor or drop shipped to an end user within that distributor's home state. If your distributorship does not have physical presence such as a sales office, distribution center or manufacturing facility in a state, you are not required to collect sales tax from your end user customers. The legal precedent under which states must operate stems from a 1992 U.S. Supreme Court decision, Quill vs. North Dakota. Quill, the office supply catalog sales company, had been charged with sales tax violations by the state of North Dakota. Quill drop shipped orders into that state, but had no physical presence there. The court ruled that Quill was not required to collect sales tax because it did not have physical presence in North Dakota." "When a manufacturer drop ships a product to an end user on behalf of the distributor and the end user is in a state other than the distributor's home state, the tax situation can be confusing. That's because although the distributor may not have physical presence (called "nexus" in state tax language) in those states, some manufacturers do because they have multiple plants, warehouses or sales offices. Thus, manufacturers with nexus in multiple states are required by law to collect sales taxes on products drop shipped to those states unless the distributor can produce a tax exemption certificate. To further complicate matters, certain states will not accept the distributor's home state tax exemption certificate for products a manufacturer drop ships there. In these cases, distributors should secure a tax exemption certificate directly from those states and file a copy with their manufacturer. Manufacturers that have physical presence in multiple states have little maneuvering room. Lacking the distributor's tax exemption certificate, the manufacturer is liable for the state tax. If the manufacturer has a copy of the distributor's tax exemption certificate for those states outside the distributor's home state, the manufacturer will not be required to charge state sales tax." "How to Handle State Tax Exemption Requirements IMR, (March 26, 1996) http://www.dmia.org/sol_center/taxes/handlestatetax.html Search terms: collecting florida sales tax; drop shipping "sales tax"