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Custom orders require a deposit - but for out of state orders, no sales tax is charged on deposit. What do we do if customer then shows up to pick up order?

Full Question: Custom orders require a deposit, the balance run upon completion. If order is for out of state, no tax is applied or charged on the deposit, and then shipped out of state, no tax applied to balance payment. However, if a customer's deposit is processed as an "out of state" sale, then shows up to pick up the product when completed, it's too late to adjust the original deposit to reflect sales tax, which has often been processed in a previous month/quarter. Can the customer be considered the "transportation" to the out-of-state destination in which the product will be used and documented as such? Other suggestions?

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Answer:

Diane Yetter photoThe determination of the state that has the right to tax a sales is based on where delivery or transfer of possession occurs. When a customer picks up the goods at the seller's place of business, the sale is deemed to occur at the seller's place of business. The fact that the original intent was for delivery to occur is irrelevant. If the customer ends up picking up the order at your location, tax must be charged in CT on the entire price. If a deposit was previously paid and coded as an out of state amount, it must be reversed and the entire selling price is subject to tax in CT. I would process the deposit as a return in the current month and then reinvoice for the entire amount charging CT tax on the full amount and apply the deposit as a form of payment against the final amount including CT tax.

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