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As sales brokers, we rarely (if ever) physically touch the products we sell. Are transactions of this type subject to sales tax?

Full Question: In our business, we rarely (if ever) physically touch the products which we broker sales of. Generally, we match company A with company B to find a home for surplus or excess spare parts. Company A then ships to company B directly in most cases. On occasion, we may act as a logistics intermediary in the shipping process, but rarely. We do however, manage the financial transactions, billing the purchaser of a part, extracting our transaction fee, and making payment to the seller. The question is whether or not transactions of this type are subject to sales tax collection?

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Answer:

Diane Yetter photoThe transaction you have described is generally referred to as a drop shipment transaction. In these cases, since your company is handling the invoicing, you are considered the seller in the transaction and have the obligation to collect sales tax on the transaction if your customer (Company B) can not provide an exemption certificate. Since Company A is selling it to you and shipping to Company B, they will have an obligation to collect sales tax on its sale to you unless you can provide an appropriate exemption certificate for the state to which Company A is shipping it to. Most states will accept your home state exemption certificate if you are not registered in the ship to state. Of the states you have inquired about (CO, AZ, CA, IL), IL would accept your IL resale certificate as you should be registered in IL; CO and AZ will also accept the IL resale certificate as they accept home state exemption documentation. However, CA will not accept any alternative documentation unless Company B is reselling the goods and can provide you with their resale exemption certificate which you can then pass on to Company A to avoid sales tax on their charge to you. If Company A is shipping to other states, the rules can vary and should be evaluated individually. If you are not registered to collect sales tax in any state, you likely have an obligation to do so and should consult a tax advisor to discuss options. We can provide this type of assistance to you if you would like our help.

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