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We are registered in 2 states. Do we need to file returns in all states to which we (or our vendors)ship - or just those where we are registered?

Full Question: We have 2 business locations where we are registered. We buy equipment from vendors, and they send it either to one of our locations or directly to our government clients. What state do we have to file Sales & Use Tax Returns? Vendors ask us to provide them with the Exempt Certificates from states they ship equipment on our behalf. Then if we registere in that state, state requires us to open an account with them which requires us to file Sales Tax Return to this state. It is always $0 tax obligation returns. Do we need to file the Sales Tax Return to all the states we or our vendors ship products or we only need to file Sales Tax Returns to the 2 states we are registered as a business entities?

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Answer:

Diane Yetter photoThere are a few aspects to your question. First, the state that has the right to make the determination as to whether the transaction is taxable and how to document the exempt status of it is the state where the goods are delivered. If your suppliers are shipping the goods to your customer on your behalf, this is referred to as a drop-shipment. The state's rules that apply are still the state of delivery. However, since there are now 3 parties to the transaction we must determine the tax incidence on your purchase as well as your sale. You are purchasing for resale which should qualify for an exemption. However in order to claim this exemption, you must provide your vendor with a resale certificate that is acceptable in the state of delivery. If you don't have a valid certificate that is recognized by the state of delivery, then the vendor, if they are registered to collect tax in that state, will have no choice but to charge you sales tax. Luckily most states will not require you to register in order to issue a valid resale certificate. Most states accept what is referred to as a "home-state" certificate. This could vary as to what exactly the state requires but is generally a resale registration number from a state where you are registered either on a multi-jurisdictional form, your home state form or the delivery state's form. If your sales are to exempt purchasers, the state may also accept what is referred to as a "pass-through exemption" where you will provide your customer's exemption certificate to your supplier. There are some states however that will not accept anything other than a resale number for their state. If the delivery is to a state that will accept this alternative documentation, then you will not have to pay sales tax to your supplier on the purchase once you provide this alternative documentation. If the delivery is to a state that does not accept alternative documentation, you will either have to register and then collect tax on any taxable sales or pay tax to your supplier. The determination as to where you are required to register and collect sales tax is dependent on your activities in a given state. If you have established nexus (through activities which create a physical presence), then you are required to register. If you make taxable sales, then you will be required to collect sales tax on those taxable sales. You should keep in mind that if you are selling to state or local government agencies, they are not always exempt from tax. There are some states that impose tax on sales to themselves.

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