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Internet Retailers & Sales Tax Exemption Certificates. Hmmm...

author photo of Silvia Aguirre

It seems like every day there is another story about how much closer we are to receiving a federal law regulating online sales and taxes.  I thought the LA Times had an interesting story which included a nice quote.

"If I were president of an online retailer … I would look at this week in Washington, D.C., and I'd make my plans to start collecting sales taxes wherever I sold things in the United States," said Sen. Lamar Alexander (R-Tenn.).

From my understanding, it is not just online retailers who will be affected by these new laws.  Any company without nexus, but distributing, drop shipping or delivering goods in any way to a state will become now liable for collecting sales tax.

Let’s focus in on sales tax exemption certificates.  In the past, if a buyer was working for a recognized exempt organization, they could buy from a local store and present an exemption certificate or else they could buy online and not worry about any of the paperwork.  For those of you who have never worked retail, when a person at a cash register is confronted with a sales tax exemption certificate it pretty much shuts that line down until a manager comes to approve and hit that over-ride key.  Or, it means going to a special line in customer service to make the purchase.  The internet was just easier than dealing with the regulations that no one at retail really understood.

Now that internet retailers are being forced to deal with this issue – how well do you think they will respond to that piece of paper that says you should not be charged sales tax?

Note: Silvia Aguirre is no longer accepting new comments nor questions. More recent "Exemption Certificate Mgmt" posts by Michael Fleming (of Peisner Johnson) are still active. Also use the Site's SEARCH bar to locate other helpful information.

Other recent “Exemption Certificate Mgmt.” posts by Silvia Aguirre:

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Note: Silvia Aguirre is no longer accepting new comments or questions.  More recent "Exemption Certificate Mgmt" posts by Michael Fleming (of Peisner Johnson) are still active.  Also use the Site's SEARCH bar to locate other helpful information.

5 Responses to Internet Retailers & Sales Tax Exemption Certificates. Hmmm...

  • Posted by Sandra on January 15, 2014 10:38pm:

    Dear Sylvia,
    We are an Europe based company with an US sales office. As an outsider I have a hard time understanding the US tax rules. Our company sells materials that are used in production to other companies. Our US sales office asks the customer for an exempt form and no sales taxes is calculated.
    We are working on an online shop. I’ve seen that there is software available that calculates the applicable sales tax in the online process, but since our customers are all exempt from paying sales tax, I don’t think we need this software. The thing is that our website will be accessible to individuals who are not exempt from sales tax (no registration is required to access the shop), not that they will be interested in our products, but theoretically they could make a purchase. Is it allowed/ accepted to make a statement on your website that the shop is only for B2B sales and that we don’t sell to individuals? Perhaps we could have them confirm during checkout that they are exempt from sales tax by clicking a checkbox?
    Hopefully you can help me by answering this questions and/ or perhaps refer me to (legal) documentation regarding this subject? Thank you in advance for your time and effort.

    • Posted by Author photo of Silvia AguirreSilvia Aguirre on January 28, 2014 6:17am:

      Hello Sandra, I completely understand why the US taxation seems a bit complicated. Your US group is doing the correct process of obtaining an exemption when customers want to be exempt from US tax. The issue here is not that you might be selling a product that can/will be used in production by other companies, but rather if the company buying is entitled to an exemption. For example, if you sell to California customers and you have nexus in California, then there is no exemption for production. This is where the software to calculate tax will be handy. Always assume customers are taxable, and then when documentation is presented you can exempt them. There is also software to embed onto online shops an exemption plugin that can easily be used to complete an actual certificate. I am afraid a checkbox is not sufficient. I will contact you directly on some suggestion that might help you. But keep in mind your obligations are with the states that you have nexus in, all others you have no obligation of collecting tax or obtaining certificates.

  • Posted by Deb on October 9, 2013 9:59am:

    Good Evening Sylvia --
    Can online retailers deny tax exempt status for all sales? We are exempt as a local government entity, and cannot legally pay for sales tax for purchases under state law. We would like to purchase ebooks from the sole provider of ebooks from a particular ereader device, but they say they do not honor sales tax exemptions.

    • Posted by Author photo of Silvia AguirreSilvia Aguirre on October 31, 2013 2:18am:

      Hi Deb, your questions is interesting :) First, not all government entities are automatically except in all states, documentation still needs to be provided specifically for the state where the delivery will be made. I don't have all the details, but the online retailer will charge tax where they have nexus. The states where they do not have nexus, they should not even be charging tax. Maybe that's what they meant by not honoring sales tax exemptions? Silvia

  • Posted by SWilson on November 22, 2011 12:13pm:

    Dear Sylvia,
    Thank you for interest in online sales tax. I am an Internet retailer who has taken progressive action to streamline my sales tax processing requirements. Included in the FREE service I now utilize there is a tax exemption certificate available as well. My small business well below the current proposed $500,000 small seller exemption is enabled to calculate, collect and remit sales tax for any jurisdiction in any state.
    Until recently I would have to agree that processing sales tax as part of online transactions was burdensome and costly for any business. However, I found a FREE automated solution for online sales tax collection that saves my company unnecessary administrative costs. My bookkeeper and accountant are now grateful that my sales tax matters are automated. Now my business is enabled to calculate, collect and remit sales tax for every jurisdiction in any state. It is simpler in most cases for my business to deal with sales tax than deal with the intricate complexities of the many shipping methods, speeds, and optional insurance.
    Legacy sales and use tax requirements which will continue absent enactment of the proposed legislation (Marketplace Fairness Act S.1832) are extremely costly, burdensome and harmful to communities and the entire retail sector both on and offline. Just look at what happened Circuit City and the many home theatre retailers now extinct.


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