Question:
What’s the deal with sales tax? What is it and when do you have to pay it?
Answer:
Traditionally, sales tax only apply to physical and tangible goods – merchandise that you would ship out to consumers. Though some states do tax on digital goods and downloads. For example, let’s say that you are based in California and are shipping goods to a customer in South Dakota. Normally, you would only have to pay the applicable sales tax in California and not any other state you might be selling your goods to.
There was a recent change to the law due to a Supreme Court case with Wayfair, Inc. and the state of South Dakota. While Wayfair being based in a different state, South Dakota was unhappy about Wayfair selling home goods without having to pay any South Dakota state sales tax. Ultimately, the Supreme Court held that you now have to pay sales tax in every state you sell goods in.
Because of the Wayfair case, a lot of things changed and became complicated such as when and how sales tax applies. There is now a $500,000 threshold in sales for most of these sales tax filings for selling in other states. Though you do also want to make sure that there aren’t any other rules that apply even though you don’t meet the sales threshold.
What Does This Mean?
This means that no matter where you are based and where your shipping and fulfillment center is based, if you are selling goods in other states, you will likely need to pay sales tax in the states you sell your goods to. We recommend speaking to a CPA about different state sales thresholds.
Why Is This So Important?
This change in law is important because traditionally, if you were based in California, you would only need to pay the sales tax for your tangible goods sold and all the revenue to California under your seller’s permit. But if you now have to pay sales tax for every state in which you sell your goods to, you will most likely need to register in every single one of the states you sell goods to and obtain seller’s permits as well.
To Wrap Things Up….
The change in law for sales tax makes things very complicated and sort of burdensome. We recommend you talking to a CPA or even consider reaching out to companies that can help you make sure you are in compliance with the sales tax per different state. If you do sell goods in other states, you want to make sure you are compliant with the new requirements because you could get fined or penalized.
As always if you have any further questions, feel free to reach out to our team at bertie@inbetterwetrust.com. We’d be happy to answer them!