How, Why and Where to Get a Sales Tax Number
by: Skip McGrath
Most states charge sales tax on goods sold within their state. A lot of Amazon, eBay and website sellers seem to wonder why they need a sales tax number. If you only sell a few used goods you buy at garage sales, I wouldn’t worry about it. But if you sell several items a week, you probably should get one.
Three Reasons for Having a State Sales Tax Number, also called a Resale Certificate or Resale Number
- It’s the law. If you sell goods on Amazon, or the internet you must pay sales tax. In its June 21st ruling in the case of South Dakota v. Wayfair, the Supreme Court decided that online buyers will have to pay sales tax on everything they buy online. This means that all online sellers (Amazon, Sears, Wal-Mart, Big Commerce, Shopify, etc.) may have to potentially collect and pay sales tax in all 46 states that have sales tax. However, South Dakota has a $100,000 in sales exemption. If your sales to South Dakota residents are below $100,000, you don’t have to pay sales tax. Check with the other state agencies as many of them have similar exemptions.
The Commerce Clause in the constitution’s original purpose was to limit the power of government to interfere with commerce. This has now been turned on its head. Not only can the Federal government interfere with everything, but they extended the power of the individual states to do that as well.
Before this decision, small sellers were only required to collect and pay sales tax on sales made and shipped to someone in a state where you had a presence. For example, I live and work in Washington State, but I also have a warehouse in Tennessee. Therefore, before the Supreme court rendered this decision, I would have to collect and pay sales tax on any sales I made to buyers in Washington or Tennessee.
Before this decision, several states used the Nexus argument. This claimed that because companies such as Amazon, Wal-Mart or Sears had operations (stores, offices, warehouses, etc.) in those states, that sellers on those platforms are required to collect and pay sales tax on sales made to buyers in those states state. That position was clearly unconstitutional -but with this decision, it no longer is.
In fact, this decision ignores the concept of Nexus altogether. It no longer matters whether a company or individual seller has a presence in the state, the decision says that all states that charge sales tax, can now force sellers to register, collect and pay sales tax on all sales made to anyone residing in that state.
Once again, remember that many states exempt small sellers, so it pays to use a service such as Tax Jar as they have this information.
This decision will also affect buyers who purchase a gift and have it shipped to someone in a different state. This is a real problem for sellers, because both states -the buyers’ and the gift recipients’, will want their tax. But how do you collect tax from someone who receives a gift?
So what do small sellers do now?
Most importantly, don’t panic. This is not going to happen this week. It could take up to two years for all the state legislators to pass new laws.
Since it’s going to take some time for each state -not to mention platforms like Amazon to act, I suspect, Amazon and other large online sellers, will quickly realize that several thousand sellers will just give up and leave the platforms and stop selling altogether. Large online venues such as Amazon, Wal-Mart and others, have thousands of employees including accountants and tax lawyers.
These companies are already registered with most of the states, and they already collect & pay sales taxes. I think they will realize the only solution is to assume the burden of sales tax collection and payment. It is already starting. Based on new Oklahoma Sales tax rules, Amazon will start, collecting, and remitting sales tax on all orders shipped to customers in Oklahoma starting July 1st. Oklahoma joins Washington State and Massachusetts where Amazon is already doing this.
This fine if you sell on a platform such as Amazon, Etsy, Wal-Mart etc., but what about small website sellers? This decision could drive thousands of those sellers out of business.
If you want help with this issue, or just want to learn more, visit Tax Jar. Besides sales tax payment services, they also have webinars and other educational info about sales tax.
Be patient. This will take some time to work out. Stay on top of announcements by the sites you sell on.
- You can purchase items without paying sales tax on them. When you buy something that you plan to resell, you can purchase it without paying sales tax. But it must be for resale. For example, you can not buy a new computer to use in your office and not legally pay sales tax. But if you go on Liquidation.com and buy a computer that you plan to sell on eBay, then you can buy it without paying sales tax. Depending on if your state charges sales tax on shipping, then you can waive sales tax on shipping supplies.
- Most real wholesale companies require a sales tax certificate. Almost all legitimate wholesale companies will ask for a copy of your resale certificate (sales tax license) before they will sell to you at wholesale prices. Besides wholesale companies, in most states you need it to open a commercial checking account. Many banks will require s sales tax number to open a business account.
In addition, every wholesale trade show and merchandise mart I have ever been to requires a copy of your certificate before admitting you.
If your state does not charge sales tax, (Oregon and Montana for example) then it will probably issue some type of Business License that will serve the same purpose for showing banks and wholesale companies.
Getting a sales tax number is very easy and inexpensive. You can link to any of the states below to get information on obtaining a sales or use tax number. Most states allow you to apply online but a few will give you forms to download, fill out and mail in.
For some reason, links to government sites seem to change often. If one of these links doesn’t work, simply type in www.xx.gov. Just replace the “xx” with the two letters of the state you want. For example, www.wa.gov will get you to the State of Washington web site.
* These states don’t have a conventional sales tax website as this article
is being written (but they are being added all the time). A link is provided
where you can find more info on that state’s tax, business, and/or licensing
Once again, the states are terrible about maintaining websites. So if one of
these links does not work, just follow the steps in the first paragraph above.
Some of these sites are informational and will require you to hunt around the
website to find the application. If all else fails, just use the contact form
to ask where the application is.