For accountants and CPA’s, this time of year means excessive hours trying to prepare a seemingly insurmountable amount of tax returns. But for individuals, it means refund money (or at least, they want it to mean that). You can spend your income tax refund on anything you like, but keep in mind that just because the income tax people just gave you a refund it doesn’t mean the sales tax people don’t want that money back!
That leads us to the mother of all fake exemptions: stuff bought over the internet. Things purchased over the internet are not exempt from sales tax. Delivery charges related to things purchased over the internet are not exempt from sales tax. So why don’t customers pay sales tax on a lot of things purchased over the internet? Nexus.
In layman’s terms, having nexus with a state means having a physical presence in a state – whether it’s an office or you send your own delivery truck into the state. When a business (that is selling you the item on the internet) doesn’t have nexus in a state, it doesn’t have to collect sales tax for that state. That’s why the business doesn’t charge you sales tax.
However, that doesn’t mean you don’t owe any tax, though. Instead, you owe its lesser-known twin: use tax. Individuals self-assess use tax on their income tax return (businesses, including schedule C’s) can self-assess use tax on their sales and use tax return). What you purchase over the internet may not be taxable, but if you don’t self-assess use tax on what is taxable when you should, a state can technically assess you the tax, interest and penalty. And it’s up to you to figure out what is subject to tax. For example, in New York dandruff shampoo is exempt from sales and use tax, but you would owe sales and use tax on regular shampoo or soap.
States are aggressively working to either expand the definition of nexus to better apply to today’s world or are looking to change how sales tax is imposed all together. It’s not our job to make the rules. But it is our job to help inform you about sales tax so you don’t turn your tax refund into a sales tax debt.
Happy Tax Season (Merry Tax Season?) from Sales Tax Defense LLC! And be careful not to spend your whole refund on sales and use taxes…
Mark L. Stone, CPA, MST
Sales Tax Defense LLC
2106 Deer Park Ave, Deer Park, NY 11729