Online Sales Tax

[xxxxxx]

Hello everybody, when I order a diamond from a dropshipper in NYC and he sends the diamond to be set in California. She then sends the complete ring to Illinois. At which step and how much sales tax should I calculate with?

Thank you so much for your help!

 

[Wewechew]

I believe it’s based on final destination- so Illinois. But I would check with the vendors you are dealing with.

 

[sledge]

There are tax rules specific to each state. This article explains more.

https://blog.taxjar.com/charging-sales-tax-rates/

That said, I believe WF is collecting sales tax applicable to their showroom for anything shipped in the state of TX or purchased in the showroom. Also, several states they collect tax (or report the data) based on the final destination.

https://www.whiteflash.com/about-diamonds/faq/does-whiteflash-collect-sales-tax.htm

What makes this interesting is the hop from NY to CA to IL. Curious if @Wink or @Texas Leaguer has any additional thoughts or comments.

 

[Karl_K]

IL sales tax applies.
If paid as one bill they collect tax on everything.
2 bills they each collect tax on their part and you dont have double tax.

 

[xxxxxx]

Thanks for everybodys expertise. And this is still the case when these vendors are small and probably don't sell more than 100k of goods in Illinois?

 

[Wewechew]

@Lessics They may not collect sales tax and it would be on you to remit use tax.

 

[Rose-gold-or-bust]

It depends. Normally if the store has any retail store in California, you must pay sales tax, regardless if you buy online via their NY store. Where it is moving around, I have no idea but the retailer should know

 

[LinSF]

Wouldn't it be the following:
If, for instance you bought a stone from WF, and you live in Ill, then they charge you Illinois sales tax, say they then ship it to Caysie, then Caysie would charge you for the sales tax on the setting (also illinois).

So you'll tax the full amount for Illinois.

 

[Wewechew]

Wouldn't it be the following:
If, for instance you bought a stone from WF, and you live in Ill, then they charge you Illinois sales tax, say they then ship it to Caysie, then Caysie would charge you for the sales tax on the setting (also illinois).

So you'll tax the full amount for Illinois.

Yes, this is how it is supposed to work. However, if WF is shipping the stone to Cali, they may charge her Cali sales tax.

 

[Wewechew]

Hence why I recommended contacting the vender directly to see what they were going to do

 

[Karl_K]

Thanks for everybodys expertise. And this is still the case when these vendors are small and probably don't sell more than 100k of goods in Illinois?

Then your required to pay the use tax yourself if they dont charge for it and pay it.

 

[Karl_K]

Yes, this is how it is supposed to work. However, if WF is shipping the stone to Cali, they may charge her Cali sales tax.

Which would be in error. I can see where vendors are going to adopt policies of only shipping to home addresses/states for all payment types. Most if not all credit cards all ready do. That would avoid the possibility of being a party to tax evasion.

 

[xxxxxx]

Interesting does it make any difference that I'm located in Europe and will have the ring sent to my family in Illinois? Obviosly I will pay german taxes then as well?

Sorry this is a pretty conplicated and boring situation.

 

[Wewechew]

Which would be in error. I can see where vendors are going to adopt policies of only shipping to home addresses/states for all payment types. Most if not all credit cards all ready do. That would avoid the possibility of being a party to tax evasion.

Yes, it would be in error. However, it would not be on OP when the company goes through a sales tax audit and ends up having to correct their mistake. I take that back- it would be highly unlikely that the company came back and had OP pay anything additionally.

 

[the_mother_thing]

@Wewechew I think what Karl meant by “error” is that sales tax is computed based on the buyer’s address, regardless of where a buyer has the item shipped, for whatever reason. No vendor I know of changes the sales tax rate you pay to that where the item is being shipped.

@Lessics Have you asked the person you’re buying the diamond from what his/her policy is for charging sales tax? Or the person who would make the setting? The fact that you are not a resident of the U.S. may result in you not being changed any U.S. sales tax; however, there may be other ‘taxes’ for your country to consider. And most vendors don’t collect those for you; rather, you pay any taxes/duties/import fees when you receive your item in your country.

 

[ringbling17]

Hello, when I inquired with WF about upgrading my diamond and having it shipped directly to DK to be set, I was told I would be charged CA sales tax, even though I live in NJ.
I would definitely inquire with the vendor you are using to be certain.

 

[the_mother_thing]

@Wewechew I don’t doubt there are shady practices that happen out there ... and that even some diamond dealers might partake in those practices. I just don’t believe it’s a smart nor sustainable practice any legitimate vendor would knowingly undertake. Uncle Sam - at the Federal and State level - always gets their money, even if it ends up being much later than the transaction takes place.

@kayla17 When was this? Just curious if it was before/after the 2018 Supreme Court ruling regarding online purchases & sales tax collection. WF publishes their policy on sales tax on their website (https://www.whiteflash.com/about-diamonds/faq/). I wonder if there is something unique about CA that they require an additional ‘tax’ be collected to anything coming into that state regardless of the buyer’s home state. I have never heard of/nor experienced any online vendor charging sales tax based on where the item is being shipped (if that shipping address differed from the buyer’s home address). In that case, I’ve been missing out on taking advantage of my Delaware-based family members’ residency. I actually remember asking one vendor (don’t recall which one) about that very scenario a couple years back, and I was told sales tax would be charged based on me (buyer’s) address; not where it was shipped. That was prior to the SC ruling last year.

 

[Wewechew]

@the_mother_thing I think most of the time is lack of knowledge on the companies part, not trying to be shady. Or I should say lack of knowledge from the person ringing up the order.

 

[ringbling17]

@the_mother_thing

This was a few months ago. I had inquired about upgrading my diamond and they mentioned it. I also have family in Delaware and I work and my kids go to school in Delaware so I thought about shipping the diamond to Delaware as well.
Also, from my experience, WF doesn’t actually ship to your home address. They ship to a Fed Ex facility where you have to go and pick up your package. So for me the drive to a fed ex location in De and the one near me in NJ would be the same distance and amount of travel. Here’s that email-

 

[the_mother_thing]

@kayla17 Not sure about shipping to FedEx being a ‘standard’ or ‘option’ depending on the item, value, etc. When I had my ACA sent, in conversation with WF, it wasn’t discussed thoroughly as I asked (due to Saturday delivery and not knowing if I’d be home) to just have it shipped to FedEx for pick-up. But the conversation was such that it seemed possible to have FedEx deliver the ACA to my home. Nevertheless ...

That’s odd to me that the tax would be considered ‘variable’ depending on the shipping address vs. the buyer’s ‘home address’ (even though it may be shipped to FedEx near that buyer’s home). Maybe there was something in the Supreme Court ruling to that effect, where this changed; not sure. I know one vendor won’t speak for another, but I would be curious to know/read what WF’s interpretation/policy is on this specifically related to WF purchases, if @Texas Leaguer is inclined/able to share.

 

[ringbling17]

@the_mother_thing
I’m not sure either. I just know in the past all my items were delivered to a fed ex and were held for pick up. I think you can request it to be delivered to your business or residential address, I just never did.

 

[Texas Leaguer]

The short answer to the sales tax question is "it depends"!

As I have said before, I think the Supreme Court ruling was fair but premature in that a feasible structure for merchants to comply accurately and fully with the obligation should have been in place BEFORE the requirement was implemented. Unfortunately, if I ever am nominated to the bench, it will likely be a different kind of bench.

Currently, and this is a fluid situation and is not necessarily universal, the default trigger for the merchant in the majority of cases is the shipping address. So, if you are living in one state and for any reason have the merchandise shipped to another state, it is the state and local jurisdiction where the item is shipped that is operative for the collection of tax.

Our standard shipping method is to a Fed Ex hold location. This is based on security. In some cases we are able to ship to the home address. And in some cases, even though they are in the same vicinity, the tax rate may be slightly different. That's how freaking complicated this is!

 

[the_mother_thing]

@Texas Leaguer Thanks so much for sharing that! I agree - too often, the ‘what’ is made ‘law’ with little consideration for ‘how’. I feel/see that all too often in my industry.

When you say ‘default trigger=shipping address’, is that based on what was outlined/directed via the SCOTUS ruling? Or is that specific to WF’s accounting software rules complying with the ruling?

 

[missy]

I think CPAs and other tax professionals are also confused by the complicating ever changing tax laws. So don't feel bad for not being confident as to what is the correct choice. People in the field are confused by it too.

 

[sledge]

That’s odd to me that the tax would be considered ‘variable’ depending on the shipping address vs. the buyer’s ‘home address’ (even though it may be shipped to FedEx near that buyer’s home).

And in some cases, even though they are in the same vicinity, the tax rate may be slightly different. That's how freaking complicated this is!

The exact shipping/receiving address is very important. Obviously jumping from one state to another can have a large impact. But there can also be large variances in-state.

Obviously much of what I am about to say will vary based on your specific state laws. However, many states charge 3 taxes: state, county and city. Unless you are from Louisiana and then you have a "parish" tax, which is what they call their counties.

The state tax rate applies to anywhere in the state. The county/parish and city rates are limited by their geographical bounds and specific rates tend to vary from one another. For instance, where I live, county taxes range from 0-2% and city taxes range from 0-5%.

To get to a final rate you add state + county + city based on your exact address.

Because you have variance between counties and cities you can end up with much different tax rates within the same state. Where I live, I can buy groceries in the same city and pay two different tax rates. Why? Because while both stores share the same city and state tax rates, they are located in different counties that have slightly different rates. Sometimes you end up in the same county, but different cities and the same thing occurs.

Obviously the more 0's before the decimal point, the greater impact these little nuances can have on you. Therefore, if you are establishing a business or temporary material yards & field office it can be very advantageous to buy/lease property located in specific areas so you can take advantage of potential tax savings on material purchases. But even in the case of temporary material yards, you have to factor in additional costs for double handling and any additional transportation from the yard to the actual final location before you can factor in a final tax savings advantage, if any.

The caveat being, you are a tax exempt entity or working on a project that can supply you with a tax exemption certificate for purchase of major materials that will be incorporated into the project. Then you can enjoy tax free purchases (within limitations), but even then there are conditions and the "small stuff" isn't tax exempt.

All that said, it may be very advantageous to have a ring delivered to a certain FedEx facility or to mom & dad's house who lives in the country and not subject to the same taxes as you. But also as @Texas Leaguer said early on, the right answer is "it depends".

 

[Texas Leaguer]

@Texas Leaguer Thanks so much for sharing that! I agree - too often, the ‘what’ is made ‘law’ with little consideration for ‘how’. I feel/see that all too often in my industry.

When you say ‘default trigger=shipping address’, is that based on what was outlined/directed via the SCOTUS ruling? Or is that specific to WF’s accounting software rules complying with the ruling?

It is based upon the requirements of the preponderance of states. Most feel empowered to collect tax on any transactions involving deliveries within their borders.

 

[the_mother_thing]

It is based upon the requirements of the preponderance of states. Most feel empowered to collect tax on any transactions involving deliveries within their borders.

Thank you! I don’t want to put you/WF on the spot here so please do NOT feel compelled to answer this, as the scenario is not ‘WF’-specific IMO.

But as a customer, this worries the crap out of me!

Hypothetically, let’s say I live in State A, and buy a diamond from a Joe’s Diamond Shack located in State B. I pay Joe’s for my diamond, and ask them to ship it to SettingsRUs in State C to have it put in a ring. Joe’s collects sales tax based on State C from me, and pays that tax to State C.

If State A (where I live) learns somehow that I made the purchase, and paid tax, but that tax went to another state due to shipping instead of my state where I will eventually receive and ‘use/enjoy’ the ring, am I now gonna be on the hook for & expected to pay a Use Tax to my state on top of what I already paid to State C?

When SettingsRUs sends me the ring, presumably they will only charge me tax on the setting, and remit that to my state. That would/could raise a flag to my state about this purchase, and then come after me for the additional tax that was paid to another state for the diamond.

Yea ... I don’t like this. I doubt I will have any vendor send anything of ‘significant’ value for me to another state for any reason, even if it meant I wouldn’t be charged sales tax. First off - no offense to other states’ residents - but I want my taxes to come back to my state to benefit my local economy, infrastructure, etc. since I actually get a ‘say’ (vote) here and not in other states. Secondly, I don’t want a surprise audit, tax bill, etc. thrust unexpectedly on me because the various ‘Uncle Sams’ can’t get their acts together to create common sense laws, and instead rush to collect revenue they think I didn’t pay properly.

This has been an incredibly enlightening yet frightening discussion!

 

[Wewechew]

@the_mother_thing I can tell you what I was told by our parent company's CPA...

Our parent company is located in PA and will purchase IT equipment for us down here in Texas. Half the time our parent company pays PA sales tax on the item (PA sales tax is 6% and Texas is 8.25%). I was told that we are only responsible for remitting the difference of the two tax rates to our state (so 2.25%).

 

[the_mother_thing]

@the_mother_thing I can tell you what I was told by our parent company's CPA...

Our parent company is located in PA and will purchase IT equipment for us down here in Texas. Half the time our parent company pays PA sales tax on the item (PA sales tax is 6% and Texas is 8.25%). I was told that we are only responsible for remitting the difference of the two tax rates to our state (so 2.25%).

That makes zero sense to me ... not that I doubt what you’re saying ... just baffling! Why is tax only paid half the time?

About the ONLY ‘good’ thing to come out of this appears to be a huge demand for tax attorneys, accountants & accounting/tax software to help businesses sort it all out as well as help tax payers to stay out of Uncle Sam’s audit crosshairs and/or jail.

 

[Wewechew]

That makes zero sense to me ... not that I doubt what you’re saying ... just baffling! Why is tax only paid half the time?

About the ONLY ‘good’ thing to come out of this appears to be a huge demand for tax attorneys, accountants & accounting/tax software to help businesses sort it all out as well as help tax payers to stay out of Uncle Sam’s audit crosshairs and/or jail.

Sorry, I should have clarified- if no PA sales tax was paid, we have to remit the full Texas amount. We just don’t have to pay sales tax twice if PA had already been paid.