With the advances in modern technology, especially the internet, it has become much easier for Florida businesses to sell their goods. This is true not only throughout the State of Florida but also in other States. This raises a question of who is responsible for paying the sales tax on those out of state sales, the customer or the business entity? An experienced Business Attorney, the Law Firm of Gary I. Handin, is well equipped to provide the answer to that and other questions related to out of state sales made by Florida businesses.
Does Every State Charge a Sales Tax?
No, not all states in the U.S. charge sales taxes.
However, 45 out of the 50 states do. The five states that do not charge a state sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon.
Cities and municipalities in Alaska are allowed to collect city sales taxes of up to 7%. The amount of sales tax charged depends upon the city. Sales taxes are not uniform and vary from state to state.
At 9.47%, the state with the current highest sales tax rate is Tennessee. Hawaii has the current lowest State sales tax rate of 4.41% The rate states charge can vary from year to year and should be verified on a regular basis.
Do I Need to Know the Sales Tax Rate for Each State in Which I Do Business?
Does a business entity selling goods in other states need to know what the sales tax rate is for each state in which they do business? Why not just charge the Florida sales tax rate, which is currently 6%?
If the state in which the customer resides charges a lower sales tax than the 6%, then you have overcharged the customer. If the state charges a higher rate than the 6%, then the state can bill the customer for the difference.
However, when your customer receives a bill from their state revenue agency advising them that they owe an additional sales tax, they could very well become angry and insist that you pay the difference. You are then faced with the dilemma of either paying the additional charge to appease the customer or not paying and potentially losing that customer.
If you don’t charge a customer from another state a sales tax and their revenue agency finds out, the customer can be billed for the use tax, penalty, and interest. You could then find yourself in the position of either paying the bill or losing the customer.
The Florida Department of Revenue
The Florida Department of Revenue created a brochure for Florida Businesses who have out of state customers. According to that brochure, if you have a business presence (also referred to as a nexus) in a state, you must register with it for tax purposes. Examples of having a business presence include:
- Owning property in that state.
- Making regular deliveries of your merchandise in that state.
- Providing repair services in that state.
- Sending your representatives to solicit orders in that state.
If you don’t have a nexus in a state, you don’t have to collect sales tax on the items you sell.
However, your customer is required to pay use tax in their state when they receive the item or items. The state of Florida recommends that business owners voluntarily register in their market states should they have out of state customers. That way, business owners can help prevent those customers from receiving a bill for use tax, along with penalties, and interest.
The South Eastern Association of Tax Administration (SEATA) shares information with its members to ensure transactions are taxed fairly. Twelve states are currently SEATA members. They are Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia.
Member states exchange information on businesses and their interstate transactions. If you don’t register in one of those member states, you could get audited. Just registering doesn’t make you liable for past uncollected sales tax. However, if you had a prior business presence in one of those states, you are liable for those past taxes.
For Florida businesses selling goods to customers in other states, there are multiple decisions to make regarding whether or not to register with that state and whether or not to collect sales taxes from your customers. Making the wrong decision can lead to the loss of valuable customers and have a negative impact on your business. Schedule an appointment with us at Handin Law today and let us guide you through and answer your questions regarding the entire sales tax process for businesses with out of state customers with our decades of experience.