Monday, September 10, 2007

Golden Rule - The Buyer has the ultimate responsbility

Part of a series on essential actions you need to take

When I first began to develop the Golden Rules of Sales and Use Tax, this was the first rule.

If the seller doesn't charge tax, the buyer must pay use tax.

There are some important elements to this rule:

1. The seller, in most states, MUST charge tax, assuming the sale is taxable and they have nexus in the state. There are a couple of states where the buyer doesn't have to pay the use tax if the seller fails to charge tax. But the buyer usually still owes the money to the seller if the seller discovers the mistake; it must be an intrastate sale; and the seller must be registered with the state to collect tax. This is not a very common variation.

2. Sales and use taxes are complementary taxes. The means that, generally, the rates and rules are the same because use tax is essentially only supposed to kick in when the buyer hasn't paid the tax to the seller.

What this means is that, just because the seller hasn't charged the buyer tax, it doesn't mean the buyer is off the hook. The states have set it up so that the ultimate responsibility for the tax falls to the buyer.

Here's a little example of this.

The Sales Tax Guy

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