Wednesday, January 13, 2010

Where did the sale occur? (Part 1)

This is part of a mini-course on the two major types of sales (intrastate and interstate) and their impact on sales tax and use tax.

The sale occurs when two events have happened. It begins when the seller ships the goods. It ends the buyer receives the goods.

angelena to brad

In this example, Angelina ships a motor to Brad. The sale begins when Angelina (the seller) does her job - when she ships it.

The sale ends when Brad (the buyer) takes control of the motor - when he receives it at his receiving dock.

Angelina ships it from Amarillo, Texas.

Brad receives it in Houston, Texas

The sale began in Texas. And it ended in Texas.

This is what is called an intrastate sale. It's a sale that happens within the state.

Intrastate sales are easy. You just charge sales tax (if you’re the seller). And if you’re the buyer, and the seller doesn’t charge you tax, ASK!

But let’s say that, instead of buying from Angelina, Brad decides to buy the motor from his old friend, Jennifer. She’s in Nashville. So Jennifer ships the motor to Brad in Houston.

jennifer to brad

As you can see, the sale started in Nashville, Tennessee.

The sale still ended at Brad’s receiving dock in Houston, Texas.

This is called an interstate sale. The sale begins in one state and ends in another state.

Interstate sales are a problem. Because of this darned document.


Article I, Section 8 of the Constitution for the United States of America says that

“The Congress shall have power …

…To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;”

According to the courts, this essentially means that, with a couple of exceptions, only Congress can tax interstate commerce. The states can't tax interstate commerce.

Therefore, because of the Constitution, Jennifer doesn’t have to charge sales tax for either Tennessee or Texas.


The problem for Texas is to figure out a way to get their money when Brad buys from Jennifer. Hey, it's a sales tax cliffhanger!

Here's part 2

The Sales Tax Guy

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions.

Here's information on our upcoming seminars and webinars.

No comments: