Monday, February 25, 2013

Decision Tree for Exemption Certificates from Other States

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This particular topic was covered four years ago.  But since I get questions related to number 3 so often, I thought it might be time to brush it off and add a few extra touches.

What are the seller's responsibilities are when they ship to another state?

Question 1: What state does the delivery occur?  This determines the state rules you follow.  If you ship from Alabama, but the buyer receives the goods in Rhode Island, then you need to check Rhode Island's rules.

Question 2: Is what you sell taxable in that particular state?  Now don't go making any assumptions based on what you're used to .  Remember, the rules can be completely different in the other state.  You need to make sure!  If you are certain that what you're selling isn't taxable there, then you can now stop, take a deep breathe, and relax. If, however, your sale is taxable there, then I'm afraid you'll have to proceed to question 3.

Question 3.  Do you have nexus in that state?  It's WAY more complicated than what you think.  It's not just a matter of having an office there.  There are some very surprising ways that you can have nexus in a state. If you have nexus, you need to get the exemption certificate.

 But if you're SURE you don't have nexus, you are finished.  You can stop.  Unless...
There are some folks that will get certificates anyway, even if they don't have nexus in the state.  They do this for three reasons:

a. It's easier to just establish a policy that the company will always get certificates if the sale is taxable.  Procedures often work better with less conditional statements.  This keeps it simple for the staff, although it's more work.

b. They may have made a mistake in determining their nexus in the state.  Or it could have been a judgement call.  It might be safer to get the certificates just in case the auditor decides against them.

c.  Things change.  The company might not have nexus today.  But all it takes is for marketing to assign a sales person to regularly visit the state and you suddenly have nexus.  So collecting the certificates now is a protection against any future whims by those people in the sales and marketing department.

The Sales Tax Guy

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