The Sales Tax Guy: Interstate Sales

Showing posts with label Interstate Sales. Show all posts

Tuesday, March 27, 2012

Great Article: Amazon Taxes Are The REAL Hunger Games

from Forbes and Robert W. Wood

A nice, concise explanation of why Amazon has not collected taxes in the past, why buyers still have to pay them, and what the states are doing about it. Enjoy the article.

This link is part of a series called "Excellent articles that I wish I had written." The short name is "Great Articles."

The Sales Tax Guy
http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/
Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

Tuesday, December 28, 2010

Sales Tax on Big Chickens?

You're on vacation and you stop in at an interesting looking art gallery. A giant chicken catches your eye and you buy it for $10,000,000. You're a collector of over-sized fowl and this one will be the crowning glory of your private art gallery. It's a good thing you've got that really high limit on your MasterCard.

The dealer prepares the invoice.

Chicken.............$10,000,000
Sales tax (8%)..........800,000
Total...............$10,800,000

Oh, come on! Whoever heard of paying $800,000 in sales tax? This can't be taxable!

Actually, it is. And you've just made the revenue department in this state very happy.

Let's use the golden rule of taxable sales:

1. There's a sale
2. It's tangible personal property. It's obviously tangible. You saw it and you sat on it. And it wasn't permanently affixed to the floor. So it's tangible personal property.
3. The sale was made by an art gallery - someone in the business of selling art - a retailer.
4. You're buying this for your home or office, not to resell, so you're the end user.

Congratulations, you owe sales tax.

Now, you didn't get rich by just throwing around $800,000 here and $800,000 there. There's got to be a way out, right?

Hmmm. Not really. There are some common evasions, but no real and legal way out.

1. You can ask the gallery to ship it out of state to your home in Gotham City, where all the best Big Chicken collectors hang out. There's no sales tax when you ship out of the state, right? The dealer, who just got audited last month, points out that he can't do that. Since you're in the store, and effectively have control of the Big Chicken as soon as the sale is signed, you have taken delivery in the store. That means that the state you're in has jurisdiction and will impose tax. If the seller doesn't do this properly, he'll get nailed by the auditor (again) when she comes back in six months.

2. Even if you convince the dealer (maybe he's new and hasn't been audited yet) to not charge tax and to ship it to your home in Gotham City, you will now owe use tax on that objet d′art in the great state of Gotham. And since you're so stinkin' rich, you know they're going to audit you one of these days. Actually, unfortunately this doesn't happen all that often. You do owe the use tax. Whether you pay it or not is more of a reflection of your character. Bruce Wayne would pay the use tax. Just sayin'.

A different scenario

Let's say you're driving down a dirt road while on vacation, and see a yard sale with that chicken standing there in all of its glory. In a cloud of dust you slam on the brakes and kind of casually ask the rube what he wants for that "old chicken."

"Ah'll take $10,000,000 please. Ah inherited that from mah Daddy and he durn told me whut it were worth."

Dang. You write him a check since he can't take a credit card, and have him arrange for shipment to Gotham City.

Now, there's been a change in the situation. It's no longer a sale by a retailer, it's an occasional sale. Since the farmer isn't a retailer (he was having his annual yard sale) he doesn't collect sales tax. And since you purchased the item in an occasional sale, you owe no use tax, either in the state where you bought it, or in Gotham. Remember, the sale wasn't by a retailer, therefore it wasn't a taxable retail sale.

So in this scenario, you've saved the $800,000 in sales and use taxes. Legally! But only because you bought it in an occasional sale. Buy it from a dealer, and you owe the tax.

As is usually the case, not every state does it in the ways I've described. There are variations in several states on the way they handle in-store purchases that are shipped out of state, as well as use tax on occasional sales. Do your research!

Which leaves us with the moral of this story:

If you're going to buy big chickens, stick to the dirt roads.

Yep, I know. Sometimes these articles just write themselves.

This is our last article for 2010. It has been a good year for us and I hope it has been for you as well. We currently have January and February on our webinar schedule and will be adding March, hopefully by the first of next week. Happy New Year!

The Sales Tax Guy
http://salestaxguy.blogspot.com

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/
Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

Thursday, December 23, 2010

FOB

Ever Reward - (Panama) and Charleston Harbor

When I started writing this, I thought I'd give you a link that would explain what FOB meant. I was surprised that there are several different meanings for FOB, other than the one I was going for. This Wikipedia article should be sufficient to help you understand this term as I plan to use it.

To oversimplify, FOB means where the legal title to the shipment transfers to the buyer. If the terms are FOB Origin (or shipping point), then the legal ownership of the goods transfers when the seller ships them. If the terms are FOB Destination, then the seller hasn't transferred the ownership to the buyer until they arrive at her receiving dock.

Legal ownership determines who is responsible for the freight, and who suffers the economic loss when the shipment is lost in transit. If you're the seller, you want to transfer ownership immediately, which means you're going to want the terms to be FOB Origin. If the item is lost, it's the buyer's problem.

On the other hand, if you're the buyer, you would prefer to have the terms be FOB Destination, which means that the seller still is responsible for the shipment, until it arrives at your dock. Purchasing agents usually negotiate terms as FOB destination just for that reason, particularly on more expensive items.

The question of the effect of FOB comes up frequently in sales and use tax conversations because people think that the FOB point determines the state that has jurisdiction over the transaction. It doesn't.

The state that has jurisdiction is, very simply, almost always the state where the physical delivery occurs, or where the buyer takes control over the goods - which is pretty much the same thing. This is because the tax that is imposed, when we're talking about an interstate sale, is use tax. And use tax is generally imposed when the buyer uses (or controls) the goods. No matter what the terms are, the buyer doesn't control the goods until they arrive at her dock (if shipped by common carrier).

Conversely, if the buyer (or her agent) picks up the goods herself (not using a common carrier), then the physical delivery occurs at the shipper's dock. This is so, even if the original terms of the sale were FOB Destination and the buyer changed her mind at the last minute. What counts is where the physical transfer of control took place, not where the contract terms state the ownership transfer occurs.

Think about it. If it was that easy to manipulate the state that had jurisdiction, then all Amazon.com would have to do is put their warehouse in Oregon (no sales tax in Oregon), and then ship everything FOB Origin. Then there would simply be no tax at all. But that's NOT how it works. What determines the state with jurisdiction is where the physical, real transfer of possession or control takes place. That's an event that can't be manipulated by contract language. And so that's the event that really counts.

When FOB does matter

Having said all of that, there are two states that specifically say that the FOB point determines which state has jurisdiction - Tennessee and New Mexico.

Tennessee* isn't really a problem because they have a big loophole. As long as the seller arranges for the shipment of the goods, and the buyer doesn't pick them up, or arrange for the pickup, Tennessee doesn't claim jurisdiction. But if the buyer picks up the phone and calls the common carrier and arranges for them to pick up the goods at the dock in Tennessee, then Tennessee does claim that they have jurisdiction. The easiest way to solve this problem, other than letting the vendor arrange shipment, is to make sure the terms are FOB Destination. Then the loophole is moot.

New Mexico is different. They have no loophole. If you order something FOB Origin from Albuquerque, New Mexico says that the tax belongs to them. Period. This goes in the face of all of the things we talk about regarding interstate commerce. But the reason NM can get away with it is because they don't really have a sales tax. They have a gross receipts tax that is solely imposed on the seller. Since the transaction itself isn't being taxed, New Mexico can simply say that they get all of the taxes on anything that is sold in New Mexico, even if it's shipped out of the state. However, they are fair. If the terms are FOB Destination, they don't claim jurisdiction. So, as with Tennessee, the best solution when you're buying from NM is to make sure the terms are FOB Destination.

Please remember that there are some complications if you decide to make all of your purchases FOB Destination.

1. The vendor may not be interested in doing this. This is often an easy negotiating point, but sometimes the vendor stands firm. And you have to bring it up if you want the change. All sales contracts, if they're written by the seller, will state the terms as FOB Origin. That makes sense, since those terms are best for the vendor.

2. You may wind up paying the freight if the terms are FOB Origin. That could be a significant amount of money - even more than the sales tax. So watch this one.

3. In some states, the freight may be taxable if the sale is FOB Origin.

Summary

FOB points don't count in determining the state that has jurisdiction. What matters is where the goods are physically delivered. Well, that's except for two states: Tennessee and New Mexico. In those two states, the FOB point should be Destination to make sure the tax is for the delivery state. And since purchasing usually works to set this up anyway, it may not be a big problem.

*Tennessee Important Notice No. 10/01/2001, 10/01/2001

Wednesday, October 06, 2010

FAQ: The out of state vendor hasn’t charged me sales and use tax, but they should have. How do I make them?

This is a simple question, but it’s surprising how often I get asked.

There are two likely reasons for the out of state vendor not charging you use tax:

1. They don’t know anything about what’s taxable in your state. All they know is that, if that if they’ve shipped it out of their state, they don’t have to worry about it.

2. They don’t collect taxes in your state because they’re not registered. You may think they should be, since you constantly see their sales rep in your office, but you’re not going to win that argument (unless you’re Walmart). And frankly, it’s not really a problem. You just accrue the use taxes and have a nice day. You’re always going to have to accrue some use taxes, so just systematize the process and you’ll be fine.

By the way, if you have “demanded” that the vendor start charging tax, how do you know they’re charging the correct state tax? They may be charging the tax for their state (which is generally wrong). Or they might “say” they’re charging your state’s tax, just to keep you happy. They might just be pocketing the extra billings.

Hey, it happens. If you’re going to demand that the vendor charge tax, and they do, make them give a copy of their permit for your state to make sure they really are doing it right.

Friday, June 11, 2010

Common Carriers

Common carriers are regulated companies that haul people and/or goods for money. They offer their services to the public and will theoretically haul for anyone. Hence the name, "common carrier." On the other hand, a "contract carrier" offers their services to a small group of clients and can refuse customers.

Here's a good discussion on Wikipedia.

So who are common carriers?

Air carriers
Note we're talking about American Airlines and Fed Ex, not the local charter service.

Trucking companies
There are some contract carriers in this category, particularly delivery services.

Railroads

Ships and ferries
NOT charter fishing boats. This category would included ships destined for foreign ports and, in some states, barges.

And depending on situation, taxis and car services, telecommunications and pipeline companies have been referred to as common carriers.

The Neutral Zone

The "neutral zone" comes into play when an interstate delivery occurs. In an interstate sale, if a common carrier picks up goods in Florida and delivers them to Nebraska, the delivery point is considered Nebraska, even though they left the seller's control in Florida. This is the case in most states, even if the buyer hired the common carrier.

And it makes sense. If the essence of "use" for use tax purposes is "control," then the buyer has no control until the truck pulls up to their dock. The control of the goods passes from the seller to the common carrier at the seller's dock. The goods remain in the control of the common carrier until they arrive at the buyer's dock. At that point, the buyer takes control of the goods.

At no point, even if the buyer hired the common carrier, can the buyer stop the train carrying his shipment and tell the conductor, "My shipment is on your train. I want it now please." In other words, the buyer has no control, therefore did not use the goods.

So, the common carrier is a neutral zone where, even though the seller has shipped the goods, the buyer still hasn't taken control of the goods. No use tax is imposed on the buyer while the common carrier has delivered the goods.

Having said that, there are a couple of states that pretty much say that if the common carrier was hired by the buyer, then the common carrier is acting as the buyer's agent and the buyer does take delivery at the shipper's dock. But that is unusual.

Common carriers have exemptions

The second thing to remember about common carriers (particularly railroads, ships and air carriers) is that they have exemptions available to them based on how they will use the purchase - if they're going to use it directly in interstate commerce. For example, air carriers can generally buy their planes and parts tax free. Ditto for railroad rolling stock and large ships. The exemption is less common for trucking companies. Some states don't grant any exemption for "over the road" trucks and parts delivered in the state. Or the exemption may be based on mileage outside of the state versus inside the state.

It's also worth noting that some states, like Idaho, don't have an exemption for large ships. I haven't figured out why. But if someone knows. please contact me. ;-)

The Sales Tax Guy
http://salestaxguy.blogspot.com

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different.

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

Thursday, June 03, 2010

Golden Rule: There is no sales tax on interstate transactions

Yeah, I said it. And I'll say it again. There is no sales tax on interstate transactions.

Note that I said interstate transactions, where the item is shipped from one state to another state.

Sales tax does apply to intrastate transactions, where the item is simply shipped from one point in the state to another point in the same state.

Since sales tax doesn't apply to interstate transactions, what tax does apply? You got it...use tax. Since use tax is a tax on the use of an item, as opposed to the transaction (like sales tax), use tax can plug the loophole where the sales tax couldn't be collected, namely interstate transactions. Heck, that's what it was invented to do!

So, when it's an interstate transaction, there's no sales tax. But there is use tax. The buyer has the responsibility of paying the use tax to the state. However, if the seller has nexus in the state, the the seller has to collect the use tax from the buyer. It'll look a lot like sales tax since the rules and rates are generally the same.

To see an illustration of why this is the case, please see this three part series. It's got pictures, maps and everything!

The Sales Tax Guy
http://salestaxguy.blogspot.com

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different.

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

Tuesday, February 16, 2010

So, what state do I worry about?

A variation on this question came up in a telephone conversation yesterday. And it comes up so often, that I apologize to all of you for not addressing it sooner.

Here's the scenario:

Your company is headquartered in Austin, Texas.

The customer is headquartered in Albany, New York.

The contractor, who has been hired by the customer, orders the goods from you while sitting in their field office in Jacksonville, Florida.

You ship the goods from your manufacturing plant in St. Paul, Minnesota to the job site in Folkston, Georgia.

The contractor is headquartered in Redding, California.

The contractor's AP department is in Helena, Montana.

Which state gets the sales tax or use tax?

Here's a hint.

It isn't New York, Texas or California. The location of the corporate headquarters is so irrelevant, it isn't funny.

It's not where it was ordered from. Again, not relevant.

A very common misconception is that the billing address is somehow important. It isn't. AP folks often screw this up and base their assumptions on the taxing rules in their state. And since Montana has no sales tax, that must mean that everything the contractor buys is not taxable. Right? Wrong.

Another common mistake is to tax the transaction based on where it was shipped from. Wrong. The ship from state is irrelevant.

By process of elimination, we've narrowed it down to one state - Georgia. And that is the state that has jurisdiction. Because they are the state where the goods were received and taken control of by the buyer. And since it was an interstate sale, there can't be any sales tax. So use tax is owed to Georgia by the buyer.

Unless...

...you have nexus in Georgia. Maybe, for example, you have an engineer who regularly visits job sites in Georgia to help spec out projects and assist with installations. Then you'll have to bill the Georgia use tax on the invoice and remit the money to Georgia. Even though you're in Texas.

But no matter who has to pay the tax, the only state that gets the tax is Georgia. Because Georgia is where the delivery occurred.

So the next time you're dealing with a transaction involving multiple states, it's really pretty easy to figure out the state you have to be concerned about. Just ask yourself, where was the delivery point?

The Sales Tax Guy
http://salestaxguy.blogspot.com

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

Here's information on our upcoming seminars and webinars. Don't forget, we just announced our February to April schedule!
http://www.salestax-usetax.com/

Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

Tuesday, February 02, 2010

Make your vendors prove they're registered

It's generally required that sellers get certificates from their customers to make sure they really are buying something for resale, or there's some other reason that they don't have to pay sales tax.

But I want you to think about reversing the situation. I want you to start asking your vendors, who are charging you sales or use tax, for proof that they are registered in your state. Huh?

Whether this is a problem in your state is a function of how the laws are written, where the responsibilities lie, and how sharp the auditors are. So if you don't want to take my advice, that's fine. Just make sure that you know you're off the hook.

Let's say that Mary has just shipped you some new ladders from the "land of ladders," Wyoming.

Mary has charged you 6% tax, which is also the rate in your state, oh, Maine. [I'm just making the states up as I go along, folks.]

Any reason not to pay this?

The answer is yes! If you received the goods in Maine, then Maine tax applies. How do you know that Mary is collecting Maine tax? After all, she's far away in Wyoming.

"Well, they're charging me the Maine rate. I've got a calculator right here."

The average rates in the US range from about 5 to 9%. This means there's a chance that someone shipping from out of state is going to be charging your tax rate, without any assurance that your state is getting the money.

There's an easy solution. Call the vendor (Mary) and ask her a two part question. First, what state's tax is she charging? You may be amazed at how often her response is, "We're charging Wyoming's tax. What tax did you think we were charging?" If that's her response, then please refer Mary to this blog. And don't pay her the tax. Pay it directly to Maine as use tax.

Alternatively, Mary may respond, "Let's see. You're in Maine. Yep, we're charging you Maine tax." You may think that solves the problem. But you should ask the second question.

"Can you send me a copy of your Maine reseller permit please?"

"What do you mean?"

"Well, if you're charging Maine tax, then you must be registered in Maine to remit that tax properly. We like to make sure of that, so please send me a copy of your permit. You can fax it if you'd like."

"Uh, we're not registered in Maine."

"Then what did you mean when you said you were collecting Maine tax?"

"Oh, we just look up the rate on the web and charge you that. But we send the money to Wyoming."

Hand on my heart, I've heard a variation on that story quite a few times. I couldn't make it up.

Again, tell Mary about this blog. Please. And don't pay her the tax. Pay it directly to Maine as use tax.

Why do you care what tax is charged?

The first answer is universal. Does your state have budget problems? Wouldn't you prefer that any taxes you pay go to the appropriate state, like yours? Asking those questions makes sure Maine gets the money instead of those guys in Wyoming.

The second answer brings up a nastier and more painful possibility. If you get audited, and the auditor comes across the invoice from Mary in Wyoming, and he does a particular test, he'll discover that Mary isn't registered in Maine. That means Maine never got any tax revenue. Which means that Maine will make you pay that money again - to Maine. And good luck getting that money back from Mary in Wyoming.

The test that the auditor runs is to take some of your out of state vendors who have charged tax, and simply check to see if they're in the state's registered vendor database. If they're not in the database, there's gonna be trouble.

But you can do essentially the same test by simply getting the permit from any of these types of vendors. And if you can show the auditor that you're doing that check, they will probably be seriously impressed. Which is nice.

Here's the action item: Whenever you are charged tax in a significant amount by a vendor shipping from out of state, get a copy of their registration permit for the delivery state.

I don't normally recommend you do this for vendors that are in your state. Your risk is pretty small. But tomorrow I'll tell you about one case where it made sense to check.

Finally, a question that comes up is "What if they put the state on the invoice next to the tax? Doesn't that show they're really charging Maine tax properly?" Nope. You want to see the permit. That's another story!

Wednesday, January 20, 2010

Where did the sale occur? (Part 3)

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.

This is part 3. Here is part 2. Please start this series with part 1.

When last we left our hero, the great state of Texas, they were just trying to get their money from somebody. As we saw in part 2, there was a good chance that Brad wouldn't pay the use tax on the motor he bought from Jennifer because he was, well, stupid. We'll give him the benefit of the doubt. He just didn't know.

But maybe Texas can get Jennifer to collect it from Brad. Maybe.

To refresh your memory, here's the transaction:

The problem for Texas, as things stand, is that they can't make Jennifer collect tax from Brad. They can't make Jennifer collect sales tax because of that darned Constitution that we mentioned in part 1. And they can't make Jennifer collect Brad's use tax because Jennifer is in Tennessee! She isn't in Texas. They have no jurisdiction over her.

Now there are a lot of situations where a state can reach across a border and grab someone by the collar. But this isn't one of them. Jennifer is in Tennessee. Based on what you know so far, Texas can't touch her.

So they're still out the taxes.

But wait!

Jennifer has a sales rep - John.

John visits Texas five or six times a year. He flies into Dallas, drives around for a few days and flies out of Houston. Now Jennifer is in trouble. John's physical presence in Texas gives Jennifer nexus in Texas. Texas can now make Jennifer collect the use tax from Brad and remit the money to Texas. Yay!

So to summarize:

1. Angelina charged Brad sales tax because it was an intrastate sale in Texas.

2. Jennifer didn't have to charge Brad sales tax because it was an interstate sale and the Constitution restricts the ability of states to tax interstate commerce.

3. Brad owes tax on his use of the motor once he receives it in Texas

4. Brad probably isn't going to pay that use tax.

5. Texas would really like to get Jennifer to collect that use tax.

6. Which they can now do because Jennifer has a physical presence in Texas - nexus.

When the sale is intrastate, the tax that usually applies is sales tax
When the sale is interstate, the only tax that can apply is use tax.

And to answer the question that has lead all three of these articles, it's Texas. It was Texas when it was an intrastate sale. And it was Texas when it was an interstate sale because the only applicable tax in that situation is use tax. Which obviously can only be imposed in the state where Brad receives the goods. So the golden rule is that the state where the buyer receives the goods will be the state that imposes the tax.

Thank you for your patience. No more mini-courses for a while. Although, I like the maps. So you'll see those again. Real soon.

Monday, January 18, 2010

Where did the sale occur? (Part 2)

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.

This is part 2. Here is part 1. Please start this series there.

Remember, from part 1, that Jennifer doesn't have to charge sales tax, for any state, on her interstate sale to Brad. The Constitution says so. The states can't tax interstate sales.

In this situation, the responsibility therefore falls to Brad to pay use tax to Texas. Texas is the state where Brad took control of the motor for the first time - where he used the motor for the first time. Therefore, Texas gets to impose use tax on his use of the motor.

But Texas also knows that Brad is unlikely to pay this use tax. If Brad is an individual, it'll never happen. But in this situation, Brad is a business.

The problem is that if Brad is a small entrepreneurial operation, he doesn't even know he's supposed to pay something called use tax. His accountant (if he has one) probably doesn't know. If Brad hired a bookkeeper or AP specialist to help him, they would probably know about the need to accrue use tax because they did it at their previous job. But Brad hasn't gotten to the point of hiring any experienced office staff yet, other than his sister-in-law. He's in start-up mode, and he's just trying to survive.

Many small businesses are just not going to pay their use tax.

Texas knows this. And they also know they can't make Jennifer collect sales tax from Brad, because of that durned Constitution (see above).

But maybe they can get Jennifer to collect the use tax from Brad. Use tax is not a sales tax. It's not a tax on the transaction, so the Constitution doesn't get in the way. And it is the tax that Brad owes, since there was no sales tax imposed. So why not make Jennifer collect use tax from Brad instead of the sales tax?

You would be right! They can make Jennifer collect the use tax from Brad.

Or can they?

See part 3

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.

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.

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.

Bummer.

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

Articles You Need to Read!

Welcome to the Sales Tax Guy, a production of salestax-usetax.com.

If you're new here, you may wish to start your exploration with our article on Sales Tax in a Nutshell and our subject index.

We've also written master articles on sales and use taxes:

a Guide to The Sales Tax Guy

the various Taxing Policies,

Things that will get you in the worst trouble,

the Golden Rules of Sales and Use Taxes, and

the Essential Actions you need to take.

And here are the best resources for finding answers to your questions as well as our seminars!

Disclaimer

Please keep in mind that our purpose is to provide general information to familiarize you with certain issues. The information we provide may not apply to your particular situation or to the applicable state, may oversimplify an issue, or may omit a point that is relevant to you. In addition, exceptions, unwritten rules, and different interpretations abound. And every state (and sometimes local jurisdictions) will do it differently. Therefore you should not rely on the information provided for your specific needs.

After reading any of our material or participating in training or coaching, you should always consult with an attorney, CPA or tax adviser who is a local expert in sales and use taxes for the applicable state, and/or do your own research in authoritative publications before applying the principles or suggestions mentioned.

See our suggestions about the best resources for finding information.