Sales Tax Exemptions

[redcell]

​But you still pay income tax on your profits though right? I never understand why I get charged sales tax from my state but when I ship it to another state I don't have to pay it. Is it better if I charge sales tax from customers in my same state? I only get like...1 customer in every 30 sales orders. Worth the hassle when it comes to tax season next year?

​You do still have to pay income tax on your profits.  The reason that you get charged sales tax from your state, but not another, boils down to a legal principle called personal jurisdiction.  By living in your state, you establish a sufficient "nexus" between you and that state for the state government to have personal jurisdiction over you and your commercial activities.  That nexus and that personal jurisdiction gives the state the ability to impose tax obligations on you consistent with the due process clauses in the US Constitution.  When you ship an item to another state, that is an act that is not deemed to have enough jurisdictional gravity to establish a nexus between you and that other state for jurisdictional purposes.  As a result, you couldn't be sued in that state and, more importantly for present purposes, you can't be taxed by that state.  Now, if you opened a store in that state and began operating your business there as well, that would establish the nexus needed for that state to exercise jurisdiction and impose the legal obligation to collect and remit sales tax on you.   

If you only have a physical location in one state and rarely ship items to that state, it would probably be worth it to go tax exempt.  That's what I did and I've saved a fortune.  It's even better if you live in a state that will refund the sales tax that you pay on a non-exempt transaction because you don't have to go through the hassle of having the retailer enter your exemption information.  I don't live in one of those states and am not sure how many there are out there.

 

[outatime]

Hi All

Can someone please break this down for a newbie, I started investing about a year ago nearly and have around 30k in stock, I have not setup a business but do pay Fl sales tax about 7%.   I have another business which is a service and we don't charge sales tax.   Would it be a good idea to setup a business now and apply for a sales exempt cert?  Is there any reason why I shouldn't?  I won't be selling for another 2 years or so if everything works out but it would be nice to know now before I buy anything much more..

Thank you

Stu

[redcell]

Hi All

Can someone please break this down for a newbie, I started investing about a year ago nearly and have around 30k in stock, I have not setup a business but do pay Fl sales tax about 7%.   I have another business which is a service and we don't charge sales tax.   Would it be a good idea to setup a business now and apply for a sales exempt cert?  Is there any reason why I shouldn't?  I won't be selling for another 2 years or so if everything works out but it would be nice to know now before I buy anything much more..

Thank you

Stu

​It will probably depend on how this all plays out in FL.  I don't know, but, all things being equal, going tax-exempt is probably a good idea since you're not selling.  However, if you've been at this for a year and are already $30k deep with inventory, I would advise you to start getting some experience selling.  As has been said many times before, buying is easy, selling is much harder.  If you're on track to have almost $100k in inventory before you begin selling and you don't have much experience selling by the time that day comes, you are likely to find yourself completely underwater and struggling to figure how exactly to sell the thousands of sets that you're sitting on.  In my experience, selling anywhere below $20k in inventory is something that you can generally do on a casual basis.  Once you get above that level, administering the sales volume becomes much more difficult and when you cross into 6 figure territory, you really have to have solid processes in place to push the volume. 

[legowalker]

​You do still have to pay income tax on your profits.  The reason that you get charged sales tax from your state, but not another, boils down to a legal principle called personal jurisdiction.  By living in your state, you establish a sufficient "nexus" between you and that state for the state government to have personal jurisdiction over you and your commercial activities.  That nexus and that personal jurisdiction gives the state the ability to impose tax obligations on you consistent with the due process clauses in the US Constitution.  When you ship an item to another state, that is an act that is not deemed to have enough jurisdictional gravity to establish a nexus between you and that other state for jurisdictional purposes.  As a result, you couldn't be sued in that state and, more importantly for present purposes, you can't be taxed by that state.  Now, if you opened a store in that state and began operating your business there as well, that would establish the nexus needed for that state to exercise jurisdiction and impose the legal obligation to collect and remit sales tax on you.   

If you only have a physical location in one state and rarely ship items to that state, it would probably be worth it to go tax exempt.  That's what I did and I've saved a fortune.  It's even better if you live in a state that will refund the sales tax that you pay on a non-exempt transaction because you don't have to go through the hassle of having the retailer enter your exemption information.  I don't live in one of those states and am not sure how many there are out there.

 

​I don't have an actual physical store, am I still eligible for tax exempt?

[redcell]

​I don't have an actual physical store, am I still eligible for tax exempt?

​I don't know how the laws of your state are written, but, in my state, exemption from sales tax is not conditioned on maintaining a physical location.  I would be very surprised if any state has such a requirement, but you never know.  If you search for sales tax exemption on your state's department of revenue or tax, you should be able to find guidance pretty easily.

[Bold-Arrow]

well Target decided they want to go the anti-Reece way and doesn't accept tax exemption for resellers any more . booooooo 

[exciter1]

well Target decided they want to go the anti-Reece way and doesn't accept tax exemption for resellers any more . booooooo 

​Wow, that's nuts!

[justafrog]

well Target decided they want to go the anti-Reece way and doesn't accept tax exemption for resellers any more . booooooo 

​Whoa, what? In store or online?

 

Edit: nevermind, looks like online for sure, just started a test order. Congrats Target, you're now below Walmart and TRU in the lineup of where I spend my LEGO money.

Edited May 17, 2015 by justafrog

[Bold-Arrow]

​Whoa, what? In store or online?

 

Edit: nevermind, looks like online for sure, just started a test order. Congrats Target, you're now below Walmart and TRU in the lineup of where I spend my LEGO money.

Both. pos no longer list reselling as a tax exemption option in store . 

[imirish11]

Worked in store yesterday. Today the K5 option was blank and resale deleted. Target does not want to sell to resellers so do not declare your purchases for resale to any employee.

[Pseudoty]

I wonder if this was a decision long in the making or if their hand was forced by the Lilly Pulitzer fiasco. 

Edited May 17, 2015 by Pseudoty

[romoore245]

I wonder if this was a decision long in the making or if their hand was forced by the Lilly Pulitzer fiasco. 

​I doubt that could be the case. The tax on my little bit of Lilly only gained target an extra $436. The big spenders going after $22k of ipads, and that is just the one purchase that got their attention, are the ones that brought about the change. Imagine what they bought without being noticed. Besides if you keep good books you can claim all the tax and get a credit for it later.

[Bold-Arrow]

​Besides if you keep good books you can claim all the tax and get a credit for it later.

True, but I would rather save the money upfront, recouping it from the state is a PIA. 

[imirish11]

Trying to look at it on the bright side...the time I save not having to stand around waiting for red shirts to manually key in the info will far exceed the time I invest in maintaining detailed records and obtaining a refund from the state. I hope. Although those funds could be used for more investments while instead I will need to wait for refunds so I will be losing out on capital.

[justafrog]

I guess I'll have to get serious about figuring out how to get sales tax reimbursements from the state - I could manage to deduct enough from my CA sales tax owed to cover TLG purchases, but we add Target into that and it won't work out so well.

[Achilles]

If anyone receives official correspondance from Target on this, I'd be curious to see what they have to say.

 

[justafrog]

If anyone receives official correspondance from Target on this, I'd be curious to see what they have to say.

 

​Yes, please post - I sent a message to their sales tax exemption dept earlier, will let you all know if/when I hear.

 

[justafrog]

Doing a quick google search, I came up with this interesting thread, started last week, on an unofficial target employees website:

http://www.thebreakroom.org/index.php?threads/reseller-ban.11637/

 

[Bold-Arrow]

​Yes, please post - I sent a message to their sales tax exemption dept earlier, will let you all know if/when I hear.

 

​

[Achilles]

Very interesting indeed, the idea that they can reject a sale simply because you are a reseller is pretty fascinating. As many have mentioned, it's not a big deal if you are keeping your receipts and filing your paperwork, but it's extra steps instead of getting that discount up front. 

I am curious of other larger retailers will follow suit. I don't even bother doing tax exempt at Kmart because their process is so archaic and time consuming, but Wally/B&N/Target were convenient spots. 

I think the goal was to hit those buying huge quantities of electronics more than people scooping up clearance toys, so hopefully no one will actually care at Target. 

[belljohn]

Have any of you actually had a state give you credit for sales tax paid?  In WI, I gave up when the State's form required the signature of a manager at the store where I was seeking sales tax credit.  I haven't seen any other way to apply for credit unless you are claiming sales tax credit on your personal return instead of the standard deduction.

[justafrog]

Have any of you actually had a state give you credit for sales tax paid?  In WI, I gave up when the State's form required the signature of a manager at the store where I was seeking sales tax credit.  I haven't seen any other way to apply for credit unless you are claiming sales tax credit on your personal return instead of the standard deduction.

​I take a credit each time I file my normal sales tax return for sales tax I've collected on behalf of the state through my sales within California.

I have not tried to get a separate refund of sales tax outside of that form, however - I'm trying to figure out what form I would need for that (any Californians who know, feel free to pipe up  ) and see what I'll need to do.

Annoying for sure, and when I have the option of shopping somewhere that wants my business I'll definitely be bypassing Target.

[exciter1]

This is one example where my family's impatience might cost me money, but it saves me hassle.

[pcaster]

Ouch.  This was so convenient for online orders.  All things considered, Amazon just became much more attractive again for exclusives...

[Achilles]

Have any of you actually had a state give you credit for sales tax paid?  In WI, I gave up when the State's form required the signature of a manager at the store where I was seeking sales tax credit.  I haven't seen any other way to apply for credit unless you are claiming sales tax credit on your personal return instead of the standard deduction.

​In NY I file quarterly and get refunded. The paperwork is slightly annoying, but once you get used to it, no big deal.

 

As a note, also talked to a couple Target Front end Managers, and this was not apparently targetted at all to folks like us buying clearance items, but apparently especially in electronics "doorbusters" and such were being bought up by resellers, and that's apparently why they decided to go this route. They said they actually got very little communication from corporate other than "this is how it is now", but both had horror stories of resellers buying them out of stock of hot electronics items and it creating unhappy customers and complaints.