Navigating Internet Sales Tax and Why

Even though this was written in 2019, we find that it is still relevant to our customers. We have made the decision to have this information here for our customers to use on an ongoing basis.

First let us be very clear:  We are writing from the marketing viewpoint, not a tax professional or attorney one. We have two goals in writing this blog: First, what we are writing below is intended to give you some resources so you can begin – or continue – your work in dealing with the rise of internet sales tax due to all the different taxing authorities in the country.  Second, if you are not in the business of reselling Essential Labs products, you may want to skip this dry and boring discussion of an internet sales tax and its implications.

South Dakota vs. Wayfair

So now the history lesson.

In 2018 the Supreme Court ruled in the case of South Dakota vs. Wayfair that tax jurisdictions may collect sales tax on products shipped to their state/city/county (referred to as a tax nexus) regardless of whether or not the company has a physical presence in that jurisdiction.  For us in Oregon, where there is no sales tax, we are now required to collect sales tax for purchases sent out of state to one of the many jurisdictions that have said: “yes, we want to collect sales tax”.  The amount of tax collected is based on the shipping address where the product will be sent, rather than the point of purchase, which in our case, is Portland, Oregon.  The sales tax charged to you will depend solely on the shipping address or addresses, and regulations vary between states and even counties or cities.  This means you will need to pay taxes to any taxing authority where you 1) send product and 2) meet the thresholds and criteria for that jurisdiction. For instance, in Alabama, if you sell $250,000 of product into the state you need to collect and remit sales tax.  Once you have a sense about where you might have nexus, you may need to talk with your tax professional to understand your options.

So that’s step one:  Know how much money you collect per year on the products you send to each jurisdiction. Now you can talk with your tax person and work with your selling platforms.

The basic premise is that consumers pay sales tax on most goods and services they buy. The tax owed is based on the tax jurisdiction they are in. As a business, however, your job is to collect and then remit that sales tax.  As a business you may also be also allowed to purchase products you intend to sell to a consumer (or other business) without paying sales tax when you purchase the products you sell. To take advantage of that, though, you will need to have an Exemption Certificate, from the jurisdiction governing your shipping addresses on file with your supplier.  With a valid exemption certificate, you will not have to pay sales tax on that order provided your Exemption Certificates are on file with the vendor prior to placing your order.  We (nor any other vendor) cannot retroactively waive your tax liability.

Sales tax and Essential Labs

The Wayfair decision, in a nutshell, says that your vendor’s physical location — for us that’s Portland, Oregon – does not determine if sales tax is to be collected. The taxes owed is based on where the product is sent and the sales tax for that locale.  As a business, we no longer get to be ‘sales tax’ free because we’re in Oregon (a sales-tax-free state).  In order to avoid the requirement to pay sales tax to us, you will need to have Exemption Certificates (and Taxpayer IDs)  for every jurisdiction where you ask us to send product you will resell.  Unless of course, that product is being sent to one of the four no-sales-tax states. Which is good news for those of you who pick up in our Will Call facility.  What that means for everyone else is a little more complex.  For instance, if you place an order with us and we are sending some to Los Angeles and some to Atlanta, we will charge you the individual and separate sales tax for each jurisdiction unless you have a valid exemption certificate on file for each jurisdiction.

We have partnered with tax software leader, Avalara, to help make this a smoother process for you. 

Submitting your Exemption Certificate to Essential 

In order for you to avoid sales tax liability on items purchased from us, you’ll need to provide your Exemption Certificate for each jurisdiction where we will send you your products.

You’ll need to email us and provide your exemption certificate to our email address: contactus@essentiallabs.com

If you are unable to secure your exemption certificate for a specific state in time for your order, you can of course still order from us but legally we must still collect applicable sales tax and cannot retroactively return or credit any sales tax collected. Even if you have a license, if the number is not in our system at the time of purchase we must still collect sales tax until your Exemption Certificate(s) are in our system. We realize this is a bit chicken and egg here, but we’re dealing with realities beyond our control.

Please also note that given that Amazon.com’s distribution center assignments can be unpredictable; you may need to get a new Exemption Certificate for wherever the distribution center is if we ship to them directly from our facility.