I can get any one started in using the QuickBooks Online sales tax module, using correct set up and operation as the module currently functions.
Talking Sales Tax and Use Tax:
Nexus tracking from products and services sale tax set up is based on the location of your business. Be sure to check the invoice and apply the appropriate tax based on the state you are shipping to (destination) unless you are in an origin based state.
Tax situs refers to the place or jurisdiction that has a strong connection with assets that are being taxed. This means that the state or country where the assets are located or where they were earned may have the right to tax them. Where the situs of something is depends on the type of item and can have important legal consequences. For most physical items the situs is the place where the object is located at the time of sale. (origin ship from).
In the Sales Tax Module, rather than just "State", use zip codes (since most states are zip code based) both foreign and domestic. The ship from address would then be used as guide to product location (with number of transactions per zip code to separate destination and origin based states) for Nexus tracking. A report by zip code for dollar amounts, then could be used to calculate the total liability per zip code and by number of transactions.
The seller should collect the tax for the state zip code where the product is shipped from, to the buyer in a destination based state and sales tax would be collected based on the rate of the seller in an origin based state, with consideration for product location and jurisdictional taxation. If the module is set up to track zip codes and Nexus thresholds are met, the seller will be able to instantly run a report to determine if they should register for a State (or zip code) Sales Tax License.
Consider these scenarios:
If the seller ships items into a state where it doesn’t have nexus, no tax should be charged by the seller, unless the seller and product is in an origin based state.
If the seller is NOT registered in a state where the product location is (drop shipping) they will not collect sales tax. However, in this case, the buyer has the obligation to remit use tax to the state where it uses and consumes the items.
If the seller is located in an origin based state and the product is also shipped from their state, sales tax would be charged at the rate of the sellers state.
If the seller is in an origin based state, (drop shipping) a product from another location where they DO have nexus, sales tax should be charged at the rate of the products location.
If the seller is shipping to a buyer in a destination based state and has nexus in that buyers jurisdiction, sales tax should be charged at the rate where the buyer is located.
If the seller does not have nexus, no sales tax should be charged and the buyer is responsible for paying use tax.
If the seller is in a destination based state shipping to an origin based state, sales tax would be charged at the states origin based, rate of the buyer.
To determine Nexus consider, in order:
1.) Product Location and Type (Location: product origin on a sales receipt or invoice)
2.) Sellers location (Header address on a Sales Receipt or Invoice)
3.) Buyers location and potential exemptions (ship to address/customer specific)
Suggestion to sellers: Obtain a legal determination letter.
a) Sign up business owners for emails from their State Sales Tax Department of Revenue and/or The Tax Foundation
b) Use a Disclaimer on Invoices you are not collecting sales tax on, confirming to the buyer that they understand they will owe use tax in their state, or the appropriate state of situs.
Below is an example of an invoice, where nexus at the buyers location has been met and product is shipped from an origin based state. Sales tax is charged at the rate of the buyers location where the nexus occured.
Shipping from Arizona to California
Below is an example of an invoice, where nexus at the buyers location has been NOT been met and product is shipped from an origin based state. Sales tax is charged at the rate of the sellers location.
No sales tax should be charged by the seller. Use tax paid by buyer
Shipping from Arizona to California
Below is an example of an invoice, where nexus at the buyers location has been met and product is shipped from a destination based state. Sales tax is charged at the rate of the buyers location where the nexus occured.
Shipping from Colorado to California
Below is an example of an invoice, where nexus at the buyers location has NOT been met and product is shipped from a destination based state. Sales tax is charged at the rate of the buyers location.
No sales tax should be charged by the seller. Use tax paid by buyer
Shipping from Colorado to California
Contact BookkeepingBusinessOnline.com for assistance with your sales tax setup!
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