Collecting sales tax for a web-based LLC in Missouri that ships product
I co-own an LLC in Missouri that ships products that we manufacture to people around the country. I am unclear on when to collect sales tax. There is a lot of conflicting information, and the MO Dept of Revenue site isn't much help.
My questions:
- Do I only collect tax when serving MO customers?
- If so, do I collect sales tax based on billing or shipping address?
So far I've found:
- AccurateTax site says collect sales tax on all customers, regardless of where they're from
- Nolo site says collect only for MO customers
- Amazon says they collect state-by-state (agrees with Nolo), and they do it based on the shipping address
- When my co-owner called the Dept of Revenue to set up our state tax license, they told him collect taxes (with a rate based on YOUR business's location) for MO customers, but didn't mention whether that was based on shipping or billing address
I just wish there was one authoritative tax document that explained this.
1 Answer
You are generally required to collect sales tax in Missouri (or any other state) when the business transaction is localized to Missouri. That is, when you sell and ship to someone located in Missouri at the time of the transaction.
Legally, the concept is whether you have a "business presence" in the same state as the customer. A small business owner typically has a "business presence" only in one state; all money is handled and all goods distributed from within that state, and therefore only transactions within that state are subject to state law governing sales tax; all others are "interstate commerce" which is beyond the purview of any one state (and the Feds don't have a sales tax for interstate transactions).
Until relatively recently, the "business presence" had to be a "point of sale"; a place at which payment is accepted from the customer by the business. The goods could come from anywhere, and in fact the actual payment could have been sent to any other location including out of state; if there is at least one "point of sale" located within the state, then regardless of whether money actually changed hands at that point, states assume the business transaction did happen there and thus the transaction is in-state.
Most e-tailers, therefore, skirted the majority of states' ability to charge sales tax on purchases by having only one point of sale; their corporate office, or a specialized payment processing center. A few went so far as to have this location be in a sparsely populated state such as Wyoming or Kansas, this minimizing the number of people who would pay sales tax; others set up shop in states where sales tax is relatively low (Oregon, Montana, Delaware and New Hampshire have no state sales tax; Delaware's popular for e-tailers as it's more "plugged in" than, say, Montana). Amazon's corporate headquarters is in Washington State, but at one point or another it probably took advantage of a no-sales-tax office location as being the primary (sole) payment facility.
That caused many states to change their laws (and the rate of change was put in fast-forward by the economic downturn causing states' primary revenue streams to deflate drastically, as purchases and home values both plummeted); if an e-commerce retailer has any business presence in a given state, from a point of sale to a distribution warehouse (some even count datacenters hosting the website as a physical point-of-presence), then sales tax must be collected. Amazon fought this (as not having to collect sales tax was a huge competitive advantage compared to B&M or C&B business models), lost, and gave in.
Well, actually it didn't always give in; many times, states were willing to give Amazon special exemptions from the requirement to collect sales taxes in their state, as an incentive to get the distribution warehouse or datacenter (and the jobs that come with it) built in their state. Ironically, most of those states are now pushing for a Marketplace Fairness Act at the Federal level which would require all e-tailers to collect and pay applicable sales taxes to the state in which the customer lives, whether the retailer has a business presence in the state or not.
