When people make an internet purchase, the vendor may not charge use tax.  The seller’s failure to charge tax does not mean that the purchaser is not required to pay use tax.  The purchaser should remit tax due to the appropriate state taxing authority, if the purchase is taxable in the governing jurisdiction.

Why the Vendor did not Charge Tax

There are times that it is appropriate that the seller not charge tax.  The seller may not be registered to collect transactions tax in the governing jurisdiction.  Whether the seller is required to register in the state (or not) is immaterial to the purchaser.  If the seller does not collect the tax, the purchaser must remit the tax to the taxing authority if the sale is taxable.  Do not add tax to an invoice and remit the funds to the seller.  Remit use tax via your sales or use tax return or any mechanism used by the taxing authority.

Why Tax on Internet Purchases is NOT Given to Vendors Who Do Not Charge Tax

When a seller does not charge use tax on the invoice, it is imperative that you do not add it and give the money to the seller.  The seller may not be registered to collect and remit use tax for the appropriate jurisdiction.  They have not made any representation that they collected the tax on behalf of the jurisdiction on your invoice.  Any remittance of the tax due to that vendor does not discharge the liability.  You have no way of knowing that the state tax authority received the money.  It is easier and safer for you to remit the money directly to the taxing authority and retain the documentation that you did so.

Why Sellers (and You) May Make Sales to Customers and Not Be Required to Collect Tax

If you do not have nexus (physical or economic) you have no duty to register to collect sales or use tax from your customer and remit it to the state tax authority.  Companies may trigger a registration requirement based on presence in the client’s state of domicile (or location) or the level of activity with people in the state.

Presence may trigger a registration requirement if, for example, a remote salesperson operates in the state on behalf of the seller.  The level of activity the seller enjoys in a state may be measured in the dollar value of transactions and/or number of transactions with residents in a state over a specified time period.  One or both measures may trigger a registration requirement.  Each state imposes its own physical and economic nexus rules.

You must research the requirements of each jurisdiction in which you visit, conduct business, or have clients to execute compliance with state tax rules.

How To Remit Use Tax on Internet Purchases

Use tax is remitted on internet purchases via the sales or use tax return or via forms specified by the taxing authority.  Some states do not require that purchasers register to collect sales and use tax from their customers to remit use tax on taxable purchases.  Research the use tax capture mechanisms by state.

For access to an online explaining how to complete a Texas sales and use tax return, including Texable Purchases, visit Understanding Your Texas Sales and Use Tax Return.

Internet Purchases and Sales & Use Tax Audits

When you remit use tax to the tax authority, record how you calculated the tax remitted.  Most people have a file that contains the invoices issued by the seller that shows when tax was remitted to the state tax authority.  Do not send the invoices to the tax authority if the items have not been requested.  Keep the data for the pertinent statute of limitations in case of audit.  Record the data in real time.  Do not assume information doesn’t change.  It does.

There are no free rides.  If you purchase taxable items and the seller does not charge the appropriate tax, it is your responsibility to remit the tax on your own behalf.

For a private consultation, schedule a call with Mary at Ask Mary or Stephanie at Ask Stephanie.