Why doesn’t the out-of-state retailer collect the tax?
If a retailer is located out-of-state and does not have a physical location or other type of physical representation in the state that creates nexus for the retailer, the state cannot require the retailer to collect their sales tax. Many companies have established nexus in states where they don’t have store or office locations. Nexus can be established through temporary activities in a state or the presence of home office employees. For more information on nexus, visit our What is Nexus? FAQ. However, some out-of-state retailers voluntarily collect the tax as a convenience to their customers.
But just because the retailer doesn’t collect the sales tax doesn’t mean the purchase isn’t subject to tax. Purchases made on line aren’t automatically exempt from tax. If the retailer does not collect the sales tax, the purchaser has the obligation to pay the use tax directly to the state where the property is used as long as the item is taxable.
Use tax is defined as a tax on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid. Use tax is a complimentary tax to the sales tax and does not apply if sales tax was charged.
There are two types of use taxes – Consumer Use Tax and Vendor/Retailer Use Tax. For more information visit our What is the Difference between Sales Tax and Use Tax? FAQ. Consumer Use Tax is a tax on the purchaser and is self-assessed by the purchaser on taxable items purchased where the vendor did not collect either a sales or vendor use tax. The purchaser remits this tax directly to the taxing jurisdiction. Many states now include a line on the individual income tax return to facilitate the reporting of the use tax.
Vendor or Retailer Use Tax applies to sales made by a vendor to a customer located outside the vendor’s state or sales in interstate commerce if the vendor is registered in the state of delivery. This is the tax that a retailer outside the customer’s state typically is collecting.
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