DO YOU KNOW how to collect and remit local sales taxes?
In most states, local sales taxes – county, city, and local district taxes – are administered by the state. That means they are filed and remitted with the state tax, usually on the same form. But a handful of states have “home rule” cities or counties (they’re called parishes in Louisiana) which administer their own taxes. If you collect those taxes a separate filing will usually be required. The states with home rule filing are Colorado, Alabama, Louisiana, and Arizona (though Arizona is expected to move to centralized filing by the end of 2016). Note also that some home-rule jurisdictions may require their own certificate, rather than the state’s form, to qualify a buyer for a sales tax exemption.
What about returns?
A customer returning purchased merchandise must be refunded the full tax that was charged on a purchase; this may not necessarily match the tax applicable at the return location. For example, on my lunch hour I sometimes shop at the mall near my office, but on weekends I shop at a mall closer to home. Since the two malls are in different counties, they have different total tax rates, and if I return an item I must be refunded the tax rate that applies where I bought it. Calculating the tax at the return location could shortchange purchasers, creating both legal and public relations problems. In a 2015 class-action settlement, it was claimed that Wal-Mart stores had short-changed consumers returning merchandise by regularly refunding only the lower tax rate in effect at the store where items were returned. Wal-Mart denied any wrongdoing but settled for $5 million.
So it’s very important, once you know which address to use for a particular transaction, to make sure you have the most current information about the applicable tax rate. There are hundreds of local rate changes every year!
Local Tax and Taxability
In addition to administering their own sales tax rates and reporting, home rule jurisdictions may not tax the same purchases as the state or other local jurisdictions; and certainly states don’t all tax the same purchases as other states.
Food is a prime example. Most states exempt general groceries from sales tax, or tax them at a lower rate than other purchases, whereas local taxes may apply to these foods. In Georgia all local taxes apply to groceries; but in Arizona some cities tax groceries, some exempt them, and some have a lower tax rate.
Other purchases for which local sales taxability may differ from the state include clothing, software, building materials, manufacturing equipment, candy and soft drinks (which are not always considered “food”).
In New York, state sales tax does not apply to clothing priced under $110. However, not all counties allow this exemption. When shipping clothing to a New York address, whether from within or outside the state, it’s important to know whether to collect the county and city taxes at the destination.
In Colorado, downloaded software is exempted by the state as well as the state-administered counties, cities, and districts. However some home rule cities tax all software, regardless of how it’s delivered. If your business sells software over the internet and you have nexus in Colorado, you’ll want to know which cities tax those programs even if they don’t come on a CD in a box.