Sales Tax Foundations (Part 2) – Taxable Persons

Sales Tax Foundations

Part II: Basic Questions and Answers about State Sales and Use Tax: Taxable Persons

In our last blog, Part I: Basic Questions and Answers about State Sales and Use Tax: Sales and Use Tax Defined, we premiered the first of a series of topics in the form of questions, answers and charts, on the basics of sales and use taxation, aimed primarily at the nontax specialist, who is often challenged by the complexities of sales and use taxation. In this blog, we ask and answer some basic questions about the topic — who is liable for sales and uses taxes?

Taxable Person — In General

Question 1: Who is responsible for collecting the sales or use tax?

Generally, if the seller has nexus in the state, it will be responsible for collecting and remitting the tax to the tax authorities.

Question 2: When is a retailer liable for use tax?

If the seller fails to collect the sales tax on the purchase, and the purchaser fails to pay the use tax on the purchase, then the seller generally has the legal liability for the tax, but whether the seller also bears the cost of the tax will vary from state to state.

Question 3: What is a wholesaler’s liability under the sales and use tax?

Wholesale sales for resale are generally exempt from sales or use tax. The sales tax applies only to retail sales generally defined as a sale for any purpose other than resale in the regular course of business, while the use tax is generally imposed on the storage, use, or other consumption in the state of tangible personal property purchased from a retailer. A resale certificate taken in good faith from a person that is engaged in the business of selling tangible personal property relieves the seller from the liability for sales tax and the duty to collect use tax.

Question 4:  What is a manufacturer’s liability under the sales and use tax?

Although a manufacturer’s purchases of certain materials and equipment are often exempt, taxability under this manufacturing exemption varies depending on the nature of the transaction and the particular state, but any retail sales of tangible personal property by the manufacturer will generally be taxable.

Sale and Use Tax Defined—State-Specific Rules

Chart:  Who is Liable for Sales and Use Taxes:  Taxable Persons

 

STATE TAXABLE PERSONS
ALABAMA Sales tax is imposed on persons, firms, and corporations in the business of selling tangible personal property at retail or in the business of conducting or operating places of amusement or entertainment. (Ala Code Sec. 40-23-2; Ala Code Sec. 40-12-222) The tax is collected by the seller from their customer and remitted directly to the state.

Consumers use tax. The consumers use tax is imposed on tangible personal property brought into Alabama for storage, use, or consumption in the state when the seller did not collect seller’s use tax on the sale of the property.

ALASKA Alaska does not impose a sale tax.
ARIZONA Payment of the use tax is the responsibility of the person that is storing, using, or consuming tangible personal property in the state, and the responsibility is not extinguished until the tax has been paid to the state. However, every retailer that maintains a place of business in Arizona and every utility business must collect the use tax from the purchaser or user at the time of a taxable sale. The tax remains a liability of the purchaser until the tax is paid to the state, although a receipt showing the tax paid, issued by an Arizona retailer or utility business, or a retailer or utility business authorized to collect the tax, extinguishes the purchaser’s liability for the tax. (Sec. 42-5155, A.R.S.; Sec. 42-5161, A.R.S.)
ARKANSAS Liability for use tax. Every person storing, using, or consuming tangible personal property, a taxable service, specified digital products (effective January 1, 2018), or a digital code (effective January 1, 2018) in Arkansas that is purchased from a vendor is liable for the use tax. (Sec. 26-53-123, A.C.A.) Every vendor making a sale of tangible personal property, a taxable service, specified digital products (effective January 1, 2018), or a digital code (effective January 1, 2018) for storage, use, distribution, or consumption in Arkansas must collect use tax from the purchaser. (Sec. 26-53-124, A.C.A.)
CALIFORNIA California sales tax must be collected by every retailer for the privilege of making retail sales of tangible personal property in the state.

 

COLORADO A retailer is responsible for collecting and remitting the tax and has the burden of showing that a sale is exempt. A retailer must have sufficient records to demonstrate the validity of a claimed exempt sale.

 

Although tax is imposed on the purchaser, if a transaction involves a licensed vendor it is the vendor’s duty to add the tax to the sales price and remit the tax to the state. If no licensed vendor is involved in the transaction or the vendor fails to collect the tax, the purchaser must pay the tax directly to the Department of Revenue. Also, if the vendor fails to collect the tax from the purchaser, the Department of Revenue may assess the tax due against the vendor or the purchaser at its option. (Reg. 39-26-104.1(a))

CONNECTICUT The burden of proving that a sale of tangible personal property or service is not a retail sale is upon the seller, unless the seller takes from the purchaser a resale certificate. Therefore, sales or use tax liability exists unless an exemption applies to the transaction
DELAWARE Delaware does not impose a sale tax.
DISTRICT OF COLUMBIA Sales tax is imposed on vendors who make retail sales of taxable tangible personal property and specified taxable services. Vendors must collect the tax from purchasers and remit it to the District. A purchaser who fails to pay sales tax to a vendor owes a debt to the vendor in the amount of the unpaid tax, and the vendor can sue the purchaser to recover the debt.

Use tax is imposed on both vendors and purchasers for the use, storage, or consumption in the District of tangible personal property or taxable services and is due when sales tax has not been paid. Vendors must collect the tax from purchasers and remit it to the District. If a purchaser does not pay use tax to a vendor, the purchaser must file a return and remit the tax to the District.

 

FLORIDA Florida sales tax is imposed on all dealers engaged in the retail sale, lease, or rental of tangible personal property or taxable services in the state.

The use tax is imposed on all persons that use, consume, distribute, or store tangible personal property in the state and applies to tangible personal property purchased outside the state that would have been subject to the sales tax if purchased from a Florida dealer.

GEORGIA Georgia sales tax is paid by the purchaser and the retail dealer remits it to the state revenue commissioner. (O.C.G.A. Sec. 48-8-30(a)-(b), (d); Reg. Sec. 560-12-2-.21(1)) No retail sale, lease, or rental is taxable to the dealer or lessor which is not taxable to the purchaser or lessee. (O.C.G.A. Sec. 48-8-30(b), (c.1))

 

All sales made by a retailer are subject to tax until the contrary is established. The person making the sale has the burden of proving that a sale is not a retail sale unless an exemption certificate is accepted from the purchaser stating that the purchase is for resale or is otherwise exempt.

HAWAII The general excise tax is levied and assessed against the retailer, service provider, or other person conducting business activities in Hawaii.

 

Sellers may visibly pass on the general excise tax to a purchaser. Any visible pass on of the tax is a matter of contractual agreement between the seller and buyer.

IDAHO Liability for tax. Sales tax is imposed on the consumer; however, the retailer is responsible for collecting the tax. (IC Sec. 63-3619(b); Rule 35.01.02.068.02; Rule 35.01.02.068.07)
ILLINOIS Illinois imposes sales tax on persons in the business of selling tangible personal property at retail and SOT on persons in the business of selling services in Illinois. (35 ILCS 115/1; 35 ILCS 120/2) Use tax is imposed on persons who use tangible personal property in Illinois, while SUT is imposed when certain property is received while purchasing services.
INDIANA The seller collects the sales tax as agent for the state, but the customer is liable for the tax. (IC 6-2.5-2-1; 45 IAC 2.2-2-2).

The person who uses, stores, or consumes the tangible personal property acquired in a retail transaction is liable for the use tax. If the seller does business in Indiana or is authorized by the Department of Revenue to collect the use tax, the person acquiring the property pays the use tax to the seller. Otherwise, the person pays the tax directly to the Department of Revenue. (IC 6-2.5-3-6)

IOWA  

Every person using property subject to the use tax within the state is liable for the tax until the tax has been paid to a retailer, county treasurer, the Department of Revenue, or the Department of Transportation. Evidence that tangible personal property was sold by any person for delivery in Iowa is evidence that the property was sold for use in Iowa. (Sec. 423.5, Code of Iowa).  There is a similar rule for services.

KANSAS The sales tax is imposed upon the consumer and paid to the retailer, who is responsible for collecting and remitting the tax. (Sec. 79-3604, K.S.A.)
KENTUCKY Although the sales tax is imposed on a retailer’s gross receipts, shifting of the tax to the purchaser is mandatory. Sales tax must be separately stated, and the tax becomes a debt from the retailer to the Commonwealth. (KRS Sec. 139.210)
LOUISIANA Sales tax liability. The sales tax is payable by users, consumers, lessees, and persons receiving services taxable under the law. If a seller or lessor qualifies as a dealer, that party must apply for a sales tax certificate, collect the proper taxes from customers, and file returns with the Department of Revenue. (Sec. 47:304, La R.S.)
MAINE The sales tax is imposed on customers, but retailers must collect and remit the tax. Customers are liable to retailers for sales tax, and a retailer may bring an action against a consumer to recover unpaid sales tax.
MARYLAND While buyers have the duty to pay sales tax, vendors have the duty to collect the tax.  A vendor may assume or absorb all or any part of the sales and use tax imposed on a retail sale or use and pay that sales and use tax on behalf of the buyer. A vendor’s records must distinguish sales in which the vendor assumed or absorbed tax.
MASSACHUSETTS In most retail transactions, the “vendor” is responsible for remitting the sales tax to the state and must add the tax to the sales price charged the purchaser. (Sec. 2, Ch. 64H, G.L.; Sec. 3(a), Ch. 64H, G.L.) However, purchasers of motor vehicles and trailers are generally responsible for remitting the sales and use tax directly to the state.

The liability for Massachusetts use tax is imposed on the person storing, using, or otherwise consuming a taxable property or service in the state. (Sec. 3, Ch. 64I, G.L.) However, if the property or service is purchased from a vendor engaged in business in the state, the vendor is responsible for collecting the use tax from the purchaser and remitting the tax to the state. (Sec. 4, Ch. 64I, G.L.)

MICHIGAN The Michigan sales tax is imposed on persons engaged in the business of making sales at retail and performing specifically enumerated services.
MINNESOTA Sales tax is generally imposed on a seller’s gross receipts from sales at retail. However, shifting of the tax to the purchaser is mandatory. The sales tax, which must be separately stated, must be collected by the seller from the purchaser unless the purchaser holds a direct payment permit. (Sec. 297A.62, Minn Stats; Sec. 297A.77(4), Minn Stats)
MISSISSIPPI Every person engaged in the business of selling any tangible personal property or specified digital product or rendering taxable services in Mississippi is subject to sales tax. (Miss Code Ann Sec. 27-65-17).  Persons required to collect sales tax must add the tax to the sales price or gross income, collect the tax from the purchaser, and remit it to the Department of Revenue. (Miss Code Ann Sec. 27-65-31)

 

Use tax liability.  Any person who uses, stores, or consumes the tangible personal property or specified digital product is liable for the tax and must pay it to the Commissioner. (Miss Code Ann Sec. 27-67-13; Miss Code Ann Sec. 27-67-17).  Use tax is not due if sales tax was collected on the sale by Mississippi or another state. (Miss Code Ann Sec. 27-67-7) If an out-of-state seller does not collect and remit Mississippi sales tax on the sale, an in-state purchaser must remit use tax. (Miss Code Ann Sec. 27-67-13)

MISSOURI Persons making retail sales collect the sales tax from the purchaser and remit the tax to the Missouri Department of Revenue. (Sec. 144.020, RSMo; Sec. 144.011, RSMo; Sec. 144.030, RSMo; 12 CSR 10-113.200)

 

If the transaction is subject to use tax and the seller has nexus or a “direct connection” with Missouri, the seller must collect the tax at the time of the sale and remit it to the Department of Revenue. If the seller does not collect the tax, the buyer must pay use tax directly to the department.

MONTANA Montana does not impose a sale tax.
NEBRASKA The sales tax is imposed on the consumer although the retailer is required to collect the tax. The tax required to be collected is a debt owed by the retailer to the state. (Sec. 77-2703(1)(a), R.S.; Reg. 1-001.03).  The use tax is imposed on the person storing, using, or otherwise consuming in Nebraska tangible personal property purchased from a retailer. Retailers engaged in business in the state must collect the tax.
NEVADA The burden of collecting and remitting the sales tax is imposed upon all retailers for the privilege of selling tangible personal property at retail within Nevada. (NRS Sec. 372.105; NRS Sec. 372.110).  The retailer must collect use tax due from the purchaser at the time of storage, use or other consumption. (NRS Sec. 372.195)
NEW HAMPSHIRE New Hampshire does not impose a sale tax.
NEW JERSEY Sales tax is collected by sellers from their customers. If a customer fails to pay tax to the seller, the customer must pay the tax directly to the state. The sellers are personally liable for the tax collected or required to be collected. Any person required to collect tax must file a certificate of registration with the Division of Taxation and is required to file returns and pay the taxes over to the state. (N.J.S.A. Sec. 54:32B-17; N.J.S.A. Sec. 54:32B-18)
NEW MEXICO New Mexico gross receipts (sales) tax is imposed on persons who engage in business in New Mexico, including those who make retail sales of tangible personal property and services. The compensating (use) tax is imposed on persons who use tangible personal property or services rendered in New Mexico.
NEW YORK Sales tax is imposed on retail sales of taxable tangible personal property and specified taxable services. The tax is collected from the person who purchases at retail—the consumer. Liability for the tax occurs at the time of the transaction. The collection of sales tax is generally performed by “persons required to collect tax.” Those persons required to collect tax are to collect the tax from the customer when collecting the price, amusement charge or rent to which it applies. Such persons are personally liable for the tax required to be collected. However, the liability is transferred to the purchaser in the event that the tax has not been paid to the person required to collect it.
NORTH CAROLINA The sales tax is intended to be passed on to the purchaser of a taxable item and borne by the purchaser instead of by the retailer. A retailer is required to collect the tax due on an item when the item is sold at retail. The tax is a debt from the purchaser to the retailer until paid and is recoverable at law by the retailer in the same manner as other debts. A retailer is considered to act as a trustee on behalf of the state when it collects tax from the purchaser. The tax must be stated and charged separately on invoices or other retailer documents given to the purchaser at the time of the sale except for vending machine sales and situations in which a retailer displays a statement that indicates the sales price includes the tax. (Sec. 105-164.7, G.S.).

 

Use tax is payable by the person who purchases, leases, or rents tangible personal property or digital property or who purchases a service

NORTH DAKOTA The sales tax is added to the sales price and collected and remitted to North Dakota by the retailer. (Sec. 57-39.2-08.2, NDCC; Sec. 57-39.2-12, NDCC)

A retailer is generally responsible for collecting North Dakota use tax and remitting it to the state. Any use tax owed that is not collected by a retailer must be paid directly to the State Tax Commissioner by the person storing, using, or consuming the property in North Dakota. (Sec. 57-40.2-06, NDCC; Sec. 57-40.2-07, NDCC)

OHIO The purchaser or consumer pays the sales tax and the vendor is responsible for collecting and remitting the tax. The tax applies and is collectible when the sale is made, regardless of the time when the price is paid or delivered.

Consumers are liable for the use tax until the tax is actually paid to the state unless (1) the tax was paid to a seller that is registered with the state and is engaged in the business of selling tangible personal property in Ohio or (2) the seller has prepaid the tax.

OKLAHOMA Use tax is not imposed in situations in which the sales tax has already been applied. If the use tax is not paid to the vendor, the user/consumer must pay the tax directly to the Oklahoma Tax Commission. (68 O.S. Sec. 1404(3); Rule 710:65-21-3; Rule 710:65-21-4; 68 O.S. Sec. 1405)
OREGON The state of Oregon does not impose any form of sales, gross receipts, occupational license, use, or consumption tax on the basis of the sales or use of tangible personal property within the state.
PENNSYLVANIA Vendors must collect and remit sales tax. (Sec. 202(a), Act of March 4, 1971, P.L. 6, [72 P.S. §7202(a)]; Sec. 237(b), Act of March 4, 1971, P.L. 6, [72 P.S. §7237(b)]).

A purchaser who does not pay use tax to a vendor must pay the tax directly to Pennsylvania. (Sec. 202(b), Act of March 4, 1971, P.L. 6, [72 P.S. §7202(b)]; Reg. Sec. 31.7(a))

RHODE ISLAND Collection of sales tax. The retailer collects the sales tax from the consumer or user.

Collection of use tax. Every retailer engaging in business in Rhode Island and making sales of tangible personal property for storage, use, or other consumption in Rhode Island that is not otherwise exempt, must collect the tax from the purchaser.

SOUTH CAROLINA Sales tax is imposed on vendors engaged or continuing in the business of selling tangible personal property at retail in South Carolina.

Use tax liability falls on persons storing, using, or consuming in South Carolina tangible personal property purchased at retail. However, purchasers are relieved of use tax liability if they obtain a receipt from a retailer that must collect use tax.

SOUTH DAKOTA South Dakota imposes a general sales tax on retailers for the privilege of selling, leasing, or renting tangible personal property at retail in South Dakota and on persons selling, performing, or furnishing designated services at retail to consumers or users in South Dakota. (Sec. 10-45-2, SDCL).

Liability for the use tax is imposed on persons using, storing, or otherwise consuming in South Dakota tangible personal property until the tax is paid directly to a retailer or the Secretary of Revenue. (Sec. 10-46-4, SDCL; Sec. 10-46-34, SDCL)

TENNESSEE Collection. Tax must be collected by all dealers furnishing taxable services or making retail sales within or outside Tennessee of tangible personal property for distribution, storage, use, or other consumption in Tennessee.  Although dealers are liable for the tax, they are required to collect the tax from the consumer.
TEXAS The tax due is a debt of the purchaser to the seller. However, the Comptroller of Public Accounts may proceed against either the seller or purchaser, or both, for unpaid tax. (Sec. 151.051, Tax Code; 34 TAC Sec. 3.286)
UTAH Sales tax is imposed on the total sales price and must be collected and remitted by the vendor. (Sec. 59-12-103, Utah Code Ann.; Rule R865-21U-1, Utah Admin. Code)
VERMONT Although sales tax is imposed on the purchaser, vendors of taxable tangible personal property and services and recipients of amusement charges are required to collect the tax. (32 V.S.A. Sec. 9701(14); 32 V.S.A. Sec. 9703; 32 V.S.A. Sec. 9705; Bud Crossman Plumbing and Heating v. Commissioner of Taxes, (1982, VT Scat), 455 A2d 799, ¶200-177)
VIRGINIA The retail sales tax is imposed on persons engaged in the business of selling at retail, distributing, renting, or furnishing tangible personal property in Virginia. It is also imposed on persons who store, lease, or rent property for use or consumption in Virginia. Sales tax must be collected by the dealer, who is required to separately state the amount of the tax and add it to the sales price or charge. Thereafter, the tax is a debt from the purchaser, consumer, or lessee to the dealer until paid and is recoverable in the same manner as other debts. (Sec. 58.1-625, Code; 23 VAC 10-210-340).  Use tax must be collected under similar rules.
WASHINGTON Collection of tax. The tax is collected from purchasers by retail vendors at the time of sale.  he sales tax is a debt from the buyer to the seller until paid. However, the Department may, in its discretion, collect the sales tax directly from the buyer when the buyer has failed to pay the seller.
WEST VIRGINIA Collection of tax. Vendors have the duty to collect consumers sales and service tax from purchasers and to pay the collected tax to the State Tax Commissioner. The amount collected is considered to be held in trust for the state. (W.Va. Code Sec. 11-15-3(a); W.Va. Code Sec. 11-10-5j; W.Va. Code Sec. 11-15-4(a), (b)(4); Reg. Sec. 110-15-33.1)
WISCONSIN All receipts are presumed taxable. Sellers generally have the burden of proving that a receipt is not taxable, unless the seller obtains from the purchaser a certificate showing that the property or service is purchased for resale or is otherwise exempt. However, no certificate is required for certain exempt products.
Persons storing, using, or consuming tangible personal property, other taxable items, or taxable services in Wisconsin are responsible for paying the use tax, and their liability for the tax is not extinguished until the tax has been paid.
WYOMING Liability for sales tax. Although the sales tax is paid by the purchaser, vendors are required to collect the tax and are liable for the entire amount. (Sec. 39-15-103(a)(i), W.S.; Sec. 39-15-103(c)(i), W.S.) A secondary liability provision requires a purchaser to pay sales tax to the Department of Revenue if the purchaser does not pay the tax to the vendor. (Sec. 39-15-103(c)(ii), W.S.)

 

Avatar
AUTHOR

Jerome Nestor

Jerome Nestor, Esq., CPA, MBA-Accounting Information Systems Manager Tax & Accounting North America Wolters Kluwer Mobile: +1 847.312.5671 Email: jerry.nestor@wolterskluwer.com

All stories by: Jerome Nestor

Leave a Reply

Your email address will not be published.