BILLING OR SHIPPING ADDRESS?
A sales tax is a consumption tax. That’s the key to understanding which address to use for sales tax calculations in a situation where the billing address isn’t the same as the shipping address. It’s a common problem for companies that have a billing address that is different from their shipping address. How should you handle multiple addresses when it comes to sales tax?
When does this question arise? When customers handle shipping and receiving in different locations. When they have a central office for billing but multiple locations that receive deliveries. When customers buy a gift for someone and have it shipped directly. When customers have their billing address at work and have items shipped to their homes, or vice versa. In each of these examples, the customer is asking your business to send the product to a location other than the one related to banking transactions.
Sales tax is about where the goods are being consumed. If the Chicago office pays for an item but the item is shipped to the Carbondale office, sales tax should be calculated for Carbondale, not for Chicago.
For another example, when a gift is sent to a friend, the friend is the one consuming the gift, not the purchaser. The sales tax due is for where the friend is located, not the location of the purchaser.
To better manage this type of transaction, make sure that your invoicing procedures ask for both the billing address and the shipping address at the point of sale. Then consider whether you have nexus in the jurisdiction to which you’re shipping the goods — not the location of the billing address.
Drop shipping can create special scenarios too, so keep good records of the drop shipment points as well as the ultimate location to which you deliver the goods. If you were ever audited, the auditors would look for this information and good records are the best defense.
Sales tax software should also be able to easily and readily calculate sales tax based on the shipping location, not the billing location, and adapt to any special scenarios you encounter with shipping processes. Ideally, your sales tax software will be able to handle future changes, too. Laws, regulations, and sales tax rates all change, and your software needs to be able to keep up with those changes. Your business model can change, too.
Sales Tax DataLINK will give you a demo of our software and your data so you can really see how the solution will work in your company’s workflow. Call 479-715-4275 to set up a demo.