Sales Tax Compliance beyond Your State

We spoke with a rancher recently. She sells livestock nationally. We asked if she charged sales tax. Only in her state, she told us. When she ships animals across state lines, she doesn’t collect sales tax.

Is she right?

Taxability

The first question is whether her product is taxable. If her animals are taxable in the state where she sells them, she may have to collect sales tax.

In Idaho, for example, livestock sales are subject to sales tax if the seller completes more than two transactions a year. Unless she’s a breeder, or the animals are sold at auction.

In Missouri, livestock sales are exempt from sales tax, but sales of animals “for enjoyment” are taxed. A pet goat would be taxable, while a goat for farm use would not.

California has the same two-sales-a-year rule as Idaho, but animals are taxable whether they’re pets or livestock. Unless they’re food animals. So chickens are taxable if they’re going to be cooked, but not if they will just supply eggs.

And it makes a difference whether she operates in an origin-based or a destination-based state.

As always, sales taxes are complicated.

Sales Tax Nexus

We suspect that our rancher friend wasn’t really thinking about taxability in multiple states. We think she probably figures she doesn’t have nexus outside of her home state.

Up until a few years ago, sellers only had to collect sales tax if they had a physical presence in a state. Without a warehouse, salesperson, or satellite office in a state, a business would not have nexus.

Without nexus, that business did not have to collect sales tax. That was based on a Supreme Court decision in a case known as Quill.

Then in 2018, the Supreme Court overturned Quill in a case known as Wayfair vs. South Dakota. Under this new decision, states had the power to make laws requiring remote sellers to pay sales tax, even if they had no physical presence in the state. They could establish an economic nexus or even a “cookie nexus” and require sales tax compliance from all sellers.

By now, every state that has sales tax is using some form of non-physical nexus and requiring remote sellers to collect and remit sales tax, usually if they meet a certain threshold in sales or revenue. Often, it’s $100,000 a year, but it may also be based on a particular number of sales in the state. Many states set the threshold at 200 separate transactions. For low-cost items, 200 transactions could add up to much less than $100,000, but will still establish nexus.

Our rancher may not have to collect sales tax if she has just a few sales in each state besides her home state. But she needs to know for sure.

Keeping up

Our rancher is selling animals for a few thousand dollars apiece. She might have to sell dozens of animals in a state before she would have to collect sales tax, and she may usually sell just a few in each state. She may not need to collect sales tax.

On the other hand, she may need to remit sales tax in many states. In order to know the requirements, she will have to determine taxability and keep track of her sales in each state. If her sales cross the threshold during the year, she will be responsible for sales tax.

Depending on the state, she may be responsible for sales tax on all the sales in the 12 months after she crosses the threshold — or for all sales during the calendar year after she crosses the threshold, or for all sales during the calendar year in which she crosses the threshold, or some combination.

It can be a bit of a moving target. Once she crosses that threshold, however, she must register to collect sales tax and collect it, as well as file sales tax returns and send the collected tax money along to the state. This must be done in each state in which she has nexus and taxable sales.

One thing is sure: keeping up with this information is challenging. Automation with reliable sales tax computation software is essential. We believe that Sales Tax DataLINK is the best software for this purpose. Call us at 479-715-4275 and let us show you how easy it can be to conquer sales tax compliance.