My question is regarding our obligation to collect and remit sales taxes to all 50 states ...

Q. (cont.) We are a manufacturer located in Pennsylvania. We sell our stainless steel capital equipment globally. We do have a handful of manufacturer reps located in various states. The reps’ job is to promote our products and collects a commission on sales that come out of their territories.

We do have a rep located in California. According to the state of California, that creates nexus and we are required to collect and remit sales taxes to the state of California. However, I am wondering what our obligation is to all of the other states. If we ask for a tax exemption form, the customer says the order is taxable, but we don't have a rep in that state. Are we obligated to collect and remit the tax anyway?

A. Generally, if a company has nexus or a physical presence, such as a factory or sales rep in a state, the company must collect and remit sales tax to that state. As you noted in your email, because you have a sales rep in California, you have established nexus in that state. In other states where you have sales reps or plants and therefore nexus, you should assess your customers the appropriate sales tax.

In states where you haven't established nexus, you aren't obligated to charge and collect sales taxes. However, that does not mean you should ask customers in states where you do not have nexus for an exemption certificate. In the customer's state, the purchase of stainless steel is taxable. But, instead of you collecting the tax, it is their obligation to self-assess use tax and remit it to the state.

Every state has its own rules and regulations, which are subject to change. The ARO2C site will soon launch a sales tax calculator tool to help simplify your sales tax compliance activities.

 

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