Small Business Shared Interest Group

Hello all,

I'm fortunate to be part of a rapidly growing company with HQ in Indianapolis with additional facilities in Orlando.  We sell promotional products, typically we purchase a product from a vendor who puts a company logo on an item and drop ships to the end customer.

We purchased product from a vendor in FL.  The vendor has nexus in the state of the end customer, we do not.  The vendor is trying to charge us sales tax to recover their costs.  We were not aware of the sales tax concern until after the PO was signed.

Have you ever been in a similar situation?  How would you administrate such a thing?  Finally, how do we recover the cost passed to us after the PO was signed?  This is a new one for me, thank you in advance for your thoughts.

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Bradley Combs
Controller
Indianapolis, IN

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Welcome to the world of sales tax post South Dakota v. Wayfair.

Yep. Happens all the time. I have a client who has nexus in 4 states currently, with customers in several more. I do my best to make sure we do not create economic nexus in yet another state that I have to track. Most invoicing systems now use the shipping address to determine sales tax, which is why this happened.

I am in a similar situation with this client. They purchased some equipment and had it dropshipped to their client. Said client is in a state that we currently do not have nexus in. The vendor does have nexus so they either need a resale certificate from my client or my client pays the sales tax. They only have the one client in the state and they only order once a year. If we decided to do the resale certificate, we would be adding a 5th state nexus along with all the reporting that happens since we would have to turn around and charge the client sales tax then remit that back to the state. My client decided to pay the sales tax and add it to their invoice to their customer.

You have 3 options.

1. Get a resale certificate and deal with that state's sales tax regulations on reporting, collecting, remitting, etc.
2. Pay the sales tax and pass it on to the customer. Most companies understand the sales tax hassle nowadays and usually pay without problems. Your contract should have a clause about addition fees, such as tax, that allow for these additions after being signed.
3. Pay the sales tax and eat it. We've done this a few times where the tax rate was calculated at an older, lower rate because the system was horrible at calculating sales tax. cough Intuit cough

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David Belnap, CMA, CSCA, CPA
David.Belnap@...
Pembroke Pines, FL
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