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Tax-Scholar, CPA
Category: Tax
Satisfied Customers: 89
Experience:  Helping customers comply with and plan for income taxes
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Finding out if I need to charge sales tax to out of state customers?

Customer Question

Finding out if I need to charge sales tax to out of state customers? I'm in Virginia and am part of a direct sales clothing company.
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: I am an independent consultant with a direct sales clothing company. The majority of my sales will be done online via facebook. I'm just curious if I need to charge customers that do not live in Virginia sales tax. And if so, at what rate? Mine or theirs.
JA: Is there anything else the Accountant should be aware of?
Customer: No
JA: OK. Got it. I'm sending you to a secure page on JustAnswer so you can place the $5 fully-refundable deposit now. While you're filling out that form, I'll tell the Accountant about your situation and then connect you two.
Submitted: 5 months ago.
Category: Tax
Expert:  Tax-Scholar replied 5 months ago.
In order for an another state to impose sales tax on your business you first must have nexus. This is the minimum connections necessary for another state to impose their taxes on you. For sales tax you must be physically present in their state on business or have property in their state in order to establish nexus. So if you are only operating out of Virginia then you would not have nexus and not have to collect and remit sales tax on online purchases. However you should be aware of click-through-nexus. This is when a third party links to your website and makes a sale. Some states like New York will deem you to have nexus where ever your affiliates are located. The facebook buy button does not charge a sales commission and therefore would not be considered an affiliate. Here is a link How much online sales do you currently make to out of state customers?
Customer: replied 5 months ago.
Currently none because I just started and before I make any sales to out of state customer I want to make sure I'm doing it correctly. I have attached a document I have just received from my company for you to review.I am a consultant with LuLaRoe. Similar to Mary Kay or Thirty-one Gifts, I buy my inventory from them at wholesale pricing then sell to my customers.
Expert:  Tax-Scholar replied 5 months ago.
Well in reading the PDF it appears you need to collect sales tax as LuLaRoue has nexus everywhere. Here is what Option 2 says:The consultant is obliged (if her state requires sales tax on clothing purchases) to collect from customers who come to her place of business, and in this option, this applies whether the customer is physically present or not. This is because the nexus exists by virtue of the consultant’s relationship with LuLaRoe.
Customer: replied 5 months ago.
I can't talk now as I am at my full-time job and am not available.I understand what LLR is saying - they are forcing everyone to collect tax. I am questioning the correctness. I have talked with other Direct Sales consultants - Mary Kay, Avon, Jamberry, etc. - and they say they only collect sales tax when the customer is physically present i.e. vendor show, in- home pop-up, etc. OR if the customer resides in state. They do not collect sales tax when the transaction is done online and the customer lives out of state i.e. Facebook sales.I will gladly collect sales tax if that is what is required by law. I just don't want to blindly follow this new policy when so many others are saying it may be incorrect.I really appreciate your help in this matter!
Expert:  Tax-Scholar replied 5 months ago.
OK I understand your question better now. I'll look into it closer.
Expert:  Tax-Scholar replied 5 months ago.
My originally answer is correct that since you do not have nexus outside Virginia online sales outside your home state are not subject to sales tax. For example see this fact sheet for MN However if you have LuLaRoue collect and remit tax with a Letter of Understanding then it is where they delivery the product that determines that tax. So if they delivery product to you and then you ship it out of state this might still be taxable. With the Letter of Understanding since LuLaRoue has nexus everwhere if they ship to another state I'm not sure they could not remit sales tax. LuLaRoue wants to have these letters so they can ensure it is done correctly. If you elect out of this (might not be allowed be the consultant agreement) then you would be free to not collect sales tax on out of state sales. My best advice is let LuLaRoue manage this for you.
Customer: replied 5 months ago.
Ok - thank you!
Expert:  Tax-Scholar replied 5 months ago.
Thanks and good luck. Let me know what you end up doing.