The SCOTUS decision allowed the states to establish the concept of an “economic nexus.” This means that a business does not need to have a physical presence in the state, but only meet certain transactional threshholds, such as the number of transactions, or the value of those transactions. However, this presumes that the buyer takes delivery of a physical product in the state itself. In other words, it is not residence in the state, but where the buyer takes possession of a product that determines whether a seller must collect sales tax. There has to be a shipping address within the state for a transaction to qualify as taxable in that state.
So where does a buyer take possession of an online service? There is no shipping address. Most state laws do not yet deal with online services, and the SCOTUS decision is not specific enough to allow such services to be taxed based upon the residency of the buyer.
“Heroku is not required to, and does not, collect your state’s sales or use tax. Purchases are not tax-exempt merely because a seller is not required to collect the tax. Your state’s law requires a purchaser to review untaxed purchases and, if any tax is owed, file a use tax return and pay any tax due.”
This is taken from a Heroku receipt. It seems to suggest taxes may be required but that the burden is on the consumer. If I’m understanding this correctly and Heroku can just avoid the mess of collecting taxes by adding a sentence to their receipts, why wouldn’t every company selling services online do this?
“Heroku is not required to, and does not, collect your state’s sales or use tax. Purchases are not tax-exempt merely because a seller is not required to collect the tax. Your state’s law requires a purchaser to review untaxed purchases and, if any tax is owed, file a use tax return and pay any tax due.”
Heroku does not avoid having to collect taxes by adding this to their receipts. They could say nothing, and every word of that statement still would be true, and they would still not be liable to collect the tax. Heroku is just unique in that they are telling the customer about it.
I am the CIO of a $150M company. I am in charge of the sales tax processing infrastructure at this company, and I even re-wrote our billing process to comply with the various state laws. Though I am not an accountant, I know more about sales tax than I ever wanted to know.
I also purchase thousands of dollars worth of online services every month. NONE of them charge tax. None whatsoever. Again, Heroku is not unique.
This is true of every online service because to be required to collect tax, you must have a nexus in the state to which you are delivering a product. That used to mean merely a physical business presence. (Quill Corp. v. North Dakota, 504 U.S. 298 (1992)). But now, since the SCOTUS decision last June, it can mean an "economic nexus." But even then, this nexus is defined by the physical address to which a product is delivered. See the issue?
And regarding the requirement of consumers to self-assess sales tax: This is true of everything you buy online that, if purchased in a store in your home state, would otherwise be taxed. Almost all states technically require purchasers to self-assess if the item is taxable, whether the vendor tells you about it or not. And again, as part of my job, I have to know which products we must self-assess, and which we don't have to, and fill out our purchase orders accordingly.
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[ 3.1 ms ] story [ 27.8 ms ] threadSo where does a buyer take possession of an online service? There is no shipping address. Most state laws do not yet deal with online services, and the SCOTUS decision is not specific enough to allow such services to be taxed based upon the residency of the buyer.
“Heroku is not required to, and does not, collect your state’s sales or use tax. Purchases are not tax-exempt merely because a seller is not required to collect the tax. Your state’s law requires a purchaser to review untaxed purchases and, if any tax is owed, file a use tax return and pay any tax due.”
Heroku does not avoid having to collect taxes by adding this to their receipts. They could say nothing, and every word of that statement still would be true, and they would still not be liable to collect the tax. Heroku is just unique in that they are telling the customer about it.
I am the CIO of a $150M company. I am in charge of the sales tax processing infrastructure at this company, and I even re-wrote our billing process to comply with the various state laws. Though I am not an accountant, I know more about sales tax than I ever wanted to know.
I also purchase thousands of dollars worth of online services every month. NONE of them charge tax. None whatsoever. Again, Heroku is not unique.
This is true of every online service because to be required to collect tax, you must have a nexus in the state to which you are delivering a product. That used to mean merely a physical business presence. (Quill Corp. v. North Dakota, 504 U.S. 298 (1992)). But now, since the SCOTUS decision last June, it can mean an "economic nexus." But even then, this nexus is defined by the physical address to which a product is delivered. See the issue?
And regarding the requirement of consumers to self-assess sales tax: This is true of everything you buy online that, if purchased in a store in your home state, would otherwise be taxed. Almost all states technically require purchasers to self-assess if the item is taxable, whether the vendor tells you about it or not. And again, as part of my job, I have to know which products we must self-assess, and which we don't have to, and fill out our purchase orders accordingly.