Sales Tax Question

[mikegodwin]

I have a sales tax question. I sell a product online and at markets. If someone at a market buys an item & ships it to an out of state address they pay the sales tax at the time of purchase. If the same person buys the same item online and has me ship it out of state for them they pay no sales tax since sales tax is figured on the shipping address and not the billing address. Maybe I'm wrong but that doesn't make any sense. Any plans to change this? Thanks

[HC_Charlie · Accepted solution]

Hello @mikegodwin thanks for your post. In general, Sales tax is regulated by state and local agencies, and not the Federal government. In most cases a business is only required to collect and remit sales tax for any sales made or shipped within the state that business operates in (has a physical location). So if your business is located in Texas, but an Internet buyer from California makes a purchase and you ship to that state, you are not required to collect or remit sales tax to the state of California for this sale. Or, in your example, if a local buyer ships an item to an out of state address, that sale's tax would calculate based on the receiving or shipping address. Some states but the burden on the buyer in that case, and often will ask during yearly tax filings if they bought something online from out of state, and then try to collect that tax from the buyer.

When you setup your Square business information, your location(s) specify the state in which you do business, so Square will only collect that tax amount, and then send it along to you with your daily deposits (from which you will use to pay your state's sales tax).  Make sure your tax info is setup correctly in your Square Dashboard. You can do that here:

> Settings > Taxes

More info can be found here:

https://squareup.com/help/us/en/article/5061-create-and-manage-your-tax-settings

I hope this helps answer your question.

[mikegodwin]

Yes, I understand how the tax works. What I’m asking about is this.

My business is in Ohio. If I sell something to someone who is in Ohio at a market and they ship it to someone in another state, the person in Ohio pays sales tax. 

If that same person in Ohio orders something online and has it shipped to someone in another state they don’t pay sales tax even though they are in Ohio and bought it in Ohio, no Ohio sales tax.

This makes no sense.

You’re using the shipping address to determine if the online buyer should pay sales tax. Seems you should be using the billing address.

[MayaP]

Hey @mikegodwin, I am happy to assist! 

Do you have your taxes enabled for online orders? You can learn more about managing taxes online here. 

[mikegodwin]

Of course. That’s how my system knows to charge sales tax for Ohio customers having their orders shipped to Ohio. The problem is the Ohio customer that ships to a non Ohio location. They are not charged sales tax.

[RobynR]

@mikegodwin, do you have automatic rates set up?

You can learn more about managing sale tax settings for Square Online Orders here.

[mikegodwin]

Automatic rates didn't change anything. The system still looks at shipping address instead of a billing address for charging taxes.

If buyer is in Ohio and orders the item from Ohio but item is shipped to North Carolina no Ohio sales tax is collected.

[RobynR]

Thank you for confirming @mikegodwin. I recommend checking out the Best Answer from @HC_Charlie above.

[Frenchhen]

We have this same issue with invoices. They don’t recognize that an item is being bought/shipped out of state and automatically applies taxes. But if I manually turn taxes off then I get in trouble with my state for not paying correct amount of taxes because the pos reports invoices as in person sales.