When building an ecommerce site, there's a lot of nuances that need to be taken into account, from what to charge for shipping (and how to determine the fees you pass on to the customer) to charging for sales tax. Collection of sales tax is one item that can't be ignored - unless you're happy to pay large sums in monetary penalties because you didn't collect and/or pay enough. This week, we'll cover a bit about sales tax considerations when launching an Arizona-based ecommerce business.
Much of my experience with Sales Tax comes from Kansas, where they jumped on the "streamlined" sales tax bandwagon and told businesses to start charging destination-based sales tax (meaning, you have to know the percentage for the jurisdiction of your customer). Arizona is said to be complicated, but it's really just a different system. Arizona has a Transaction Privilege Tax (TPT) and the burden lies solely on the business. It differs form sales tax in that the percentage is based entirely on the businesses gross receipts (regardless of where their customers are).
What does that even mean?!
Good question. Basically, the state of Arizona charges a tax on certain goods (makeup, sporting goods - you get the idea) and some services for the "privilege" of doing business in the state it has nothing to do with the customer. For information about taxable/exempt products and services, check out the Department of Revenue's Retail Guidelines. You can get more concise information about taxable versus exempt products in this table.
Getting on to what that means is that when a customer purchases a taxable good, whether they live in Arizona or not, you must pay the privilege tax based on your business location. It simplifies the calculation, because you only need to know the current percentage for your location, but you may not be collecting everything you should be.
Effective January 1, 2015, sales to a nonresident of tangible personal property, other than a motor vehicle, shipped or delivered to a location outside Arizona for use outside the state, are subject to tax at the seller’s business location.
In many cases, products need to be charged the sales tax and your platform needs to be calculating it and passing that cost onto your customer. Ecommerce is generally exempt because Arizona cannot tax interstate commerce and your business owns that product until it changes hands at the point of delivery (the customer's shipping address). If you aren't charging sales tax on a sale, you should be fine as long as the customer resides outside Arizona.
Is your ecommerce site charging sales tax correctly? Contact us for more information about configuring an ecommerce site for your Arizona business.