When a vendor sells anything in a state where it has no nexus, it can’t be forced to collect “sales tax”. That does not, however, imply that the transaction is exempt. If a vendor fails to collect sales tax on a taxable sale, the buyer or consumer must remit use tax to the state and/or municipal tax authorities.
When consumers make taxable purchases in jurisdictions with lower tax rates than their home town, they must also pay consumer use tax. For example, if you reside in sunny Sequim, Washington, and buy a mobile home in tax-free Oregon, you’ll almost certainly owe Sequim’s 8.8% consumer use tax when you’re not on the road. You’ll probably owe the 2.8 percent difference if you buy it in Boise, Idaho, where the sales tax rate is 6%. The buyer, not the vendor, bears the task of reporting and remitting consumer use tax in both cases.
When products are acquired overseas for use at home, the same applies. While you might not receive a tax notice for failing to pay consumer use tax on a £15 book purchased in London, don’t be shocked if the tax authorities pursue consumer use tax on a 150,000 Turkish Lira rug purchased in Istanbul.
Consumer use tax differs from seller use tax (aka retailer use tax, vendor use tax, or merchant use tax).
When a vendor sells to a customer in a state where it does not have a physical presence but is registered to do business, it is subject to seller use tax. Simply put, if your company has a physical presence in a state, you’re required to collect sales tax; if you don’t have a physical presence in a state but must collect tax there, you’ll often have to collect seller use tax.
Seller use tax is now collected at a much higher rate than it was previously. The Supreme Court of the United States overturned a physical presence criterion that had previously precluded states from taxing remote sales on June 21, 2018. In the case of South Dakota v. Wayfair, Inc., the court determined that a company’s “economic and virtual interactions” with a state were sufficient to establish nexus.
Since the June verdict, more than 30 states have enacted distant seller sales tax legislation, with more expected this year. As a result, more states are making it mandatory for enterprises to collect and return seller use tax.