Remember the days when shopping on the internet meant shopping without paying state sales taxes? Ah the good old days! The unintended fallout of this was shrinking state revenues as shoppers took their dollars to the world wide web rather than main street. The other consequence was that brick-and-mortar retailers were at an unfair disadvantage as they had to charge state sales taxes that the internet retailers were free from. The laws at the time in most states were that if you had a physical presence in a particular state you were required to have a state tax permit, charge the current tax rate and send those collected funds to the state treasury. This meant that companies like Z&Z Medical, which only had a physical presence in the state of Iowa, only had to charge sales tax to their customers in Iowa. Yes, those were the good old days!
As state revenues continued to fall many states struggled to find ways to combat this problem. Finally the state of South Dakota filed a lawsuit against Wayfair to force them to collect state sales taxes on all sales in their state. In 2018 this landmark case went before the United States Supreme Court and they found in favor of the state of South Dakota. The party was over for the internet retailers and now they too would have to collect state sales taxes like all the other retailers. At the time this seemed like a daunting task for a small business, like Z&Z Medical. How could we know the laws of every state, and did we have the manpower to make this happen? As it is in this digital age we live in, many companies were already addressing this issue with software designed specifically for this purpose.
So, you may be asking yourself where we’re going with this discussion? Some of the tax questions we receive regularly are: “Why are you not charging me tax?” or “My facility is tax exempt. How can I purchase online without paying taxes?” Yes, it’s true that Z&Z Medical does not charge taxes in every state but are still operating within the laws of those states. Let’s tackle this question first.
After South Dakota vs. Wayfair was decided, states had to determine how to manage internet retailers and many of them had to enact new laws to address the issue. At that time the term “Nexus” became a familiar one to all of us internet retailers. Nexus is the level of commerce, conducted by an out of state company, that reaches the state’s threshold for collecting sales tax. If a company has nexus in a certain state it means they do enough business in that state to be treated the same as having a physical presence in the state. The level of sales to reach nexus is different in every state. Some states the first dollar of sales establishes nexus and in other states, a company can have up to $200,000 of annual sales before they establish nexus.
Z&Z Medical has nexus in eighteen states and contracts a company to monitor sales by state to determine if we are within the nexus laws of every state that we sell in. Currently Z&Z charges sales tax in the following states: AR, AZ, CA, CO, FL ,GA, ID, IL, IN, IA, MI, MN, NJ, NC, OK, PA, WA, and WI. If you live in one of the other thirty-two states, you can purchase tax free from Z&Z medical. State sales taxes are based on what state the product is shipped to and not the state it was purchased from.
The next question is “If my facility is tax exempt can I purchase from Z&Z without paying sales tax?” Many medical facilities are non-profit and therefore immune for paying state sale tax. Z&Z Medical does have the ability to set up your online account for tax exempt purchases. Simply contact our staff, and in less than a minute, they can convert your existing account to a tax exempt account. You will need to provide your tax exemption certificate to us, as we are required by law to have it on file.
It is my hope that now you know more than you ever wanted to about internet retailers and state sales taxes. If we’ve failed to address your tax question here, please feel free to reach out to our staff at firstname.lastname@example.org.