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  1. #1
    Join Date
    Apr 2014
    Posts
    7

    Default When do Merchants Have to Collect State Income Tax

    Arizona

    I live in Arizona and own a business selling custom-printed apparel. I was wondering if I should be charging my customers in Arizona sales tax if the production and shipment of goods are never actually located in Arizona. The apparel ships from California and California residents are charged sales tax on their orders. I should note that I live and own property in Arizona and my main job is located in Arizona (the apparel company is just a side business). I also intend on deducting the cost of a home office in Arizona. Here is guidance that I can find online as to what may constitute a 'nexus' (full link here https://www.azdor.gov/Portals/0/Brochure/623.pdf):

    Quote Quoting Public Law 86-272 (15 USC 381-384)
    Public Law 86-272 (15 USC 381-384) provides that no state may impose a tax on net income where the only contact between the taxpayer and the state is the solicitation of orders for the sale of tangible personal property and where orders, if approved, are shipped from a point outside the state. Out -of-state companies that limit their activities in Arizona to the solicitation of sales and shipment of tangible goods from a point outside the state therefore have no nexus to Arizona for income tax purposes, even if they engage in other in-state activities that would otherwise create nexus, such as maintaining an employee in the state. So long as its activities are limited to the solicitation of sales, an independent contractor (such as a salesperson or broker) will not create nexus for the out-of-state entity even though it engages in activities in Arizona that would otherwise create nexus, such as maintaining an office or owning property.
    Based on this, I am wondering if charging Arizona residents tax is necessary, being that the products they are buying are not from here. I of course have no opposition to paying the state taxes as I would be adding this tax to the sales prices anyway if they were required... my only intent is to make the final price that an Arizona customer pays appear less and therefore more enticing (the law requires that they would have to file this on their own personal taxes in such a case). Would registering a company in Nevada or Delaware make a difference in this case?

  2. #2
    Join Date
    Mar 2013
    Posts
    18,155

    Default Re: When do Merchants Have to Collect State Income Tax

    The statute you are quoting has to do with paying state income tax which has nothing to do with your question.

    Your question is whether you have to charge sales tax on the products you sell.

    You can get the answer at the Department of Revenue website:

    http://www.azdor.gov/Business/Transa...vilegeTax.aspx

  3. #3
    Join Date
    Oct 2014
    Posts
    8,131

    Default Re: When do Merchants Have to Collect State Income Tax

    Quote Quoting UAMike
    View Post
    Arizona
    Based on this, I am wondering if charging Arizona residents tax is necessary, being that the products they are buying are not from here. I of course have no opposition to paying the state taxes as I would be adding this tax to the sales prices anyway if they were required... my only intent is to make the final price that an Arizona customer pays appear less and therefore more enticing (the law requires that they would have to file this on their own personal taxes in such a case). Would registering a company in Nevada or Delaware make a difference in this case?
    The federal statute you quoted does not apply to your sales tax (what Arizona calls “transaction privilege tax” (TPT)). It applies only to income tax, and the rules for income tax and sales tax are different. Your business has a physical presence in Arizona and Arizona may require you to collect TPT for the sales you make to buyers located in Arizona. The fact that the goods you are shipping are coming from a warehouse out of state won’t change that the transactions are subject to tax. If the seller was located out of state and the goods were shipped out of state then in that circumstance you would not be required to collect Arizona TPT.

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