Rose Pettle is the owner of Florist Gump, a chain of flower shops throughout Texas. Ever the entrepreneur, Rose launched Bloomarama.com, an internet business selling many floral items in her brick and mortar stores. Bloomarama.com is a separate Florida corporation with no physical location or offices in Texas. However, for the convenience of its customers, Bloomarama.com has a special relationship with Florist Gump that permits merchandise returns, warranty issues or other complaints to be handled at any Florist Gump store. Rose is excited to receive her first order through KaBloom.com for a customer in Austin. Since Bloomarama.com is a separate Florida entity with no physical presence in the State of Texas, Rose does not intend to collect Texas state sales tax from her Austin customer. Is Rose right?
No. Online retailers have long been able to offer their customers tax free shopping because they do not maintain a physical presence (e.g. employees, warehouses, offices) within the state where the order was placed. The State of Texas will look to whether some “nexus” or relationship exists between the business and the state. Because KaBloom.com’s Texas customers may return or exchange purchases at Florist Gump in Texas or have other claims issues handled there, KaBloom is treated as having corporate representatives or affiliates within Texas (a “physical presence”) and must collect Texas sales tax.
Tilting the Scales in Your Favor
Make sure to consult a tax attorney or CPA if you have a “sales” relationship with any entity outside of Texas to make sure that the proper procedures are followed for collecting, reporting and paying state and county sales taxes. Rose’s penalties and interest for not collecting sales tax will be at least 9.25% if paid in 30 days and at least 14.25% if not paid within 30 days.
The Future of the Taxing of Internet Based Stores
Susan Combs, the Texas Comptroller of Public Accounts says Texas loses roughly $600 million a year from untaxed online sales. Taxation of internet sales is certain to gain increasing scrutiny from taxing authorities. Brick and mortar stores have long complained that online retailers have an unfair competitive advantage because of their ability to offer tax free purchases. States initially turned a blind eye to taxing of online sales and yielded to the complaints of online retailers about the complexity of collecting sales tax in 9,600 jurisdictions. Increasingly, states have become interested in this revenue source to augment shrinking state coffers with some of the hundreds of billions of dollars that Americans spend each year on on-line purchases. Recently, Amazon.com agreed to start charging sales tax in a number of states including Texas. The online giant, that had long opposed the requirement that online retailers collect sales tax, believes the issue should be decided at the federal level and has thrown its support behind the Marketplace Fairness Act which seeks to allow states to collect taxes from out-of-state businesses. While other online retailers, such as ebay and Overstock, oppose the legislation, it appears as though the age of tax free clicks is coming to an end.