One question we field quite a bit at TaxJar support and here on the Sales Tax Blog is “Why am I paying a different amount of sales tax when I buy a gift?”
We especially hear this from buyers who live in the 5 states without a sales tax. And we hear you. It can be jarring to place an order online and think you’re paying $50 only to see another $6 or more tacked on to your total!
So why do you sometimes have to pay a different amount of sales tax when ordering gifts online?
This is because sales tax is charged at the ship to destination. So if you live in Stamford, CT, where the sales tax is a fairly low 6.35%, but have Amazon ship a gift to your nephew in Auburn, Washington, then you’ll find yourself tacking a hefty 9.5% sales tax on to the purchase just because you’re having it shipped to a location with a high sales tax rate.
If you’re not accustomed to paying sales tax, or paying a high amount of sales tax, you may wonder why this is. If a vendor charges you sales tax, it’s most likely because they have sales tax nexus in that state and are complying with sales tax regulations. If you think you were charged sales tax in error, you can always ask the merchant to clarify why you were charged a certain amount of sales tax.
Buying gifts for people in other states is not the only time you may find yourself paying an unexpected amount of sales tax.
Other Scenarios Where You May Pay Different Sales Tax Than Expected
1.) You are traveling and make an online order – This has happened to me personally. I was out of town at a week-long conference and realized I needed more business cards. While I didn’t have to pay a significant amount more in sales tax than I usually do, I did notice I was charged for “Texas sales tax” (the location of the conference) rather than the usual Georgia sales tax. That’s even though I paid with a credit card with a Georgia billing address. In this case, billing address doesn’t matter. You’re still charged sales tax at the rate of your “ship to” address.
2.) You order from small online sellers – As the law of the land currently stands, merchants only have to charge sales tax in states where they have sales tax nexus (i.e. a “significant presence.”) So let’s say you live in Colorado but order soap from a merchant who works out of her home in Maryland. That merchant has no “nexus” in your state, so she isn’t required by law to charge sales tax. You may find a surprise at the shopping cart – no sales tax!
3) You’re from a state with no sales tax but you’re traveling – Let’s look at Washington again. Say you’re from Oregon but visiting your sister in Washington and go out to lunch. Since you’re buying dinner in Washington, you’ll be charged Washington sales tax even though you live in Oregon. On the other hand, if you were buying a piece of tangible personal property (like a book or a pair of jeans) in Washington to take back to your home in Oregon (or Montana, or New Hampshire, etc.) then read on for an interesting exception to this rule.
An Exception to the Rule
Washington State – Let’s say you live in Oregon but go on a shopping spree in your neighboring state to the north, Washington. Washington has an agreement with several states and Canadian territories that allows residents of those areas to show identification and forego paying sales tax. Here’s more about how to avoid paying sales tax in Washington. Major caveat: You must be purchasing the products for use outside the state. So if, like in the above example, you are buying a birthday present for your nephew who lives in Washington, this exemption wouldn’t apply.
I hope this explanation of why you pay sales tax on gifts has laid some questions to rest. Have more? Or do you know of any more sales tax exceptions like Washington’s? Start the conversation in the comments!