Sales Tax Questions » Sales Tax Nexus

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Question: I need a guideline as to how to handle sales in DE and MD when our company is based in PA. Do I have to register the company info in each state? Do I have to apply for a tax# in each state? I know DE does not have a "sales" tax, but what about the gross receipts tax?

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Response: The determination as to whether you are required to register to collect sales tax in MD or pay gross receipts tax in DE will be dependent on your level of activity in the state. If you exceed the activities and thresholds as defined by the state, then you will be deemed to be a vendor and subject to their rules.

In MD, out of state vendors must register with the Maryland comptroller and file Maryland sales and use tax returns if the vendor shows a nexus connection by:

  • Permanently or temporarily maintaining, occupying, or using any office, sales or sample room, or distribution, storage, warehouse, or other place for the sale of tangible personal property or a taxable service directly or indirectly through an agent or subsidiary ( Tax-General Article, Section 11-701(b)(2)(i));

  • Having an agent, canvasser, representative, salesman, or solicitor operating in the state for the purpose of delivering, selling, or taking orders for tangible personal property or a taxable service (Section 11-701(b)(2)(ii)); or

  • Entering the state on a regular basis to provide service or repair for tangible personal property (Section 11-701(b)(2)(iii)).

The Comptroller's Office interprets Section 11-701(b)(2), including sub-paragraph (iii), as broadly as is permitted under the United States Constitution. It is our position that the U.S. Constitution does not require an out-of-state vendor to have a substantial physical presence in the taxing state for the state to require that vendor to collect sales and use tax. All that is required is for the out-of-state vendor to demonstrate more than a "slightest presence" in the taxing state.

No minimum number of service or repair visits is required to meet the definition. If it is the vendor's policy to provide service or repair for tangible personal property, and the vendor in fact provides such services or repairs during the audit period, these services or repairs will be regarded as regular. On the other hand, any services or repairs that are provided on a discretionary and infrequent basis will not be regarded as regular.

We will examine all relevant information in making a determination, including advertising materials and promotional literature, representations made to prospective customers before sale, whether the vendor routinely employs service or repair personnel or regularly contracts for such services or repairs, and the vendor's description of its business operations as contained in business documents and submissions to government agencies in the vendor's home state.

Therefore in MD if you are visiting different shows and selling your goods at the shows, it is likely that you will meet the threshold and should register to collect tax on not only sales made at the shows but all deliveries into MD after the show.
Delaware has a classification for non-resident retailers who do not intend to be in the state for more than 10 days during any calendar year. This classification is a Transient Retailer. Casual sales by any individual artist or craftsperson of his own handmade, painted, or crafted art or craft objects, are exempt from retailers' and transient retailers' licensing requirements provided the gross income from the sales of such objects does not exceed $1,000 per year. Persons engaged in such sales on a regular or full-time basis, such as operators and participants in "flea markets" would not qualify for this exemption since such sales would ordinarily not be considered "casual" sales. If you qualify for the exception, it appears that you would not need to register and remit the DE Gross Receipts tax. However, if you are in the state more than 10 days per calendar year or you exceed $1,000 in annual sales, you would be required to register and remit the tax.

Diane L. Yetter
President
YETTER-tax meets technology
Sales Tax Institute
(312) 701-1800

Sales Tax Questions answered by Diane Yetter.

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