Black Friday and Cyber Monday: Sales and use taxes on online purchases

According to the National Retail Federation studies in last year sales during Black Friday Weekend, almost $54.2 billion were spent on retail and online sales. Many shoppers prepare weeks or months prior to Black Friday Weekend researching and looking for the best deals, but do they know which taxes they are expected to pay depending if their purchases were done in a store or through online stores? 

Let’s compare the types of taxes that may apply:

Sales taxes amounts and restrictions are assigned by state and local governments to purchases that happen within their territory. These types of taxes are usually the ones collected by the store from the shoppers on every sale transaction done on their stores and represent a percentage of the purchase. 

These taxes are remitted to the government within the store taxes filings.

Use taxes apply to many online purchases where the purchase is done between different states. If one of the parties involved in the transaction are located in a different state and the store doesn’t have an office, warehouse, server or any physical presence (nexus) in the same state as the buyer the use taxes apply to that purchase. 

These taxes are expected to be paid to the government from the customer’s tax filings.

For the state of California the rate for sales and use taxes is the same, and it is 7.25%

Exemptions

• First of all, these taxes apply to businesses that provide a tangible good to the customer, so many of the service businesses aren’t required to include this kind of taxes on their filing. 

• Included in this list of exemptions are the Non profit or Veteran’s organizations in order to avoid burdening them with the obligation to collect sales tax.

• Some exemptions are created to promote the purchase of certain types of industries, such as fresh productions or specific foods and seeds or even some prescribed medicines.

This month’s blog covers how sale taxes and use taxes work on retail, but it is possible to see these same categories on many other segments, such as sales for resale or storage of property, among others.

The information given on this blog is a general overview of the function of sale and use taxes and may vary on each purchase or state. If you have any doubts of what to do, we encourage you to seek professional advice to keep all your paperwork and taxes in order according to tax laws.