Some dealers in the upper South say that businesses in states with lower sales taxes are using a not-so-legal loophole to ship into their markets without figuring the local (higher) rate into their customers' bill. The Southern Building Material Association, which serves Tennessee, North Carolina, South Carolina, and Virginia, asked its members to sound off on the issue and their responses suggest that while some are adjusting their prices to compete, many are fighting back against the practice. From letting it slide to crying foul, here’s how dealers are reconciling staying competitive with staying alive: 

  • “I would suggest contacting his state’s sales and use tax division to determine what the statue requires. If the truss company is in violation, give the sales and use tax division the opportunity to address the problem directly with the truss company.”

  • “It is an illegal practice and the culprit should be reported to the recipient state sales tax authorities. 84 was doing it to us and we turned them in twice and they stopped.”

  • “Most states have very low thresholds where they require a self-delivering seller to get a sales tax permit. This can trigger a sales tax audit and probably a fuel tax audit. This can be a nightmare the offending dealer won’t soon forget. Tax is due where the property changes possession, not where it is purchased.”

  • We don’t run into this as much as in the past. … “The localities and states need their sales tax desperately. It just takes an anonymous phone call to report the incident and it normally gets taken care of quickly.”

  • “We are on the border of Kentucky and Virginia and have had that problem forever. We try to do it the correct way. We are often beat on tax difference. We are 9.25%, KY is 6% and VA is 5%. We file for tax numbers in both states and report their tax to them. It has helped some.”

  • “We have had that problem. The contractor is responsible for paying the sales tax. They usually have no idea. Once we explain the liability to the contractors, either directly, or start spreading it around in conversations in your market… it typically goes away.  If that does not work, the friendly government tax man gets a phone call reporting the problem and name of the offending company. Trust me, your local, state government and the state they are shipping from … love to find out about new revenue streams they have been missing out on. Be patient though, it takes a year or so to work through.”

  • “It’s our understanding that out-of-state shipments are still subject to sales tax. However, the burden of payment of sales tax falls on the customer that should be paying the tax. It’s important to explain that to the customer. Either way, they are liable for the tax. When we had a sales tax audit, we had to show not only what we charged our customers in sales tax, but also what we paid in sales tax. ... Also, the tax rate they should be charged is the rate in the location to which the material is being transferred to the customers. So, for deliveries, it would be in the county of drop-off. If material is picked up from a store, the tax rate is for the county in which our business is located. If you’re shipping directly to a jobsite in another state, you will need to set up an account with that state and charge that rate.”

Is this affecting you? When do you pull out the rule book? Join the discussion on ProSales' LinkedIn page.