Every rose has thorns, every florist has sales tax – Wacky Tax Wednesday

Flowers are a thoughtful gift and an excellent choice for people like me, who live far from family. Although every winter I tell myself that this is the year I’ll shop for Christmas gifts early and ship fabulous, one-of-a kind treasures to my far-flung loved ones, old habits die hard. As a result, I often rely on florists to deliver timely, if less personalized, holiday cheer on my behalf.

It’s a simple solution for me, but ordering flowers in one state and having them delivered to a location in another can make for a complicated sales tax situation. In fact, the complexity of sales tax sourcing rules for out-of-state florists is well illustrated by the West Virginia Tax Department’s recent attempt to clarify them.

In-store sales

Sales tax rules are relatively straightforward when a customer takes possession of the merchandise in the store: The sale is sourced to the location of the store. Were I to purchase a bouquet from a florist in Morgantown, West Virginia, while traveling, I’d pay Morgantown’s 6 percent sales tax on the transaction no matter what I do with the bouquet afterwards (e.g., bring it to friends down the street or a family reunion in neighboring Maryland).

Deliveries

The tax rate in effect at the location of the store usually doesn’t apply to a sales transaction when the purchase is delivered to a different location. So, if I drop by or call the Morgantown florist and ask them to deliver a bouquet to a home located 40 miles south, in Clarksburg, the florist would source the sale to Clarksburg and apply Clarksburg’s 7 percent tax to the transaction.

When a West Virginia florist sells flowers for delivery to a location in another state, West Virginia state and local sales tax don’t apply to the transaction because the flowers are not transferred to the consumer in West Virginia. However, the florist may be required to collect and remit according to the rate of sales tax in effect in the location of the delivery.

Each state establishes its own sales tax rates, rules, and regulations, and West Virginia doesn’t attempt to explain other states’ requirements. It’s the responsibility of the florist to determine whether it has nexus, or the obligation to collect and remit tax, in another state.

Sales by West Virginia florists to out-of-state locations

The department makes clear, however, that West Virginia tax applies to sales made by an out-of-state florist for delivery into West Virginia.

These sales typically occur in one of two ways:

• The out-of-state florist contacts a West Virginia florist directly and arranges for that florist to fill and deliver the order
• The out-of-state florist is a member of a floral association network and the order is filled and delivered by a West Virginia member

Either way, tax applies to the sale. But the party that collects the payment may not be responsible for remitting the tax.

In TSD-434, the West Virginia Tax Department states, “While the out-of-state florist should be collecting and remitting West Virginia State and local sales taxes applicable to the transaction, the out-of-state florist will not have direct taxable nexus with West Virginia unless [it] has a physical location in West Virginia. The out-of-state florist does have indirect taxable nexus with West Virginia because its agent for delivery of the floral arrangement is physically located in West Virginia.” [Emphasis theirs.]

Because of this agency relationship, an out-of-state florist selling flowers for delivery in West Virginia should:

• Collect West Virginia state and applicable local sales tax from its customer
• Remit the collected tax to the West Virginia Tax Commissioner
  

However, the Tax Department goes on to explain, “When the out-of-state florist belongs to a floral association network, the floral association network should be collecting and remitting the West Virginia sales tax and any applicable municipal sales tax collected by the originating florist.” I understand this to mean that the florist collects the tax from the customer and remits it to the floral association network, which remits it to the state.

The department then provides an example that flummoxes me:

An Orlando, Florida, florist that’s a member of a floral association network makes a retail sale of flowers to Florida customers for delivery in Charleston, West Virginia. The Orlando florist transmits the order through the floral network and it’s received by a florist association network member in Charleston. The Charleston florist fills and delivers the order on behalf of the Florida florist. Payment is transmitted through the floral network and both the Florida florist and the West Virginia florist receive a percentage of the order price. Got it.

Here’s where it starts to get tricky. “The clearing house agreement does not provide for payment of state and local sales taxes. The clearing house assumes that the originating florist [the Orlando florist] will collect and remit applicable state and local sales taxes.”

What? Right above the example, the department clearly states that “the floral association network should be collecting and remitting the West Virginia sales tax and any applicable municipal sales tax collected by the originating florist.” But the example states that “the clearing house assumes that the originating florist will collect and remit the tax.”

The Tax Department concludes the bulletin with a word on audits. It states, “When the florist being audited is the delivering florist in a multistate sales transaction, the audit will not hold the West Virginia delivering florist responsible for payment of State and municipal sales tax applicable to flowers it delivered on behalf of the out-of-state florist originating the floral transaction, unless the originating florist collected the West Virginia State and municipal sales taxes and remitted that amount collected to the West Virginia delivering florist for remittance to the Tax Commissioner.”

That’s good news for West Virginia florists, I suppose, but not exactly comforting for florists based in other states that make sales for delivery into West Virginia.

Happy holidays to florists and retailers around the country, who take on sales tax so that the rest of us can spread holiday cheer. It’s a thankless task. Automating sales tax helps make it less so.