Lobster Laws: Sales Tax for Online Seafood Sellers
- Dec 6, 2015 | Stephanie Faris
Shipping a live lobster comes with a few challenges. How do you get a living creature from one state to another without injury? Can you find a carrier that will deliver a live lobster quickly? Once it's there, should you require a signature or allow the delivery person to leave the package on the customer’s doorstep?
Calculating tax on lobster sales can be even trickier. By now, many Maine residents have probably heard about the trouble the Maine Lobster Festival recently had because organizers failed to pay sales tax throughout the festival’s history. As a result, lobster retailers are double-checking their requirements to make sure they’re doing everything they need to do to be compliant. There are a few things Maine lobster retailers need to know before agreeing to ship another live lobster.
Maine Sales Tax Laws
The sales tax requirements on lobster sales in the state of Maine rely heavily on how the lobster is sold. When buying lobster in a restaurant, customers will pay the state’s 8 percent sales tax for prepared food. However, if a customer buys a live lobster from a boat, no sales tax is charged. Lawmakers have tried to pass tax exemptions on items like machinery and equipment in order to stay competitive with Canadian lobster sellers. Unfortunately, the attempts have so far been unsuccessful.
When it comes to shipping, things get more complicated. If deliveries are made within the state of Maine, the customer will be responsible for paying the 8 percent sales tax. But Maine tax laws are destination based, which means that the amount of sales tax to be collected is based on the buyer’s location, not the seller’s. So it’s important for retailers to know the tax laws of every state before shipping.
Where Sales Tax Applies
Shipping food items of any type to multiple states can be challenging, since many states have no sales tax on food for home consumption, while a few others have reduced sales tax on food items. Louisiana customers will pay only local sales tax on food purchases, for instance, and Illinois, Missouri, Arkansas, and Utah have food tax rates that fall below 2 percent. However, many states only exempt food items that are considered “staples,” so it’s important to carefully review a state’s food tax exemptions before shipping a live lobster to a customer there.
In addition to sales tax on the lobster purchase itself, businesses must determine whether sales tax should be charged on the shipping and delivery costs paid by the seller. In some states shipping is tax-exempt even when the purchase isn’t. In others, shipping is tax-free if the charge is stated separately on the invoice. However, in some other states, businesses are required to pay sales tax on the entire purchase, including shipping. When shipping to Alaska and Hawaii, businesses will also usually pay an upcharge to the delivery service for taking the extra steps necessary to get the item there safely.
For destination-based sales tax states, calculating sales tax can be complicated, especially when shipping food. It’s important to check each state’s laws to determine any special laws that apply to sales tax collection before accepting orders from customers across state lines.