Questions occasionally arise as to how iTransact determines the sales tax charged to you and your customers. The short answer is: We don’t. iTransact only charges your customer the amount you tell us to charge. That amount is either manually input by you via your Virtual Terminal or sent to iTransact via your Market America web portal. On your web portal orders, Market America sums the product amounts and calculates shipping and sales tax (if any), and relays the total to iTransact. iTransact then charges that total to your customer.
Even though iTransact does not participate in your sales tax calculations, we get asked how those calculations are made, so we approached Jeremy Fennema (Market America’s Director of Internet Services & Training) for clarification. His explanation is as follows:
Explanation of Sales Tax Collection as it Relates to iTransact, Market America, and Market America Independent Distributors in the USA
The first thing to understand is that there are always two separate and distinct transactions that happen for any Market America Independent Distributor who has an iTransact merchant account. First, there is the transaction between the customer and the distributor, and second, there is a completely separate transaction that happens between the distributor and Market America.
Let’s look at the second transaction first. Here’s what the Market America Career Manual references related to Sales Tax. You can either have “Exempt Status” as referenced in the first section, or you fall under the provisions of the “Administration Fee” in the second section:
United States/U.S. Territories: To avoid having Market America charge sales tax on orders, Distributors must apply for an appropriate Sales Tax ID and forward a copy of the Sales Tax License, Resale Certificate, and Market America Sales Tax Agreement form to the company. Sales tax is based on three factors: the shipping address, whether the paying Distributor has appropriate documentation on file with Market America, and the taxability of the product/service itself. Note: In some states, Distributors may not be eligible to obtain a Resale Certificate (e.g. California Distributors are not permitted to obtain sales tax documentation and are required to remit sales tax to Market America, due to state mandate).
To avoid having Market America charge sales tax on an order, the paying Distributor must have appropriate sales tax documentation on file with Market America for the state/territory to which the product is being shipped.
If the paying Distributor does not have appropriate sales tax documentation on file with Market America for the state/territory to which the product is being shipped, then taxability will depend on what is considered taxable in that particular state/territory.
In some states/territories, shipping and/or the administration fee is considered taxable.
The ID number and name on the sales tax documentation must coincide with the ID number and name of the distributorship. If Distributors change their ID number and/or name, they need to update their sales tax documentation as well.
United States/U.S. Territories: For Distributors who do not have appropriate sales tax documentation for the state/territory to which an order is being shipped, an administration fee will be charged. The administration fee is based on the suggested retail price (or Distributor cost for items/services that have no suggested retail price) of the total order, regardless of the taxability of individual items on the order.
Note: If the paying Distributor does not have appropriate sales tax documentation on file and sales tax is charged on any item on the order, including if sales tax is charged only on the administration fee itself, then the administration fee is based on the suggested retail price of the total order.
In short, what this means is if you have a sales tax ID on file with Market America for a particular state, you will not be charged sales tax and administration fees when shipping products from Market America to that state.
Now, let’s look at the first part, the sale between the distributor and the customer. If you have a sales tax ID on file for the state where you are shipping the product (presumably where the customer lives), then you have the ability, and probably the need, to both collect and remit sales tax for that transaction. While we cannot say for sure either way, and it’s always best to talk with your accountant or tax attorney, it is very likely that you would need to collect sales tax for sales made in that state, and remit it back to the state.
What about a situation where you are selling products to a customer in a state where you do not have a sales tax ID? Well, in that case, you would not want to collect sales tax most likely, because you have no mechanism (no sales tax ID, no resale certificate, nothing to indicate that these were taxes you collected on behalf of that state) to actually remit that sales tax back to the state. Because of this situation, your web portal will only collect sales tax from customers who are shipping to a state where you have a sales tax ID on file with Market America.
OK, so let’s pull this all together with an example. Rebecca Smith is our customer and John Jones will be our distributor. Rebecca lives in Maryland and John has a resale certificate on file in Maryland. When Rebecca buys Snap Laundry Detergent from John’s portal, Rebecca will get charged tax on the purchase because laundry detergent is taxable in Maryland and John has a resale certificate on file with Market America. When John fulfills the order by having Market America ship the product directly to Rebecca, John is NOT charged any taxes or administration fees, because, again, he has a resale certificate on file with Market America.
Now, what would happen if John didn’t have a certificate on file for Maryland? In that case, Rebecca would NOT be charged sales tax (because John has no way to remit that money back to the state of Maryland if he did in fact collect it), and John would be charged sales tax and administration fees when sending the product to Rebecca, because he does not have a sales tax ID on file with Market America for Maryland.
Before you start to feel that you need to get a resale certificate for all 50 states (or at least every state where you have a customer) just consider this: An easy solution for most people is to simply get a resale certificate in your home state, carry a little bit of inventory at home, and fulfill orders out of your inventory. It will save you from having to deal with some of the strangeness related to these different regulations governing the different parts of these sales we just mentioned, and it also has the added benefit of letting you customize the order that goes to your customer. For example, you can put reorder labels on the bottles you send out, put your business card in there, or add Isotonix cups or other Market America freebies to help your customers feel special.
We hope this helps explain a little better how the interaction between sales tax, resale certificates, Market America, iTransact, and you occurs and helps to further clarify things. Your iTransact merchant account is an excellent tool to help you better serve your customers. You’ve made a smart decision owning an iTransact merchant account. You’re in the same group with 90% of the top retailers in Market America!
Director of Internet Services & Training
Market America Inc.