To which state do we (a company) owe sales or use tax in the following scenario? We buy a computer and have the seller ship it to our office in New Jersey. There we install some software on the computer. This takes a few days. Then we ship the computer to our office in Arizona, where we use it in our business. Does it make any difference what the specific states are? Would the answer be different if two other states were involved, or is there a general rule that will apply for all or most states? Some other likely combinations are New Jersey-Florida, Colorado-Nebraska, Colorado-Arizona, and Nebraska-Missouri. Thanks.
Arizona state tax laws apply to the cost of the finished product "placed in service".
No state applies sales tax to goods that just pass through their state. The all apply the sales tax to goods used or consumed in their state. That's the general rule then. Look to the sales tax laws of the state in which you first begin using the finished goods for your business purpose.
1) The specific states can matter, but the general principles are usually similar.
2) In theory, it is an "end user sales and use tax", so only the Arizona office should pay. In practice, the retailer usually pays sales tax, and rarely collects for out of state.
3) There is an exemption for manufacturers or intermediary resellers (in this case NJ), so NJ wouldn't pay.
We (the company) pay use tax to every state we operate in, so I'm not so much concerned about whether the seller collects the tax. In this case, though, the seller will want to collect NJ tax, so if it's really Arizona that should get the tax, we'll have to find a way to convince the seller.
The NJ office is not reselling the computer - just sending it to another location of the same company. Bob Sandler
You'd have to check the laws of both states. It may be that you owe sales tax to NJ and use tax to Arizona - but you should get a credit against the AZ tax for what was paid to NJ. Stu
I thought I had replied to this several days ago, but it seems to have gotten lost in cyberspace ... If the property is shipped from NJ by the vendor or a drop shipper, NJ sales tax will apply to this transaction. AZ will give you credit against the use tax for the sales tax that was paid to NJ. If the property is shipped from outside NJ but the vendor has nexus with NJ, the vendor will probably routinely collect and pay over NJ use tax on the transaction. Again, AZ will give credit for the use tax that was paid to NJ. If the property is shipped from outside NJ and the vendor has no nexus with NJ, the use tax is the purchaser's responsibility. Several respondents here have opined that only AZ would be entitled to the use tax; however, I believe that most states (including NJ) would probably consider the installation of the software to be a taxable use of the property. This is not the same thing as just re-routing the property to the AZ location, or reselling it. N.J.S.A. 54:32B-2(h) : "'Use' means the exercise of any right or power over tangible personal property by the purchaser thereof and includes, but is not limited to, the receiving, storage or any keeping or retention for any length of time, withdrawal from storage, any distribution, any installation, any affixation to real or personal property, or any consumption of such property." The installation of software on a computer in NJ would appear to meet this definition. It certainly is "the exercise of" a "right or power" over the property. As a result, I believe the transaction described would be subject to NJ use tax. It is probably also subject to AZ use tax, but AZ will allow credit for the NJ tax. I would suggest that the same pattern applies with respect to most pairs of states. However, there may be statutory, regulatory, or case law exceptions in some states whereby the installation of the software would not constitute a taxable use. Katie in San Diego
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