Idaho Internet Sales Tax

If you sell goods or products online to customers located in Idaho, it is worth your while to learn about Idaho’s Internet sales tax rules.

The General Rule: Physical Presence in the State

The current default rule throughout the United States is that you must collect sales tax on Internet sales to customers in those states where your business has a “physical presence.” The physical-presence rule is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail-order businesses to collect sales tax on out-of-state sales, The decision has been extended to include online retailers. Generally speaking, a physical presence means such things as:

• having a warehouse in the state
• having a store in the state
• having an office in the state, or
• having a sales representative in the state.

For guidance on how physical presence is determined specifically under Idaho law, consult:

• Rule 022.03 under Section 35.01,02 of the Idaho Administrative Code, which states that a retailer that does not have “nexus” with the state is not required to pay sales tax
• This FAQ page on the Idaho State Tax Commission website, which spells out what constitutes “doing business” in Idaho in terms of both physical presence and commonly-owned businesses

In its Quill decision, the United States Supreme Court refers to several types of potential “nexus” between a business and a state, including one based on the Due Process Clause of the Constitution and one based on the Commerce Clause of the Constitution. The type of “nexus” (or connection) the Supreme Court ultimately found relevant for mail-order businesses was the Commerce Clause version, which, for all practical purposes, is physical presence. The Idaho Administrative Code, in turn, refers to "nexus” rather than “physical presence.”

As you might expect, the corollary to the physical-presence rule is that, if you do not have a physical presence in the state, you generally are not required to collect sales tax for an Internet-based sale to someone in that state.

Examples

Example 1: You are operating solely out of a warehouse in Columbia, South Carolina and make a sale to a customer in Coeur d'Alene, Idaho—a state where your business has no physical presence: You are not required to collect sales tax from the Coeur d'Alene customer.

Example 2: You are operating solely out of a store in Pocatello, Idaho and make a sale to a customer in Nampa, Idaho: You are required to collect sales tax from the Nampa customer.

Example 3: After several years of operating solely out of a warehouse in Columbia, South Carolina, you open a one-room satellite office just outside of Boise, Idaho—a state where previously you had no physical presence. A day later, you make a sale to a customer in Idaho Falls, Idaho: You are required to collect sales tax from the Idaho Falls customer.

Non-Taxable Items

A limited number of items sold via the Internet to Idaho customers may be exempt from sales tax under Idaho law. For example, under Rule 077 of Section 35.01.02 of the Idaho Administrative Code, some items sold for use at the Idaho National Laboratory are exempt from sales tax. For further information, check through Section 35.01.02 of the Idaho Administrative Code.

The Customer’s Responsibility

In cases where the online retailer does not have to collect sales tax, it is the customer’s responsibility to pay the tax—in which case it is known not as a sales tax but, rather, a “use tax.” For additional information, see the Idaho State Tax Commission’s webpage on the state’s use tax. (Note that the webpage states that some online retailers without “a presence” in Idaho are not required to collect sales tax.)

Final Words

While you might not know it from looking solely at Idaho’s sales tax statute, the issue of whether to require online retailers to collect sales tax in states where they have no physical presence has been a matter of significant debate in many states, as well as at the federal level. However, at this time, Idaho has not enacted any law that would require out-of-state retailers to collect sales tax from Idaho customers.

In Idaho, the physical-presence rule continues to apply for Internet retailers. However, because the issue is hotly debated in various quarters, you should consider checking in periodically with the Idaho State Tax Commission to see if the rules have changed. For more general information on taxes on Internet sales, see Nolo's article Sales Tax on the Internet. And, for information on the rules about collecting sales tax for Internet sales in any other state, see Nolo’s article, 50-State Guide to Internet Sales Tax Laws.

September 2012