If you are selling goods or products online and some of your customers are located in Idaho, you need to be aware of the state’s Internet sales tax rules. As you read, keep in mind that collection of sales tax on Internet sales has been a matter of ongoing debate both at the state and federal level.
The federal government is currently considering legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The proposed federal law, called the Marketplace Fairness Act of 2013, would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state. Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement. States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.
Below is an article on the current rules on Internet sales tax in Idaho. A new federal law would affect all state Internet sales tax laws so be sure to check for updates in this area.
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.
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.
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.)
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.