Retroactive Sales Tax

I was asked today to pay sales tax on an order I placed from a California winery in February 2019. Is it reasonable to pay sales tax for a transaction 6 months ago?

When did the new law go into effect, requiring tax be charged on interstate shipments? January or February, I’d guess. They could face some heat from tax or liquor authorities if they don’t collect it, though if they screwed up, you’d think they might want to eat it in the interests of customer relations.

Most likely, the winery had a visit from the California Board of Equalization and got a bill for uncollected sales tax on out of state sales. They are now trying to collect on what they should have been collecting all along in order to cover their tax bill.

Legally, though, they may technically be required to “collect” the sales tax (rather than simply pay it). I’m not sure about that. Obviously the state’s only interest is in getting paid, but I believe some state laws technically require that the tax be collected from the buyers.

Retailer in NY would not release some Bordeaux futures I purchased last year, unless I paid sales tax.

Who is asking, the winery or the state?

Yeah. That’s the question I have as well. If the state, pay it. If the winery, you can decide whether you want to pay it or not. I am surprised the winery is trying to go back and collect tax from customers on historical shipments. I would have thought they just updated their process for future sales and pay the back tax out of their own pocket for customer retention purposes.

are you really going to drop them over taxes?

I think it’s more of a general observation on business practices. I think it’s a big ask for a winery to cover sales tax.

You mean retroactively? You don’t think it’s a big ask as a general matter, I assume.

The new law was pretty well publicized by retailers who ship across state lines. I guess you weren’t aware of that. I assume this is not a large winery or they would have been in compliance. Seems like the kind of mistake a small producer, without regular legal advice, might make.

The tax existed when you bought the wine; they just didn’t have the system in place to collect it. You made the purchase, incurred the tax, and I’d just pay it if this were me.

I’m by no means a tax expert, but doesn’t the purchase trigger the tax and either the seller or purchaser could bear all or a portion of the tax? It’s just typical in the US for the purchaser to bear the full tax.

I wasn’t aware that it was required for the purchaser to pay the sales tax instead of the seller.

Technically a sales tax is a tax on the buyer, but the seller has the obligation to collect/remit. Where the seller does not collect/remit, the buyer is obligated to pay a use tax (but no one ever does, hence the reason every state wants retailers to charge sales tax on interstate commerce.) This issue of retailers not charging sales tax has recently gone to the Supreme Court and now the threshold for retailers to charge sales tax on interstate commerce is way lower. So some smaller guys that, all of the sudden had to register/charge sales tax were caught not paying attention and didn’t start collecting tax when the local tax authorities were pursuing every dime.

Assuming your purchase was shipped across state lines - did they charge you sales tax for the state they are in, or did they charge you sales tax for your state?

In Europe, all pricing is inclusive of VAT, so it removes the issue altogether.

The “new law” depends on the state, but all roads lead back to the recent Wayfair case that changed the game on how state sales tax regimes can apply in the digital world. Several states passed legislation requiring more out of state retailers to charge local sales tax hoping that Wayfair came out in favor of the states.

Yes, I was referring to the OP’s situation. The winery needs to collect sales tax from the buyer if required.

CA winery is not required to charge/collect out of state sales tax on ONLINE DTC sales. The only “extra” box a winery fills out when reporting to California Board of Equalization is when it collects sales taxes above the total sales threshold WITHIN the state of CA. In other words, per law, if total DTC sales are under $500K per year WITHIN state of CA, then a flat state wide sales tax is to be collected/remitted, if above the $500K level, then same flat tax PLUS sales tax surcharge for the district/county/municipality of CALIFORNIA wine buyer and matching what a wine buyer would pay if buying locally. For example, if a winery’s total sales per year are above $500K, then its the same flat state wide tax of 7.25% to be charged and remitted, and then additional local county/municipality surcharge for, say as an example, LA County, which may be another 1.25% on top of 7.25% (flat tax rate), for a total of 8.50%, or whatever the sales tax rate for LA County is these days. Or even municipality within. Basically, sales tax a wine buyer would pay at his/her local wine shop.

Actually becomes a nightmare for small(er) guys when they need to collect proper sales tax if/when they pass the $500K sales annual number, they need to create and then maintain a table for each and every local sales tax within CA. Almost all then pay someone to do that, an extra (hefty) expense to be sure, which wasn’t there until recent times. Added to production costs, and passed along to wine buyers in the end.

BUT. Total for out of state DTC sales is entered into a separate box that does not require any sales statement reporting, NOR COLLECTION by California Board of Equalization. Its between a winery and whatever the state of residence of wine buyer happens to be.

OTOH, a winery with a sale to NY resident, say, may want to collect NY state sales tax, and then remit it to state of NY. But, again, this has nothing to do with CA Board of Equalization record keeping and tax collection.

What the OP is not saying is how the actual purchase was made, online or in person. If in person, then yes, the winery had to charge/collect the sales tax (local to them) and then report/remit to state of CA. If online, then No, not sure what’s being claimed by the winery, if so.

Has OP already received the order (it’s not clear)? If so, I’d be more reluctant to pay as the transaction is complete. If not, then I think if you’re upset about it you should cancel the order on the ground they changed the price (even if as a result of the state’s greater enforcement) retroactively, and that affected your purchase decision. But if you still want the wine, even with tax added, then you should pay.

Thanks for your responses.

The California winery is asking me to pay Minnesota sales tax on an order I have not received yet. I was planning on paying it, but thought I’d ask the group about the situation, as my first thought is that they’re changing the terms of the purchase. But as some of you pointed out, it was likely an error that they didn’t collect tax, and they are required to do so.

I would assume that the winery had to promise to collect and remit as a condition of getting the necessary permits to ship lawfully into the state.

So you haven’t received it yet! I think that makes all the difference. I bet they weren’t legally required to collect it back in February because it wasn’t being shipped into Minnesota then.

From your original post, I assumed you’d received the wine and they were trying to come after you for tax seven months later, which would have been annoying. I’m still a bit surprised that they didn’t warn you at the time of purchase that you’d have to pay the tax. But I can see why they wouldn’t collect it then. If the order was somehow cancelled before delivery, it would be a nightmare to get a refund.