Sales Tax Obligations of a Seller in D.C.

April 13, 2006

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As a seller, you have the obligation to pay sales taxes to the District. While the District requires your customers to reimburse you for the sales tax, you're going to have to make sure you collect the right amount of sales tax. If you don't, the District has the right to pursue your customer for the right amount of tax. However, this will not be very practical if the purchaser cannot be tracked down. Accordingly, the District may demand that you make up any underpayment. For this reason, we recommend that you review the following discussions in order to avoid undercollecting sales tax from your customers.

Procedure for accepting a resale certificate. If your customers purchase goods or products for resale in their business, the District of Columbia provides a resale exemption from sales tax. The District of Columbia does not set forth any specific procedures for accepting a resale certificate. However, you should require that the purchaser present, in good faith, a resale certificate that includes the following information:

your and the customer's name and address
an indication of the general character of the property your customer is purchasing (e.g. "For resale as tangible personal property in the same form as received from you.")
your customer's District of Columbia certificate of registration number

Procedure for accepting blanket resale certificates. The District of Columbia allows you to accept blanket resale certificates from your customers. A blanket resale certificate is a resale certificate provided to you by those customers who make numerous exempt resale purchases from you. The idea is that by maintaining a blanket resale certificate, both you and your customer can avoid the hassle of having to present a certificate every time your customer makes a purchase. The law does not set forth any specific procedures for accepting a blanket resale certificate. However, you should require that the purchaser present, in good faith, a blanket resale certificate that contains the same information as the regular resale exemption certificate.

A blanket resale certificate will be valid until the Director of Finance and Revenue revokes it in writing.

Sales and use tax liability for out-of-state mail order and catalogue retailers. If you are an out-of-state retailer, you will be responsible for paying sales tax only if your business has physical presence within the District of Columbia. To determine if you have a physical presence, ask yourself the following:

Do I have retail facilities, a warehouse or any office space in the District of Columbia? Maintaining retail or warehouse facilities means that your business has a physical presence within the District. Also, if you have an office for employees, even for business activities unrelated to mail order sales, your business will have a physical presence within the District.
Do my employees or I enter the District of Columbia for purposes of taking and transmitting orders from customers in The District of Columbia? If your employee or independent contractor enters the District of Columbia for purposes of taking or transmitting orders, your business has a physical presence in the District of Columbia. But, contracting with a common carrier to deliver mail order goods does not constitute physical presence within the District.
Do my delivery vehicles frequently enter the District of Columbia for purposes of delivering property? Frequent deliveries in the District of Columbia by your trucks will give you physical presence in the District of Columbia. An occasional delivery, however, may not constitute a physical presence within the District.

Passing on the sales tax to your customers. You will be responsible for paying the sales taxes to the District, but the law requires you to pass the actual cost of the tax on to your customers. State law does not allow you to pay the tax out of your pocket — what's referred to as absorbing the tax.

Calculating sales taxes. You calculate sales taxes by taking the tax rate, which is generally 5.75 percent, and multiplying it by your gross receipts. Gross receipts are based on your total retail sales or tangible personal property transferred to your customers through the services you provided.

Claiming a refund of overpayment for sales and use taxes. If you frequently audit your sales transaction reports, you may discover that through an error, sales or use tax was overpaid on a transaction. If you or your customer discover such an overpayment, the District allows you or your customer to file a claim for a credit or refund. You or your customer should submit the claim on forms furnished by the District of Columbia Department of Revenue. The District will normally issue a credit memorandum rather than give a refund to the person who made the erroneous payment.

Time limitations for filing a refund claim. If you're going to file a refund claim for overpayment of sales or use tax, you'll have to do it within three years from the date you paid the tax. If you file a refund claim after that time, the District will not approve it. Also, the District of Columbia will not provide you with a refund until after you have repaid the purchaser for the amount of tax that was originally paid.