I recently returned from maternity leave for my second child. This baby came long after my first’s furniture and clothes had been donated and repurposed, so back to the shopping I went. This time around, I’m sure I’m a “seasoned pro” (delusional) and know EXACTLY what I want in terms of brands and items. As all the boxes began to show up at my doorstep, I couldn’t help but start to consider the tax implications. Even though I leave a small sales tax footprint living in tax-free New Hampshire, there are still considerations for the state and territories that do have sales tax. Additionally, there are 12.012 births per 1,000 people, according to MacroTrends, meaning businesses cannot ignore baby products and how they are taxed.
Did I charge sales tax correctly?
The world of babies is complicated enough—why would taxes be any different? From diaper taxes, formula exemptions, mattress fees, and more, charging the correct sales tax and fees can be a cumbersome process to maintain, especially with the associated internal research and proper application processes to consider. Take for example:
- Diapers: States and local jurisdictions can impose implications on these transactions like additional fees or handling taxes. Colorado started exempting items like diapers, pads and similar items on January 1, 2023. This is also known as the “Pink Tax,” which will be a relief in a complex structure of tax like the ones Colorado parents are subjected to.
- Car seats: Manufacturers of products like car seats already need to keep up with numerous regulations. Unfortunately, sales tax can still be a requirement on these products in the U.S. If you sell direct to consumer, consider which jurisdictions are taxing and which are exempting to ensure all of your business channels charge correctly.
- Baby technology: As a multi-faceted baby business, you may not realize that not all technology associated with baby products is taxed the same. For example, Maryland applies sales tax to baby monitors, but the state exempts all tangible personal property “manufactured for the purpose of initiating, supporting, or sustaining breast-feeding.” The possibilities can become limitless as technology advances and software may need to be allocated for tax in areas often overlooked, such as baby monitors, development toys, baby swings, and more.
It’s important to charge the customer correctly the first time as even remitting might have its own implications, and the margin for error can be thin.
What if my clients utilize third-party marketplaces?
Choosing to sell via third-party marketplaces can free up a lot of burdens like marketing, consumer reach, and even improve consumer experience with things like the fulfillment of inventory. In a lot of states, selling through the channel of a marketplace facilitator can impact your nexus or presence within the jurisdiction, giving you the requirement of filing tax details. Consider the following states as examples:
- Arizona: For in-state multichannel sellers, you’re required to register with the Arizona Department of Revenue (DOR) and collect tax on sales not taxed by a marketplace facilitator.
- Connecticut: For in-state multichannel sellers you’re required to register and collect sales tax on sales not taxed by a marketplace facilitator.
- Hawaii: For remote marketplace sellers, you’re required to register with the Hawaii Department of Taxation (DOTAX) if you cross the economic nexus threshold, even if you only sell through a collecting marketplace(s).
- Virginia: For remote marketplace sellers, you’re required to register if you cross the economic nexus threshold.
Bringing a baby into the world is an exciting time for parents, and they want to purchase the right products for their child. With more companies entering the baby business, it's critical to apply the right taxes to every product - every time. For new parents (and even existing parents who are adding another bundle of joy), every penny can count. Ensure that your clients understand their sales tax requirements so those customers have one less thing to worry about.