E-Commerce Sales Taxes: What Your Online Business Needs to Know


Tax Concept

By Tom James

In years past, sales taxes were a relatively simple matter for online businesses. A company only needed to collect and remit sales taxes when selling to residents of the state where the business was located. That changed, however, in 2018 when the Supreme Court handed down South Dakota v. Wayfair. Inc., a landmark case which abolished the “physical presence” requirement. Now a company may be required to collect and remit sales or use taxes if the company has an “economic nexus” with the state.

Unfortunately, it is not yet clear what exactly this means. Some believe it means a high volume of sales or a large amount of revenue from sales in a state; others say it has only to do with a merchant’s intention to sell to a resident of a different state. Congress has the constitutional authority to settle the question, but so far it has not done so. Until it does, it is up to individual business owners to figure out how to comply with the sales and use tax requirements of the states in which the business has customers.

There are no simple answers. An e-commerce business that sells to customers in other states will need to have a sales tax compliance plan that answers, with respect to each sale, the following questions:

Does the buyer’s state have a sales taxes?

Forty-five states and the District of Columbia require merchants to collect and remit taxes on sales to residents of the state; Alaska, Delaware, Montana, New Hampshire, and Oregon are the five states that do not tax sales. This statement is subject to some qualifications, however. Although Alaska does not have a state sales tax, about 40% of Alaskan cities impose taxes on sales to their residents. And although Delaware doesn’t have a sales tax, it does impose a gross receipts tax on sellers of goods (tangible or otherwise) and providers of services in the state.

Does the merchant have a physical or economic nexus to that state?

A business is not required to collect and remit sales taxes to a state unless it has either a physical or an economic connection (“nexus”) to the state.

“Physical nexus” means tangible property (e.g., storefront, warehouse, inventory) or person (e.g., officers, employees, salespeople) in the buyer’s state. If your company sells a product or service to a resident of a state in which the company has a physical presence, and if the state (or locality) taxes sales to its residents, then a merchant will need to collect and remit taxes on sales to those residents.

States vary in their definitions of physical nexus. Most include the kinds of things previously mentioned (physical storefront, employees, etc.), but some go further, declaring that the presence of an affiliate marketing program participant in the state suffices to establish a merchant’s physical presence in the state. Still others have experimented with things like “click-through nexus” (existence of a link to the merchant’s website on an in-state website) and “cookie nexus” (placement of software coding on an in-state computer or device). Still others impose reporting and use-tax notification obligations on out-of-state sellers even if they do not collect and remit taxes on their sales to residents of the state.



Source link

WP Twitter Auto Publish Powered By : XYZScripts.com
Exit mobile version