Forty-five states impose sales tax on all purchases, including online sales. The five states with no sales tax are Alaska, Delaware Montana, New Hampshire, and Oregon. Whether your online business must collect sales tax depends on whether you are selling to customers within your state or out of state. However, this area of law is receiving a lot of scrutiny by state and federal taxing authorities and may change in the near future.
Collecting Sales Tax Is Required Within Your State
States imposing sales tax require you to obtain a permit before you can lawfully sell your product to any customer within the state. You are required to collect the appropriate tax on all taxable sales, which will vary depending on the product sold and the applicable rate. No state makes any exception for sales made to customers online, as opposed to sales made at your place of business.
Collecting Tax for Remote Online Sales Is Not Required
You must have a physical presence within a state in order for the state's taxing authority to have the power to require you to collect sales tax. As a consequence, you are not required to collect sales tax for sales made to customers online residing out of state - often referred to as "remote sales." In this situation, the customer is typically required to report the sale to his state's taxing authority and pay a "use tax" on the product. However, this is rarely done by the customer or enforced by the state.
States Are Coordinating Their Efforts to Collect Taxes
State taxing authorities generally agree that their states are losing significant tax revenue because of nontaxable online sales. The historical reason for not taxing online sales was the complexity of sales tax law among the states and the compliance burden that would impose for an online business. The Streamlined Sales and Use Tax Agreement, which has been adopted by 24 states that impose sales tax, was developed to address this issue. The purpose of the agreement is to require states to simplify and modernize their sales tax administration as a first step towards collecting tax for online sales.
A Lawyer Can Help
Collecting sales tax for online purchases, particularly out-of-state purchases, can be complicated. Plus, the circumstances surrounding your business are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a lawyer.
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