What You Need To Know About Sales Tax and Online Sales

October 28, 2011 0 By Koehler Home Decor

When operating an online business, many people forget to educate themselves about a very important component of their business—sales tax. This article will help uncover helpful information you need to know about sales tax and online sales in order to get started making money online.

Currently, 45 U.S. states and the District of Columbia assess sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon do not assess state sales tax. Businesses registered in a state with sales tax laws are obligated to collect sales tax on items sold and delivered within that state or where nexus liability has been established. In other words, if you operate a business registered in California, all the orders your business ships to California are subject to California Sales Tax. Some states require you to collect sales tax on shipping as well.

It is your responsibility as an online business owner to collect, report, and remit the required sales tax to the appropriate taxing authority. Each state handles sales tax collection in a different fashion. It is critical to charge the proper amount and keep detailed records. It is highly recommended that you protect your business by consulting with a reputable sales tax professional.

Sales tax rates levied by most states are typically between 5-7%. Many states allow you to collect sales tax at your local rate, not the local rate of the buyer which will save you some time as you won’t have to research the local sales tax for every in-state customer. Some states, however, do not permit this time-saving measure and you will be forced to collect accurate address information from your customer and then determine the amount of tax due based on their location.

Sales tax is a significant source of state revenue, which finances schools, roads, and additional public services. Once you have your Federal ID number, the next step in reporting and paying your businesses’ state sales tax is registering with your state’s Department of Revenue. They will provide you a state sales tax permit and then you can begin collecting sales tax from your customers. Some online transactions are exempt from sales tax. Do your research to determine which transactions qualify as the definition of what qualifies and when differs from state to state.

Unfortunately, you don’t only have to worry about collecting state sales taxes. Cities, counties, municipalities, parishes and other smaller entities within states are also permitted to levy sales tax. According to the National Retail Federation, 7,500 jurisdictions impose some sort of sales tax. That’s not including the 45 states we discussed earlier! These additional taxes can amount to another 1-2% of the price of an item.

If you think that online sales and sales tax isn’t a serious issue, look into the recent headlines concerning Amazon and the state of California. Gov. Jerry Brown recently signed into law legislation requiring Amazon.com and many other out-of-state Internet retailers to collect sales taxes from California customers making purchases online. Be in the know, visit your state Department of Revenue or Tax Authority to ensure you have the knowledge you need to successfully collect and report sales tax and avoid tax issues.

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