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To Include or Not To Include Online Sales Tax
By The BIDaWIZ Team - June 22, 2009
When selling goods or services online, make sure you are including the appropriate sales tax in the final cost.
General Sales Tax Rule
The general rule of thumb is that an Internet seller must collect sales from the buyer if the seller has "tax nexus" or a substantial presence with the buyer's state. Tax nexus is equivalent to having a physical presence (business location, resident employees, intangible or tangible property) in a particular state. As
you might imagine, whether a seller has nexus is not always an easy
determination (and NY has a new law that would expand what constitutes
nexus - although the law is still being challenged by Amazon.com through an appeal).
To add clarity, below we have detailed a few basic examples of when sales tax is and is not included in the final cost.
Example 1:
A customer from Florida purchases clothing online from John Doe Clothing which is located in Georgia. Since John Doe Clothing Company has no physical presence or tax nexus in Florida, the company is not responsible for collecting the sales tax. Instead, the customer must pay a use tax to the state at the end of the year.
Example 2:
A
customer from Florida purchases clothing online from John Smith Clothing
which is also located in Florida. Since John Smith Clothing Company is
physically located in Florida, the company is
responsible for collecting the sales tax.
Additional Sales Tax Considerations
Vary at the State & County Levels
Sales taxes may vary at the state and even the county level, so be sure that you are charging the right amount of sales tax in the final cost.
Sales Tax Depends on Type of Transaction
In addition, even if a seller has tax nexus, it only has to collect sales tax if it is the type of transaction that is subject to sales tax in the applicable state. Information services are taxed in some states (like NY and NJ) but not others.
Have Comments? Write to comments@BIDaWIZ.com
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