Fifteen years ago no one could have imagined that shopping online would have become more popular than going to the local mall. Now people can sit in the comfort of their home, dressed however they want, no makeup, no adhering to store hours and shop to their heart’s content. And for a time, taxes for those things you bought online didn’t catch up to you, did they? But it didn’t take long for the states to impose their sales tax on internet purchases. If you have an on-line business or are considering starting one, setting up these tax payments might seem complicated.
Operating online is much different than having a storefront where the customer comes in, you know what the tax rate is based on the location of your store and the tax is paid right then and there. What happens when the customer is from across the county or even from a different country? How does that work?
Here is the rule of thumb. If you have a physical store front in a state, you must collect the appropriate sales tax for the state the store front is located in. If you don’t have a store front, well, then you aren’t required to collect taxes. It gets complicated when the definition of “store front” differs from state to state. This rule about a physical presence in a state dates back to 1992 when the Supreme Court made a decision on mail order taxes. The state you reside in should have their definition of physical presence available for you at their state department of revenue website.
Now, if you live in a state that has no sales tax, you are all set. There are still a few; Oregon, New Hampshire, Montana, Hawaii, Delaware and Alaska. And there are some exemptions for taxes in certain states for items like food or clothing.
If you are charging a sales tax it is necessary to be familiar with the laws regarding it in your state. To make things easier, there are online shopping carts that figure out the sales tax for you. Many online business owners use these services. This may be an option if you find calculating the correct amount complicated. When starting to operate a business that sells items or services online, be safe and check with your state department of revenue for regulations.
