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If you own and run a physical storefront within a state that collects sales tax then you are obligated to collect sales tax for every sale made to all customers who walk through your door.

If you own and run an internet business from your home or small office then you are still obligated to collect sales tax for every sale made within your home state.

And your physical location is wherever you run your business from. However, at this time, you do not have to collect sales tax for sales made outside your home state or any other state as well. You only collect sales tax for sales made within your home state and nowhere else.
   
From the U.S. Small Business Administration (SBA)

“If you do not have a physical presence in a particular state, then you are not required to collect sales tax from customers in that state.” U.S. Small Business Administration (SBA)

“This rule is based on a 1992 Supreme Court ruling (Quill v. North Dakota, 504 U.S. 298) in which the justices ruled that states cannot require mail-order businesses, and by extension, online retailers to collect sales tax unless they have a physical presence in the state. The Court reasoned that forcing sellers to comply with more than 7,500 tax jurisdictions was too complex for sellers to manage, and would put a strain on interstate commerce.” U.S. Small Business Administration (SBA)

There are some states however which do not collect or have a sales tax.

States which do not have a sales tax:

-Alaska
-Delaware
-Hawaii
-Montana
-New Hampshire
-Oregon

If you’re running your internet business from within any of the states mentioned above then at this time you do not have to collect sales tax. And neither do you have to collect sales tax for sales made from any other state as well.

You only collect sales tax in your home state -if- your state has a sale tax.


Collecting sales tax online

Colleting sales tax online is a simple matter of adding the sales tax rate for your jurisdiction to your shopping cart for sales made within your home state.

All shopping cart systems allow you to add sales tax and a sales tax rate for sales made within the state(s) of your choice from within the admin area of the shopping cart program. And if a customer who is living in your home state places an order online then the shopping cart will automatically add the sales tax rate (6%, 7%, 8% etc) to the total price of the sale. (The shopping cart system will not add any sales tax for sales made from any other states other than your own).

Once the customer completes the order then those funds (with sales tax included) are processed and deposited into your bank account within 1 to 2 business days. Then it becomes your responsibility you separate those sales tax funds from the funds of the sales and profits and to send the sales tax funds to the IRS quarterly, (or every 4 months).

NOTE: It’s important to keep a record on every sales tax dollar brought into your business in order to be able to give an account for these dollars should the need ever arise, (i.e. a tax audit).

The IRS will send you self addressed payment envelopes every 4 months to make the payment process easier for you. Then simply write a check for the amount of the sales tax dollars you collected for those 4 months and then mail it in to the IRS.
  
   
Exemptions

There are a few instances where you do not have to collect sales tax even if the sale was made within your home state. For example; if you’re selling electronics, and another reseller needs to purchase one or multiple items from you solely for the purpose of reselling those items to their customers then you are not obligated to collect sales tax for those sales, as long as they provide a resale certificate (tax id license) when making the actual purchase.

There are also some products which are tax exempt as well. And each state makes its own rules. Typically however, most products sold to end users are taxable.

Major exemptions are:

-prescription drugs;
-food, especially groceries and non-prepared food;
-animal feed, seed, and many agricultural products;
-products for re-sale - raw materials, inventory, other items that are going to be sold, rather than used by your customer.

And many times, services are also tax exempt as well. This however varies from state to state.

Sales tax rates and rules change from time to time. To check for state tax rates and rules for your state, city or county, please visit the Sales Tax Clearinghouse www.thestc.com 

Collecting sales tax online is not that difficult to do considering that most of your orders will come from ‘out of state’ and thereby not having to collect sales tax. However, if you do have to collect sales tax then your shopping cart system will do all the work for you. And all you’ll have to do is send those sales tax funds in to your local IRS office quarterly.
   
     
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Main Article Index Page
How to Succeed in Your Online Store Business
How to Start Your Online Store Business
How to Choose Your Niche Market
How to Create an Effective Business Name
Check for Domain Name Availability
How to Register Your Business Name
Should You Use a PO Box or Home Address
How to Choose the Right Business Entity for You
Sole Proprietorships Explained
Corporations Explained
Partnerships Explained
Limited Liability Companies Explained
Incorporate Your Business Online
How to Obtain Your Sales Tax License
The Best Selling Products Online (Intro)
1. Books
2. Computers, Computer Hardware
NEW:Start a Computer Reseller Business Online
3. Computer Software
4. Consumer Electronics
5. Apparel, Clothing
6. Toys/Video Games
7. Videos DVD’s
8. Health and Beauty
9. Music
10. Jewelry
11. Office Supplies
12. Linens/Home Décor
13. Flowers
14. Sporting Goods
15. Footwear, Shoes
16. Small Appliances
17. Tools and Garden
18. Gifts
About Distribution
Choosing the Right Distributors
How to Get Signed-Up With DropShip Distributors
Books Distributors, DropShippers, Wholesalers
Computers, Hardware, Software DropShippers
Apparel, Clothing Distributors, DropShippers
Toys/Video Games DropShippers, Wholesalers
Video DVD  DropShippers, Wholesalers
Health and Beauty Distributors, DropShippers
Consumer Electronics DropShippers
Music Distributors, DropShippers, Wholesalers
Jewelry Distributors, DropShippers, Wholesalers
Office Supply Distributors, DropShippers
Linens/Home Décor DropShippers, Wholesalers
Flowers Distributors, DropShippers, Wholesalers
Sporting Goods Distributors, DropShippers
Footwear, Shoes Distributors, DropShippers
Small Appliances DropShippers, Wholesalers
Tools and Garden DropShippers, Wholesalers
Gifts Distributors, DropShippers, Wholesalers
How to Find More DropShippers, Wholesalers
How to Open Your Online Store
How to Build Your Own Online Store
How to Build Effective Product WebPages
Building Your eStore with Website Templates
Designing, Planning and Organizing Your eStore
Implementing Graphic Elements
How to Create Your Own Company Logo
Create Search Engine Optimized Product Pages
How to Create a Content Rich Website
Choosing Your Web Host Provider
Create a Search Engine Optimized Domain Name
Check for Domain Name Availability
Top Web Building Software Programs
Top 10 Web Host Providers
Top 10 Complete eCommerce Solutions
Top Website Developers
All About Shopping Carts
All About Payment Processing
All About Merchant Accounts
Using PayPal as a Payment Processing Solution
More Merchant Account Providers
All Merchant Account Providers
Setting Your Prices
Setting Shipping Charges
Maintaining Your Online Store
Your Internet Marketing Master Plan
All about Search Engines
The Top Search Engines
Search Engine Optimization Guide Pt.1
Search Engine Optimization Guide Pt.2
All about Building and Exchanging Links
Purchasing Text Link Ads
All about Press Release Marketing
All about Pay-Per-Click Marketing
All about Discussion Forum Marketing
All about Article Marketing
All about Email Marketing
All about Banner Advertising
How Offering Free Shipping Can Boost Sales
All about 800 Toll Free Numbers
How to Beat the Competition
How to Run an Online Store Business
Dealing with Customers
How to Minimize Interaction with Customers
How to Deal with Customers via Email
How to Take and Place Orders
Paying for Products with Your Customers’ Money
How to Collect Sales Tax for Internet Sales
Avoiding Credit Card Fraud
How to Ship International and Overseas
How You Get Paid Each and Every Day
Dealing with Product Returns and Exchanges
Sample Return Policy and Procedures
Sample Privacy Policy
Sample Terms and Conditions Policy
Conclusion
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