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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. |
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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. |
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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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Avoiding Credit Card Fraud |
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How to Ship International and Overseas |
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How You Get Paid Each and Every Day |
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Dealing with Product Returns and Exchanges |
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