Small Business Q & A: Navigating The Internet Sales Tax Laws

Q: Do I have to charge sales tax on orders placed on my Web site?
What if I have international customers?

A: Online companies with a physical presence, or nexus, in a state
are required to collect and report taxes on sales made to customers
living within that same state. For example, if your online business
is based in California, you must collect and report sales tax derived
from fellow Californians making purchases on your site.

Internet sales taxation has always been a hot topic for those of us
who make our living selling goods and services online. One of the
more controversial points is that no one, including our own
government, has a clue how to implement a fair and logical Internet
taxation process.

There are more than 7,500 state and local entities collecting sales
taxes in the United States, each with its own system of rates and
rules. A solution that satisfies them all may be a long time coming,
indeed.

Online taxation has been a thorny topic for years. Even before
Amazon.com sold its first book or Priceline.com booked its first
flight, foreword-thinking tax collectors knew the Internet might
someday generate millions of dollars in taxable goods and services.
The problem then--and now--is how the states would get their fair
share of the pie.

In 1998, Congress did what it usually does when faced with a
potentially explosive issue like Internet tax collection--it
decided to put off making a decision. Congress enacted a three-
year moratorium on the collection of taxes to give an appointed
advisory board time to come up with an acceptable solution.

That moratorium ended last year, and, thus far, no one has come
up with an efficient way for online businesses to easily collect
and submit sales tax.

Some states have been working to simplify their sales tax
structures to make it easier for online merchants to charge and
pay taxes, but a consensus is still a long way off. In order for
Congress to approve any standard process, there will have to be
a major simplification of individual state tax codes and a
consensus among the states.

And nobody knows how long that process could take, not even the
states themselves. Many states are asking their citizens to take
charge of the situation and voluntarily pay sales tax for
purchases made online. It's sort of a "good citizen honor system"
that I doubt few actual good citizens will willingly take part in.

In my home state of Alabama, for example, the sales tax collection
department is airing radio spots asking Alabamians to step up to
--and toss dollars into--the proverbial collection plate. The
commercial kindly suggests that if I have purchased anything from
an online retailer, I am honor-bound to proclaim such purchases
and submit the appropriate sales tax to the collection department
right away. They thank me in advance for my cooperation.

Now where did I put all those Amazon.com receipts…

The good news for online retailers is, there's no evidence that
people buy online to avoid paying taxes or save money, for that
matter. If saving a buck were the motive, no one would willingly
pay shipping charges.

People shop online because it's convenient to do so.

The Internet offers the ability to shop the worldwide market while
sitting in the comfort of your own home - a convenience that most
people are happily willing to pay for.

Here's to your success!

Tim Knox
tim@dropshipwholesale.net
For information on starting your own online or eBay business,
visit http://www.dropshipwholesale.net