Understanding e-Commerce Sales Tax for Your Online Business

by Steve Fisher on September 10, 2010


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Categories : nsCommerce

Over the last few months I have been setting up and tuning the e-commerce store for the film project, Browncoats: Redemption that just premiered last week. Network Solutions has been a great sponsor and donated an nsCommerce package for us to run the online store.

As we got ready for launch we dealt with the standard things in an online store – products, categories, shipping, etc. But there was one thing I was a bit unclear on and that was about sales tax. Think about it. If you have gone to many e-commerce sites you don’t get charged sales tax. That is like living in a virtual state of Delaware (they don’t have sales tax).

However, upon my investigations there are times when you do have to charge and hence pay sales tax for items people buy online. This is called a “Nexus” and it is talked about in this great article I came across called ”Sales Tax for E-commerce sites“. Here are a few critical points from that article that show how a nexus can happen:

  • Having an employee in that state, even if your business is based in another state
  • Having a sales person (contract labor) travel to that state, even if your business is based in another state
  • Doing trade shows in that state or otherwise being in that state generating sales
  • Substantial advertising in a state
  • Having a warehouse in that state

The article goes on to say “the best way to determine if you have “nexus” in a state is to read all the state rules, for each state that you are doing business in and please keep in mind, these rules are constantly changing. The next best thing is to hire someone to handle this for you.”

It closes with some great advice – “adding one more fly to the ointment, prior to the Internet when states began to lose sales tax revenue because consumers were buying goods in other states, not paying sales tax, and then returning to their home state to use the products they quickly enacted “use” tax to their definition of sales tax. Use tax is the portion of the sales tax which is attributed to using the product in the state you live in. Thus, if you live in a state that charges sales tax and you purchased a product from another state without being charged sales tax, you owe use tax to your state. This applies to products you purchased over the Internet as well.”

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