Wednesday, August 25, 2010

i have an internet business, do i charge tax?

Since I was Featured, I have gotten this question probably 20 times.

The Internet takes tax-free shopping to a new level. In fact, no-tax shopping has become a prime lure of online retailers looking to hook consumers on click-and-charge buying. Despite what you sometimes hear, however, some Internet sales are subject to sales tax, and even when a site doesn't collect sales tax, consumers are technically responsible for remitting any unpaid sales tax on online purchases directly to their state.

If you a run business with a physical storefront, collecting sales tax is pretty straightforward: you charge your customers the sales tax required by the jurisdiction where your business is located. So, if you operate a retail store in Nashville, Tennessee, you collect both state and local sales taxes from customers buying merchandise at your store.

Now, suppose you start selling your products online. Does mean you charge them the same sales taxes on those coming into your store? It depends.

If your business has a physical presence in a state, such as a store, office or warehouse, you must collect applicable state and local sales tax from your customers. If you do not have a presence in a particular state, you are not required to collect sales taxes. In legal terms, this physical presence is known as a "nexus." Each state defines nexus differently, but all agree that if you have store or office of some sort, a nexus exists. If you are uncertain, whether or not your business qualifies as a physical presence, contact your state's revenue agency. If you do not have a physical presence in a state, you are not required to collect sales taxes from customers in that state.