Do I Need To Collect Sales Tax For My Website?

We all know the term “sales tax” refers to the extra tax we are charged on many in store purchases. The law obligates all sellers to collect this tax from consumers at the time of purchase, though the amount of the charge varies from state to state. Most states rely heavily on the revenue generated from sales tax collection. For example, in New Jersey, there is a 7 percent sales tax on all items excluding, groceries, medicines, clothing and paper products.

For all business owners with physical storefronts charging a sales tax is quite simple. But as any online entrepreneur can tell you, online sales taxes are a bit more complicated. Common queries include: Do I need to collect sales tax if I have an ecommerce website? From whom do I need to collect? What is the amount I should tax?

Mandatory sales tax collection varies from state to state. Some states such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon are tax exempt. All other states are officially obligated to collect sales tax from all customers. However, the 1992 Quill decision of the Supreme Court declared that that no state can require mail order businesses, which nowadays would mean online merchants, to collect sales tax unless they exist as an actual physical presence in that state. In legal terminology a physical presence is referred to as ‘nexus’. This would mean that unless you have an actual presence, be it office, storefront, warehouse, sales representative, etc in the state that the consumer resides in, you are not required to collect sales tax.

For example: David (who resides in Minnesota) always orders his office furniture from a warehouse in New Hampshire. The main office, warehouse and all other facilities associated with the business are all located throughout New Hampshire. Therefore David is not obligated to pay New Hampshire or Minnesota sales tax on his furniture. A couple of years down the line, his furniture supplier opens a new branch in Minnesota. The Minnesota branch’s inventory is not nearly as extensive as its main headquarters back in New Hampshire. Nevertheless though the actual furniture that David purchases is shipped out from New Hampshire he is still required to pay the Minnesota sales tax.

Many small business owners who don’t have a large online presence resent the fact that remote retailers offer the option of purchasing tax free. In many instances the staff of the said brick and mortar company exerts time and effort to assist the consumer in finding a suitable item, only to have the customer decide to purchase the item online to escape the mandatory tax. The negative impact this has on sales is compounded by the frustration of hard working small businesses. In Texas alone, the state could’ve made $870 million more by taxing out of state online purchases, according to the National League of Cities survey. But many disagree saying the cost of software to calculate the taxes for each state would deem the whole idea not worth. That is aside from the risk of being audited by other businesses.

As for an online store that qualifies to collect tax, it is essential to review the tax laws pertaining to your state, regarding which items need to be taxed and at what rate. Figuring out how much tax to charge can be a challenge. Many websites utilize shopping cart software services which can be programmed to calculate their tax rate. If that won’t work for you, you can look into the PayPal option. If you accept PayPal payments you can add the sales tax charge to the payment system. Some states also require a sales tax on shipping. If your state is one of those be sure to include the charge with your shipping costs.

In addition to sales tax there is another kind of tax referred to as “use” tax. Technically consumers who reside in a state that requires sales tax, are obligated to pay a “use” tax to the state when the Internet retailers doesn’t collect it. The difference between sales tax and use tax is in which person (here the seller or buyer) pays the state. Because it wasn’t worth the trouble most states haven’t attempted to collect taxes on small items focusing mainly on larger purchases such as vehicles and boats which require licenses. But this is changing; in fact some states even go so far as to require residents to calculate how much they owe on out of state purchases and submit it on their income tax returns!

This subject is a hot topic currently being debated across the country. In May the Senate passed Marketplace Fairness Act of 2013. The bill would require online retailers to collect the appropriate sales tax from each consumer depending on the required amount for the state they reside in. In fact as of February 1, Amazon is required to collect sales tax in North Carolina. The small business owners of NC are happy with this change. They feel that when residents purchase locally their tax money stays local too, benefiting them and their fellow city members.

As the laws are ever evolving it is important to keep abreast of the latest especially as a business owner. For consumers it is important to know what you are obligated to pay in case you are required to submit it when you file your tax returns. And as for the future, well if things continue on as is, we could be seeing mandatory sales tax collection for all online retailers.

Table Of Links For Sales Tax Departments

No. State Tax Link
1 Alabama https://www.revenue.alabama.gov/salestax/staterates.cfm
2 Alaska http://commerce.alaska.gov/dnn/dcra/OfficeoftheStateAssessor/AlaskaTaxableDatabase.aspx
3 Arizona http://www.azdor.gov/Forms.aspx
4 Arkansas http://www.dfa.arkansas.gov/offices/exciseTax/salesanduse/Pages/StreamlineSalesandUseTaxOnlineTaxLookup.aspx
5 California http://www.boe.ca.gov/sutax/pam71.htm
6 Colorado http://www.colorado.gov/cs/Satellite/Revenue/REVX/1176842266427
7 Connecticut http://www.ct.gov/drs/cwp/view.asp?a=1454&q=271482&drsPNavCtr=%7C
8 Delaware http://revenue.delaware.gov/information/information.shtml
9 Florida http://dor.myflorida.com/dor/taxes/sales_tax.html#tab1
10 Georgia https://etax.dor.ga.gov/bustax_salestax.aspx
11 Hawaii http://www6.hawaii.gov/tax/a7_faq.htm
12 Idaho http://tax.idaho.gov/i-1049.cfm
13 Illinois http://tax.illinois.gov/Publications/Sales/SalesTaxRates/SalesTax.htm
14 Indiana http://www.in.gov/dor/3650.htm
15 Iowa http://www.iowa.gov/tax/educate/78539.html
16 Kansas http://www.ksrevenue.org/salesratechanges.html
17 Kentucky http://revenue.ky.gov/business/salesanduse.htm
18 Louisiana http://www.revenue.louisiana.gov/sections/business/sales.aspx
19 Maine http://www.maine.gov/revenue/salesuse/homepage.html
20 Maryland http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Sales_and_Use_Tax/Tax_Information/
21 Massachusetts http://www.mass.gov/dor/
22 Michigan http://www.michigan.gov/taxes/0,1607,7-238-43529-154427–,00.html
23 Minnesota http://www.revenue.state.mn.us/businesses/sut/Pages/Tax-Information.aspx
24 Mississippi http://www.dor.ms.gov/taxareas/sales/main.html
25 Missouri http://dor.mo.gov/business/sales/
26 Montana http://revenue.mt.gov/forindividuals/taxes_licenses_fees_permits/salestax.mcpx
27 Nebraska http://www.revenue.nebraska.gov/salestax.html
28 Nevada http://tax.nv.gov/Forms/Sales___Use_Tax_Forms/
29 New Hampshire http://www.revenue.nh.gov/faq/gti-rev.htm
30 New Jersey http://www.state.nj.us/treasury/taxation/streamchanges.shtml
31 New Mexico http://www.tax.newmexico.gov/All-Taxes/Pages/Gross-Receipts-Tax.aspx
32 New York http://www.tax.ny.gov/bus/st/stidx.htm
33 North Carolina http://www.dornc.com/taxes/sales/streamlined.html
34 North Dakota http://www.nd.gov/tax/salesanduse/pubs/index.html
35 Ohio www.tax.ohio.gov/sales_and_use.aspx?
36 Oklahoma http://www.tax.ok.gov/stream.html
37 Oregon http://www.oregon.gov/DOR/BUS/Pages/index.aspx
38 Pennsylvania http://www.revenue.state.pa.us/portal/server.pt/community/sales%2C_use___hotel_occupancy_tax/14487
39 Rhode Island http://www.tax.ri.gov/regulations/salestax/
40 South Carolina http://www.sctax.org/Tax+Information/Sales+and+Use+Tax/default.htm
41 South Dakota http://www.state.sd.us/drr2/businesstax/st/salestax.htm
42 Tennessee http://www.tn.gov/revenue/tntaxes/salesanduse.shtml
43 Texas http://www.window.state.tx.us/taxinfo/sales/
44 Utah http://tax.utah.gov/sales
45 Vermont http://www.state.vt.us/tax/business.shtml
46 Virginia http://www.tax.virginia.gov/site.cfm?alias=SalesUseTax
47 Washington http://dor.wa.gov/content/findtaxesandrates/salesandusetaxrates/localsales_use.aspx
48 West Virginia http://www.wva.state.wv.us/wvtax/salesAndUseTaxForms.aspx
49 Wisconsin http://www.revenue.wi.gov/salesanduse/
50 Wyoming http://revenue.wyo.gov/Excise-Tax-Division