Tax on Internet Sales
Here's the skinny on Internet sales tax.
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.
Collecting Sales Tax: Some Sites Have To, Some Don't
If an online retailer has a physical presence in a particular state, such as business offices or a warehouse, it must collect sales tax from customers in that state. If a business does not have a physical presence in a state, it is not required to collect sales tax for sales from customers in that state.
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| EXAMPLE | Margo is passionate about rare orchids but can't find them in Indiana, so she orders her supplies online from an orchid supplier with headquarters in Vermont. The supplier has all of its facilities in Vermont and collects payment in Vermont. Margo does not have to pay Indiana sales tax (or Vermont sales tax) on her orchids. A few months later, the supplier opens a warehouse in Indiana to handle its online orders for the entire country. Margo continues to order her orchids from the headquarters in Vermont but she must now pay Indiana sales tax. Her ride on the tax-free train is over. |
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How Big Sites Avoid Charging Sales Tax
Some big retailers with local stores can sell their products tax-free over the Internet because they have established separate legal subsidiaries to handle Internet business. For example, the Barnes & Noble website that you buy a book from online is a different company from Barnes & Noble at the mall. If the online Barnes & Noble doesn't have a physical presence in a certain state, such as business offices or a warehouse, no sales tax is charged for online purchases to customers in that state. The practice of establishing a separate legal entity principally to avoid sales taxes has raised the ire of thousands of brick-and-mortar retailers whose customers must still pay tax.
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Copyright 2007 Nolo
