Sales tax is a tax of the sale of taxable services or personal property. This includes tax placed on the sale of a candy bar in a store. Sales tax is generally applied to the sale at the final point of the purchase, or when it is purchased by the customer.
Every state in the United States and even counties and cities have different sales tax rates. The amount of tax an individual pays is generally a function of the amount and value of the tangible property they sell, use, or store.
A use tax is a tax that is placed on goods which are purchased online and are outside of the taxing authority’s jurisdiction and are then brought into the jurisdiction. Use tax applies to the using, storing, and consuming of tangible personal property. A common example of use tax is when the use tax is levied on a vehicle that is purchased out of state when it is registered in the owner’s state of residence.
The sale of tangible personal property to another individual is presumed to be taxable unless the sales tax laws exempt it specifically. However, the sale of services is presumed to be non-taxable unless the tax laws in that state specifically include that service.
A use tax is assessed and is due on the personal property or service when that sales tax has not been paid. The use tax is designed to discourage the purchase of products which are not subject to sales tax.
Whether an individual charges their customers a sales tax on items sold over the internet depends on the state in which their business is located and the state in which the buyer is located. Some states do not charge a sales tax, however, the majority of states do enforce sales tax laws. Although some online businesses and retailers may advertise that their items are sold free of sales tax, there are many instances in which the items are, in fact, subject to sales tax.
If an online business or retailer is physically present in a state which charges a sales tax, then that business is required to charge its customers who reside in the same state a sales tax. In contrast, if a customer resides in a different state, the seller is not required to collect sales tax from that particular customer.
If the individual’s business was to expand to another state and they sold products to customers in the new state, they would then be required to charge a sales tax. Even if the individual’s business only opened a warehouse to supply its customers in that new state, they would still be required to charge sales tax.
If an individual bought an item online and did not pay a sales tax, they do have an obligation to pay the state a use tax. A use tax is similar to a sales tax except that the use tax is paid directly to the state rather than to the online retailer.
This is legally required for all consumer goods. However, most states only typically make an effort to collect this tax on high dollar products that require a license, such as cars and boats.
There are currently only 5 states in the United States that do not collect sales tax. The Marketplace Fairness Act was recently reintroduced to Congress, which could force online retailers to charge sales tax on all internet purchases. Pursuant to this proposed legislation, states would be able to tax across their borders and retailers and businesses would then have to collect the taxes and report them to dozens of states.
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If an individual is selling items on the internet to states across the United States, they will not need to be aware of which states have enacted laws that require the collection of sales tax by online sellers. In order for a state to require the seller to collect sales tax, that state must pass a law allowing it to do so.
Numerous states have already enacted new laws requiring the collection of sales tax. In many cases, these laws refer to online sellers or retailers as remote sellers. In the majority of cases, if a remote seller has a minimum number of separate sales to customers in the state or has a minimum dollar amount of sales to customers in the state, the law requires them to collect and pay sales tax. Additionally, the seller is required to register with the state’s taxing authority.
The date on which the remote seller is required to begin collecting taxes varies from state to state. In some states, the seller would be required to collect sales tax retroactively. It is important to note, however, that proposed federal legislation regarding the remove seller sales tax may require changes to the laws in many states if passed.
Shopping without paying sales taxes is a huge advantage for online retailers. Shoppers are enticed by the efficiency of online purchases and not having to pay sales tax.
However, as noted above, many online sales are not exempt from sales tax. Additionally, the consumer is technically responsible for remitting that unpaid sales tax for their online purchase to their state.
The duty to pay sales tax on an internet purchase is determined by the location of the buyer, not the location of the seller. If the business is not physically present in a state, it is not required to collect sales tax from customers in that state.
For example, if an individual lives in California and purchases something from an online retailer in Georgia, they do not have to pay sales tax. However, if the retailer opens a warehouse or store in California, the buyer would then have to pay sales tax. In many cases, businesses create separate legal entities to handle their internet businesses to avoid the sales tax issue for buyers.
Yes, if you have a problem or are confused as to whether you should be collecting a sales tax for consumer goods that are sold through your online business, it is essential to have the assistance of an experienced tax attorney.
Tax laws and cyberspace laws change frequently and more retailers and businesses are evolving and using the internet to expand their sales. Your lawyer can advise you on how to remain compliant with any applicable tax laws and how to keep your business legal in the online market.
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