Internet Businesses and Sales Taxes

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Do Internet Businesses Need to Collect or Report Sales Taxes?

First of all, not all states actually impose a sales tax.  For example, Oregon, Alaska, and Montana are a few examples of states that don’t impose sales taxes.  Thus, whether or not an internet business needs to collect or report sales taxes depends largely on which state they are operating in. 

Secondly, the sales tax requirements will also depend on which state the online customer is making their transaction in.  If the online customer is making their transaction in the same state where the online business is operating from, then a sales tax will be imposed (if required).   Every state that imposes sales tax makes such a requirement- there are no exceptions for any businesses, even if they are operating solely or primarily through online shopping mechanisms

On the other hand, internet sales tax requirements may be different if the customer is making the purchase from a different state than where the online business is headquartered in.  These are known as “remote online sales”?

What are the Tax Rules for “Remote Online Sales”?

Remote online sales are those sales which occur over the internet wherein the purchaser is located in a different state from the seller.  Such out-of state remote sales are very common and can have significant sales tax consequences. 

In most situations, the seller doesn’t have the power to impose the sales tax on the customer who is making the transaction outside of state lines.  However, the customer is required to pay state taxes in their own state, if the state requires such taxes.  This may be done through various mechanisms such as reporting the sale to tax authorities, or by paying what is known as a “use tax” on the specific product. 

What are the Effects of Sales Taxes on Internet Businesses?

In simple terms, businesses operating online are not required to collect sales taxes on transactions made to customers who reside out of state.  On the one hand, this can make things much easier for online businesses when it comes time to file their taxes.  However, many state governments feel like there is a potential to lose out on much government revenue, even though the business is located in the state.

As such, many state and local governments are revising their tax laws in light of internet business sales and transactions.  Since this is a relatively new development in the area of tax law, internet sales laws may be subject to frequent change.  As such, it may be necessary for the business to inquire with a lawyer if there is anything unclear about online sales taxes.

A failure to pay sales taxes can result in severe consequences for the business, including white-collar crime charges or fraud charges. 

Is a Lawyer Necessary for Internet Businesses and Sales Taxes?

Sales taxes can often be very complicated, especially when it comes to businesses that do online transactions.  In most cases, it becomes essential to hire an experienced business or tax lawyer for assistance with tax disputes.  A qualified and experienced lawyer can provide much guidance on internet sales tax laws, which are somewhat new and still evolving.  Also, in the event of a lawsuit, an attorney can help represent your business to make sure you obtain the remedies for your particular issue.

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Last Modified: 09-13-2012 12:18 PM PDT

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