There has been a lot of talk recently concerning ecommerce sales tax and the impact that state laws can have on both merchants and customers. Since each state has the right to impose its own regulations and laws, it can be confusing at times to try to make sense of this issue. In this post, we’ll answer three of the most common ecommerce sales tax law FAQ.
Which States Collect Sales Tax?
This changes frequently as new legislation is enacted, but currently, every state with the exception of Delaware, New Hampshire, Hawaii, and Oregon has some type of sales tax law in place. It can be tricky for merchants to know which items to tax since certain items that are not taxed in some states are taxed in others, and vice-versa. You can find out more about the sales tax laws in specific states by visiting their official .gov websites.
Who Pays Online Sales Tax?
Retailers who sell products online and maintain a physical presence in a state with online sales tax laws are responsible for collecting sales tax from customers who live in the same state. There are some exceptions when it comes to the types of items that can be taxed, however. For example, food items and items that are purchased and downloaded instead of being physically sent to the customer are not taxed.
The question of what constitutes a physical presence (sometimes referred to as a “nexus”) is often up for debate. In New York, for example, online retailers are required to collect sales tax from online orders placed by customers located in states where the retailer has sales affiliates that meet or exceed a certain amount of yearly revenue. In this case, the sales affiliates constitute a physical presence in a state.
What Happens If Online Merchants Don’t Collect And Report Sales Tax?
Online merchants who fail to collect sales tax from their customers can be subject to a variety of fines and penalties, which can include compounded interest charges and sales tax audits. In extreme cases, online merchants can even be barred from selling in certain states if they fail to collect and report sales tax. Above all, remember that It is the responsibility of the merchant to collect the appropriate amount of sales tax and to accurately report it.
