E-commerce Taxes And Their Effect On YouIf you run an e-commerce website, taxation is an issue that you need to know. Currently, the rule is that if your business has a physical presence in a state to which you are shipping your product, you are responsible for collecting sales tax on the products shipped to that state with the exception most food products.
Its actually a pretty clear cut rule. For example, if your principle place of business is in Los Angeles and you ship to San Francisco, you must collect California state sales tax. If your principle place of business is in Los Angeles and you have a warehouse in Arizona and you ship a product to Phoenix, you must collect Arizona state sales tax. If your principle place of business is in Los Angeles and you have a warehouse in Arizona and you ship something to someone in any other state other than CA or AZ, you don't have to collect sales tax. Additionally, in almost every market, you only have to collect sales tax on the goods sold, not the shipping and handling charges. In theory at least, American buyers who buy items from out of state web sites or mail order companies are supposed to voluntarily declare those items that they bought and pay sales tax to their local governments.
Now, as any well-informed citizen or homeowner will be able to tell you, state and local governments are in a financial bind because of recessions, declining tax bases and many other economic factors. Quite simply, they need more money. Consequently, state and local governments are doing just about anything they can to get more money. I'm sure you've noticed property taxes have been on the rise lately and plenty of other ways that your local governments are trying to squeeze more money from you.
Now, you've probably also seen the news headlines in this fine publication and may others about how e-commerce revenues and sales are soaring and experiencing double-digit growth quarter by quarter. In fact, just a few weeks ago, Forrester came out with a report saying that while offline retail sales could be doing better, online retail will grow 19% per year, from $95.7 billion in 2003 to $229.9 billion in 2008. That's great news for you but unfortunately, politicians also see that as great news. If there is a pie to be had, they want a piece of it. They estimate that they are losing $200 million per year in uncollected sales taxes originating from online e-commerce sales.
The states' tax officials have gathered to form the Streamlined Sales and Use Tax Agreement (SSUTA). It is a plan to collect and distribute taxes amongst the states. There still remain plenty of wrinkles to be ironed out and they are still in the process of recruiting more states but it seems likely that they will be ready to introduce a new sales tax plan sometime next year.
One the other hand, Congress is considering proposals to permanently extend the existing temporary moratorium on Internet access taxes. The current extension on the moratorium on Internet taxes is set to expire in November 2003. If an extension on the moratorium is passed by Congress, whether it will apply to sales taxes on Internet sales remains to be seen. This would override the 1992 Supreme Court case Quill Corp. v. North Dakota that said North Dakota could not force an out-of-state retailer to collect taxes on purchases sent to residents of North Dakota.
So, how does all of this uncertainty affect you?
If you're currently selling online, it will have no immediate affect on you. In the not too distant future, however, it is something to keep in mind. You should consider the costs of adding such a tax collection system to your e-commerce website or use an e-commerce software that already does it for you.
If you're not currently selling online but are considering getting started, now is the time to get started and secure an important foothold and firmly establish your online presence before the taxation begins.