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Ecommerce sales tax rules come from a 1992 Supreme Court decision that declares that “mail order merchants do not need to collect sales tax for sales into states where they do not have a physical presence.” In other words, if an online retailer has an actual physical “brick and mortar” shop or store in a particular state, they must collect sales tax from customers in that state. This isn’t as simple as it first seems, however.

Determining whether or not your online business must collect ecommerce sales tax can be tricky. As previously stated (above,) the primary way it’s determined is is whether or not you have a physical presence in your state. This process of determination is what taxing bodies refer to as “nexus,” and it varies state to state. It might include having a warehouse where you keep inventory, having employees in that state, or perhaps even attending a trade show in a particular state. There are five U.S. states that do not have sales tax, and so they are not affected at all, they are Alaska, Delaware, Montana, New Hampshire and Oregon. You can do a search online to learn more about your state’s guidelines by using your favorite search engine and doing a search on your state’s name and the words “sales tax.” Look for your state’s Department of Revenue Services, or visit the Helpful Information page on the Sales Tax Institutes website. Click on the topic “Nexus.”

With internet businesses and sales on the rise, Congress and state legislatures continue to wrestle with the issue of sales tax. Many state governments are looking for a way to overturn the 1992 Supreme Court ruling. In the meantime, if you are starting an online business and have any questions, it might be wise to hire a professional to help with this process.


 


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