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    3 Replies Latest reply on Aug 5, 2009 8:19 AM by quickbooksgal

    Sales Tax for Online Business

    Ross85 Newbie
      I am thinking of starting an online business, but one main problem I am having trouble finding the answer to is: Do online retail businesses need to charge sales tax? I will be selling reptile feeders from a website and will use paypal for the transactions. I have read that you are supposed to charge sales tax to people who are in your state. How do you keep track of who gets taxed and who doesn't? I have never seen a store charge me sales tax on line, so it doesn't seem like I should have to worry about it. Thanks in advance.
        • Re: Sales Tax for Online Business
          nick1cpa Newbie
          Dear Ross85:

          First I'll start by stating that what I am writing to you is general information and what may be allowed in one state may not be allowed in another. You should seek expert tax advice from someone who is familiar with online sales tax issues. Cross border sales tax can be as complicated as federal income tax.

          Generally speaking, you probably will need to collect tax on items you ship to within your state. I'm in Miami, FL and if I ship to an address in Ft. Lauderdale I would be required to collect tax for that shipment. Some states like FL may have different sales tax rates. Miami is 7% while Ft. Lauderdale is 6%. Depending on a numerous factors, you may not be required to collect sales tax on shipments to other states. However, if you have an employee or are renting a warehouse in another state, you may need to collect sales tax and maybe even pay income tax.

          Be aware that while you didn't charge your customer outside your state sales tax, they may be required to pay use tax to their state. A use tax is usually the same as the sales tax but is paid by the purchaser if he wasn't charged sales tax. Some people may be tempted not to report use tax but some states, like NY, have a line on the personal income tax return asking the tax payer to calculate use tax for items they purchased outside of NY.

          It's also possible that in some states the reptile feeders may be exempt from sales tax. But you would have to read the law in each state to make sure.

          There is no simple answer to your question. You need to spend some time with a tax advisor knowledgable in online sales tax, review your situation with them, and determine what the consequences are. Please don't ignore this step. The states are actively looking for unreported income. It may take them a couple of years to catch up, but the amount of penalties and interest that will accrue over that time can become staggering.