KNOWLEDGE BASE Sales Tax In the US

 

Sales Tax In The US

 

Businesses with a physical storefront

If you run a business in the United States with a physical storefront, collecting sales tax is relatively straightforward. You must charge the sales tax applicable in the place in which your business is located. In general, you must collect state and local taxes from your customers. If you have an online business, sales tax issues are a little more complicated. If you run an online business but have any physical presence in any state, such as a store, an office, a warehouse, or even a sales representative, you are required to collect all applicable state and local taxes from your customers.

 

Businesses with no physical storefront

Today there is no federal law regulating sales tax for online-only businesses. The federal government has considered legislation, the Marketplace Fairness Act, that would regulate how online sales tax is collected across the country. The Marketplace Fairness Act would allow states to require out-of-state (companies with no in-state physical location) companies to tax customers on online and catalog sales made to customers in their state. Companies that make less than $1 million in annual sales and that do not have an in-state presence would be exempt from the tax requirements under the Marketplace Fairness Act. Under the Act, states would be required to meet certain criteria to simplify their sales tax laws and make collection easier. The Marketplace Fairness Act has not passed, although it has been proposed several time now.

 

State-based tax legislation for companies without physical storefront - select states

Some states have enacted legislation that requires companies without a physical presence to collect taxes on online purchases. These laws, often called “Amazon laws,” vary by state.

 

California:

In 2011, California enacted two pieces of legislation, so-called “Amazon laws,” which are aimed at collecting taxes from large internet retailers, such as Amazon. UnderAssembly Bill 28 (AB 28) and Assembly Bill 155 (AB 155), non-California internet retailers must collect California sales tax if all of the following conditions are met:

  • they have an agreement with a person(s) in California to direct potential customers to their website;

  • they compensate this person in California for directing potential customers to their website;

  • their “total cumulative sales price from directed sales to California customers exceeds $10,000 within the preceding 12 months; and

  • their overall total cumulative sales in California (directed or otherwise) exceeds $1,000,000 within the preceding 12 months.

If your business does not satisfy these specific conditions that require the collection of sales tax under AB 28 and AB 155, your sales tax obligations align with the physical-presence rule described above. This legislation has been called a “click-through” arrangement.

 

Colorado:

In 2010, Colorado passed a so-called Amazon law in an attempt to require large internet retailers to collect taxes from customers. Colorado’s law was declared unconstitutional by a federal court, so, today Colorado’s only applicable online sales tax law follows the physical-presence rule. However, it is important to stay up-to-date on this topic, as it is currently going through statewide and nationwide debate and changing quickly. For more information about what Colorado law considers physical presence see Colorado Revised Statutes Section 39-26-102 and Colorado Department of Revenue Regulation 39-26-102.3.

 

Florida:

Florida recently attempted to enact a “click-through” arrangement tax scheme similar to California’s law, however, the law was ultimately never enacted. Today, Florida’s sales tax law follows the physical-presence rule. Like Colorado, Florida online sales tax law is in a state of flux, which means you should stay up-to-date on the topic. Updates and current legislation can be found through the Florida Department of Revenue.

 

Georgia:

In 2012, Georgia enacted an “Amazon law,” under which an out-of-state retailer must collect sales tax from online purchases made by Georgia customers if all of the following conditions are met:

  • it has an agreement with one or more Georgia residents to refer potential customers to it through a website;

  • it compensates the Georgia residents for directing potential customers to its website; and

  • Its “cumulative gross receipts” from the directed sales to Georgia customers exceeds $50,000 in the preceding 12 months.

If your business does not satisfy these specific conditions that require the collection of sales tax under the “Amazon law,” your sales tax obligations align with the physical-presence rule described above. Updates and current information can be found on the Georgia Tax Center website and through the Georgia Department of Revenue.

 

Illinois:

Illinois also passed a so-called Amazon law in an attempt to require large internet retailers to collect taxes from customers. The law was declared unconstitutional, so, today Illinois’ only applicable online sales tax law follows the physical-presence rule. Updates and current information can be found through the Illinois Department of Revenue.

 

Massachusetts:

Massachusetts’ sales tax law follows the physical-presence rule. Like many other states, Massachusetts’ online sales tax law is in a state of flux, which means you should stay up-to-date on the topic. Updates and current legislation can be found through the Massachusetts Department of Revenue.

 

New York:

New York enacted an “Amazon law,” under which an out-of-state retailer must collect sales tax from online purchases made by New York customers if all of the following conditions are met:

  • it has an agreement with one or more New York residents to refer potential customers to it through a website;

  • it compensates the New York residents for directing potential customers to its website; and

  • Its “cumulative gross receipts” from the directed sales to New York customers exceeds $10,000 in the preceding 12 months.

Further information and updates can be found through the New York State Department of Taxation and Finance.

 

North Carolina:

North Carolina has also enacted an “Amazon law,” under which an out-of-state retailer must collect sales tax from online purchases made by North Carolina customers if all of the following conditions are met:

  • it has an agreement with one or more North Carolina residents to refer potential customers to it through a website;

  • it compensates the North Carolina residents for directing potential customers to its website; and

  • Its “cumulative gross receipts” from the directed sales to North Carolina customers exceeds $10,000 in the preceding 12 months.

Further information and updates can be found through the North Carolina Department of Revenue.

 

Texas:

Texas has not passed any laws that require online retailers to collect sales tax from online purchases made by Texas customers. Texas still follows the physical-presence rule. Because the issue is still being debated, you should stay up-to-date on the topic. More information and updates can be found through the Texas Comptroller of Public Accounts.

 

Washington:

Washington has not passed any laws that require online retailers to collect sales tax from online purchases made by Washington customers. Washington still follows the physical-presence rule. Because the issue is still being debated, you should stay up-to-date on the topic. More information and updates can be found through the Washington Department of Revenue.

KNOWLEDGE BASE Sales Tax In the US