Small Businesses – To Include Or Not to Include Online Sales Tax

When selling goods or services online, make sure you are including the right sales tax in the total cost.

General Rule The general rule of thumb is that an internet seller must collect sales from the buyer if the seller has “tax nexus” or a substantial presence with the buyer’s state. Tax nexus is equivalent to having a physical presence (business location, resident employees, intangible or tangible property) in a particular state. As you might imagine, whether a seller has nexus is not always an easy determination (and NY has a new law that would expand what constitutes nexus – although the law is still being challenged by through an appeal).

To add clarity, below we have detailed a few basic examples of when the tax is and is not included in the total cost.

Example 1: A customer from Florida purchases clothing online from John Doe Clothing which is located in Georgia. Since John Doe Clothing Company has no physical presence or tax nexus in Florida, the company is not responsible for collecting the tax. Instead, the customer must pay a use tax to the state at the end of the year.

Example 2: A customer from Florida purchases clothing online from John Smith Clothing which is also located in Florida. Since John Smith Clothing Company is physically located in Florida, the company is responsible for collecting the sales tax.

Vary at the State & County Levels Sales tax may vary at the state and even the county level, so be sure that you are including the right amount of sales tax in the total cost.

Depends on Type of Transaction Additionally, even if a seller has tax nexus, it only has to collect sales tax if it is the type of transaction that is subject to sales tax in the applicable state. Information services are taxed in some states (such as NY and NJ) but not others

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