Table of Contents
Do e-commerce sites have to charge tax?
It varies. Sales taxes must be charged if the e-commerce business has a presence or nexus in the state where the buyer resides.
Nexus refers to the business’s relationship with a state, whether through physical presence (e.g. warehouse or office) or due to economic activity (e.g. sales volume). If your company meets this definition, you must collect and remit sales tax on sales to customers of that state.
• Economic Nexus: Even without physical presence, if your sales exceed certain volumes or transactions in any state, economic Nexus could occur and sales tax must be collected from these sales.
What is e-commerce sales tax?
The E-commerce Sales Tax (ECST) is a tax imposed on any of these goods or services that are sold over the Internet.
This tax is usually calculated on both the shipping address provided by the buyer and the applicable tax rates of the given location. The rates differ between countries, as well as states and provinces.
• Sales Tax Collection: The business is responsible for the tax collection, as well as the obligation to submit them to the appropriate tax authorities.
• Sales Tax Exemptions: Some products are exempt from tax sales, like groceries or prescribed drugs.
What is a sales tax nexus and how does it affect e-commerce businesses?
A sales tax nexus is the connection an online store (the e-commerce business) has to a tax jurisdiction (usually a state or a country).
This link triggers the obligation of collecting and remitting sales tax on transactions made to customers in that jurisdiction. It is levied whether due to a physical presence (warehouse, office, or employee) or by meeting an economic activity point (sales volume or number of transactions).
• Marketplace Nexus: Some states hold marketplace facilitators, like Amazon or Etsy, to collect and remit sales tax on behalf of sellers.
How can e-commerce businesses stay up-to-date on tax law changes?
To stay updated about tax laws E-commerce businesses can:
- Subscribe to tax authority newsletters;
- Read industry blogs;
- Attend webinars or workshops dedicated to e-commerce tax compliance.
These steps aforementioned are a way to stay informed of any changes regarding the application of the law, as tax regulations can change frequently.
Consider consulting a tax professional for personalized advice and guidance, whether you have a doubt or simply need to double-check information.
• State Tax Agencies: Each state has its own state tax agency website with resources and information concerning sales tax legislation and guidelines.
When should e-commerce businesses consult with a tax professional?
If you find yourself in a position of uncertainty regarding your tax obligations, operating sales across multiple states or countries, or having complex tax situations to deal with, the help of a tax professional is highly advised.
Professionals who are informed of tax laws can assist your business with understanding the specific laws relating to it, ensuring compliance, and possibly identifying deductions or credits.
Conclusion
Initially, it is normal to be confused or helpless regarding the legislation and application of taxes, but with knowledge and using the appropriate resources available, you can ensure your business stays compliant. Understanding which taxes pertain to your business, staying up-to-date with changes to tax law, and seeking professional guidance when necessary are ways of meeting your tax obligations.
