Sales tax applies to all taxable sales made within the state where your business is located, regardless of whether the customer made the purchase at your place of business or online. The only exception is in the five states that do not have a sales tax - Delaware, Oregon, New Hampshire, Montana, and Alaska. However, if your online customer resides in another state, you do not have to collect sales tax.
Sales Tax on Sales Made Within the State
If you provide taxable goods or services to consumers within your state, you must register with the state before you can lawfully make any sales. The registration is usually with the state's department of revenue, which issues a permit or certificate that authorizes you to collect sales tax. This requirement applies to all businesses regardless of how they are structured, including online businesses that sell taxable items. No state exempts online sales from the applicable sales tax.
Sales Made To Out-of-State Customers
In a case involving catalog sales by an out-of-state company, the U.S. Supreme Court ruled that states cannot require out-of-state companies to collect sales tax. The ruling in this case also prohibits states from requiring out-of-state companies doing business online to collect sales tax. For these types of sales, it is the customer's responsibility to report the sale and pay the state's applicable sales and use tax. In theory, the state can audit and penalize a customer for failing to pay the tax. However, this is not practical and rarely enforced.
Streamlined Sales and Use Tax Agreement
States with sales tax generally agree that the law prohibiting them from requiring out-of-state companies to collect sales tax has cost them billions of dollars in annual uncollected sales taxes. In an effort to change the law, some states have adopted the Streamlined Sales and Use Tax Agreement, which is designed to simplify sales tax collection and make state sales tax laws more uniform. The purpose of the agreement is to facilitate passing new federal laws that will help states collect sales tax for online sales. It doesn't make collecting sales tax a requirement for out-state-companies conducting online sales.
A Tax Lawyer Can Help
On-line business sales tax collection is an evolving area of the law and can be complicated. Plus, the circumstances surrounding your business are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a lawyer.