Internet Sales Tax: When Does it Apply?

Internet sales tax is a developing issue that has many retailers confused. Sales tax is a new concept that several organizations and states are trying, to capture different elements. For a long time, companies needed a physical place of business for sales tax to apply. The concept is called “tax nexus.” However, with an increase in online sales, things started to change drastically. Customers would prefer to buy online than in physical stores, which felt like an unfair advantage for online retailers. In 2018, the state of South Dakota declared sales tax for online transactions, and other states and counties have been following suit.

When Does it Apply?

In 2018, the Supreme Court made a ruling that online businesses should charge sales tax. The basis for the sales tax is the number of transactions, total revenue, or both. The minimum number of sales is 200 transactions, while the minimum income is $100,000 annually. Home-based small online businesses may not have to include sales tax in their products. Several states have followed South Dakota in creating sales tax to tap into the new revenue source. Some countries do not have internet sales tax laws in place.

However, there is confusion surrounding the application of internet sales tax in different states. Some states expect sales tax to apply based on the location of the seller and others, on the buyer. The state law that applies gets the tax revenue of the item. Sellers in states that don’t have internet sales tax need to tax sales for states that impose the tax.

How to Handle Internet Sales Tax

Online companies with high transactions may have a problem tracking various internet tax laws for different states. You need to find appropriate sales tax software to assist you in imposing the right amount of tax to clients in different locations. Good tax software will save you time and possible audits, due to poor taxation policies.

You must do in-depth research on the internet taxation laws in your state. The rules keep on changing, as improvements are made regularly. Keep up with the changes so that you know what is expected of you, as an online business owner. You can also use the law to your advantage by understanding which states have favorable internet sales tax laws.