Online sales tax can be a complex and puzzling subject for many online stores and ecommerce retailers. Dramatically different from their brick-and-mortar counterparts, online sales tax rules can vary substantially depending on any number of variables. To help mitigate some of this confusion, we put together the compete online sales tax guide for ecommerce retailers.
Hit the table of contents below to jump straight to:
It doesn’t appear to be looking good for advocates of the Marketplace Fairness Act. As a predicted since it started in the House, the MFA may go to die there. Check out these headlines:
We sit down with online retailer Susan Lindsey, a passionate activist at the heart of the fight against the Marketplace Fairness Act (MFA). Check out her interview here, including (relatively unknown) ramifications of the bill and helpful links to inform yourself about the MFA.
Online retailer Keith Yockey of TheDumbDog.com and Xcergy and founder of the ‘Stop Online Sales Tax Fees NOW‘ Facebook group shares some of his favorite articles and commentary on Online Sales Tax below.
If you are somewhat unaware of the Marketplace Fairness Act or are interested in the subject, Keith recommends that you check out this article: http://dailycaller.com/2013/06/15/the-marketplace-fairness-act-a-headache-for-small-business-owners/
It talks about just how much a pain in the butt the Marketplace Fairness Act will be for online retailers to keep up with. Make sure you check it out.
Kieth: “level the playing field?”
What a myth. That $400 item in a B&M (Brick & Mortar) can still be found for $350 online. Maybe the author should push for Federal Mandated price fixing?
A B&M has one store, one tax rate, and one tax form to fill out. To be a level playing field, that store should be required to deal with the same taxes as online stores: 130,00 tax jurisdictions, thousands of classes of taxes for tax included/exempt items, as well as tax returns for 46 States, DC and all US territories.
And really, just which law in the book prevents a B&M from selling online as well? They too can’t enjoy the added sales by selling online as well without paying the proposed online sales taxes.
June 11 – Local Shops Call for Online Sales Tax
Kieth: Oh, so an online retailer in S.C., I would need to file a tax return to Montgomery County DOR (Department of Revenue), The City of Montgomery DOR, and the Alabama DOR as well? Alabama has one of the worse sales tax laws in the country. No thank you.
Aside from that, I’m sure this bookseller would enjoy filing over 600 sales tax returns monthly/quarterly as online would be required to do, EVEN if the tax amount is $0.
$170M? The TN study is wrong. Best AL would get from ‘lost’ tax is $28M.
June 12 – Coalition to Oppose Online Sales Tax Formed
Keith: The Marketplace Fairness Coalition is good at spreading myths. Forcing businesses in non-sales tax states and forcing them to be tax collectors for 46 States, DC, all US territories, and (565) Sovereign Indian Nations will put most small businesses out of business with the related compliance costs and audit risks.
Free Software? Software solutions offered now do not address all the complexities of taxed items. At best, they cover only 30 of the over 150 shopping cart solutions on the Internet. Tax zones are not defined by 5 or 9 digit zip codes, do not cover items for sales tax holidays, or require setup, installation, and recoding of product line. Do you actually expect ‘free’ software from each State to play nice with each other? And last, there is no automation/remittance for those that sell on multiple channels (eBay, Amazon, etsy, website).
States already have laws now to collect tax. It’s called Use Tax. You buy online, you owe the tax. States should work to better educate the public as well as step up enforcement of same before writing a new, bad law.
June 16 – Jobs vs. Taxes
Keith: It is NOT a tax increase. You buy online, you owe a Use Tax. Failure to do so (and the author seems to support this) makes you a lawbreaker.I support the fact that businesseswhichhave a physical presence to collect tax for in-state sales. But as an online retailer located in SC, I should not be forced to collect Florida sales tax. The 1992 Quill decision says so.
June 16 – Good News and Bad for Amazon Shoppers
Keith: “As of now, you can buy anything on Amazon and there’s no state sales tax. [BUZZER] FALSE. You buy online, you still owe the tax. It’s a line item on your tax form. Those that claim this is a tax increase are simply misinformed.”
June 17 – Internet Sales Get Free Ride in Florida
Keith: The author’s first paragraph tells all… There is no loophole. You buy online, you owe use tax. It’s not my problem that Tallahassee refuses to inform the public that law exists, nor bothers to enforce same. Be rid of an 80+ yr. old law first before writing a new, bad law to replace it.
Keith: So much for creative lawmaking. Too bad MN never checked with other states like North Carolina, Connecticut, or Illinois. Those states not only saw a drop in sales tax, but also income tax as well.
If you want to stay in the loop on the Marketplace Fairness Act and Keith’s input, check out the Facebook group, Stop Sales Tax Fees NOW
1) If there’s anything we can learn from this article, it’s that there’s desperation and hipocrisy centered around Marketplace Fairness Act. Wisconsin Governor Scott Walker (R) vowed to lower state income taxes using the income from the Marketplace Fairness Act, if it were to pass. Using taxes to leverage other taxes? Not a strong argument against those who say the MFA is going to be just another tax.
2) Consumers Speak Out Against The Internet Sales Tax Law: Over the last couple of months, all we’ve heard about the MFA has been from lawmen, big business, and the ever-vehement small retailer. But finally we have input from the consumer (in nice infographic form for that matter). Turns out 60% of consumers would change their online shopping habits if the law gets passed.
McKane Davis, ecommerce business owner, opens up his view on the Marketplace Fairness Act:
“This bill is supported (and was likely written) by Walmart, Amazon, Target and Best Buy lobbyists. It is designed to give the biggest retailers in the U.S. a quasi-monopoly on ecommerce. It is horrible for small and mid-sized ecommerce businesses. Even if your company is exempted (because you are currently under $1M), it is really bad for you in the long-run. See below…
If this bill passes:
1. Small Internet businesses will stay small forever. There is a huge incentive for retailers to stay below the 1M mark and a massive punishment for growing past it. Very few (if any) smaller retailers will ever grow past 1M. The start-up success stories like Zappos (start in a garage, end up a large online retailer who can compete with Amazon) will never be written again. That’s exactly what Walmart and Amazon want – to stunt the growth of small businesses under 1M forever.
2. Small to mid-sized companies over the 1M mark will be crippled. If you are over the 1M threshold and don’t already have an army of accountants and lawyers to help you comply with all of the different state taxes and jurisdictions and to protect you from audits from all 50 States… you are about to get hammered. Amazon and Walmart have the budget for compliance and audits… they know how much it costs and how burdensome it will be. Why do you think they are pushing so hard for it?”
McKane urges retailers to check out the site, Internet Retailers for Fairness, in order to gain a better perspective on the bill.
Bill Quinn, Owner, ChristmasTreeForMe.com weighs in on the Marketplace Fairness Act:
“Marketplace Fairness Act – Online businesses will be required to collect sales tax for all states. They say it is “Simple”. What is not described is time and the penalty of non-intentional errors.
The Senate passed its version; the House is working on theirs. From a business side, I am a biased. I believe the minimum revenue should be raised from $1m to $10m of out of state revenue.
From a consumer side, I am thankful that I live in a huge state like Texas. If I still lived Iowa, I would be concerned that small on-line businesses would no longer sell into my state. Why? Because the revenue might not out-weigh the time and risk.
I fully recognize that on the other side of the Act are huge corporations like Amazon and Walmart. I also recognize the challenge for the like sized, brick and mortar retail shops in Texas. I like those brick and mortars, I have to collect sales tax for sales in Texas. I takes 2-3 hours per month to file. Multiply that by ~40 states with sales tax and we will be spending 50-80 hours per quarter.
Whichever side you stand, I encourage you to contact your House representative so the people make this decision rather than huge corporations / lobbyists.”
What’s your say? Get your opinion included in the Complete Online Sales Tax Guide. Just email Jon(at)cpcstratblogsite.kinsta.com.
Update w/ Additional Resources:
–Marketplace Fairness Act passes Senate, Faces House Next : The widely criticized Marketplace Fairness Act approaches on the horizon. With just the House of Representatives to pass through now, will retailer’s suffer for years to come?
No doubt, this bill imposes more bad than good on retailers, regardless of size, than the current online sales tax context. Small retailers (under $1 million in yearly revenue) seem to be getting spared, but how streamlined will the tax collection and remission process be for everyone else?
The Current Online Sales Tax Context and the Marketplace Fairness Act
Online stores and ecommerce retailers have an obvious leg up on their brick-and-mortar counterparts: they’re not always forced to charge online sales tax. Historically, online businesses have only been required to collect online sales tax from customers if they have a “physical presence” in their state, meaning their order will be shipped within state boundaries.
For all out-of-state customers, ecommerce businesses get away scot-free, only charging customers for the price of their purchase, plus shipping and handling fees. This ecommerce sales tax loophole can result in big savings for the customer and has played a huge role in the rapid growth of the online shopping industry over the past decade.
Soon, that could all change.
Earlier this year, Democrats moved to include what would be called the “Marketplace Fairness Act of 2013” into an upcoming proposed budget amendment. This act, if voted in, would force online retailers not only to collect online sales tax from in-state customers, but from customers all across the country.
And while this could put online stores and physical store locations on more of an even playing ground when it comes to competition, it could also have a big effect on the ecommerce industry as a whole, forcing all online retailers – even small businesses –to cope with 50 differing and unique online sales tax rules simultaneously.
If these laws pass, not only would online businesses have to collect online sales tax for all 50 states, but they’d also have to remit those taxes to the appropriate state, which could make online sales tax laws highly complex, even for the most seasoned vet. It would require reprogramming of the merchant’s online store, reformatting the checkout process and, more than likely, entail changes in staffing in order to comply. In short, abiding by these new online sales tax laws could get expensive. Unfortunately, if retailers fail to comply with these online sales tax laws, they could end up paying even more in the long run, especially when back taxes and interest are tacked on later.
Only time will tell how ecommerce tax laws will pan out. For now, take a minute to learn about the history of online sales tax by state, what exactly “physical presence” means, and how each state currently approaches this complicated, hot-button topic.
The History of Online Sales Tax
This isn’t the first time internet sales taxes have come into question. In 1992, the Illinois Department of Revenue filed a suit against National Bellas Hess, a Missouri mail-order retailer, for not charging Illinois customers the appropriate state sales tax rates. The Supreme Court eventually ruled that Illinois could not force NBH to collect its mail-order state sales tax – even for customers physically located in Illinois.
What was the Supreme Court’s reasoning, you ask? The Court said that merchants could only be required to enforce online sales taxes in states they have physical presences in – generally where they own office space, warehouses, or other property. This physical presence, the Supreme Court said, establishes a tax nexus, and makes them subject to local tax regulations. Requiring merchants to collect taxes from across state lines, the Supreme Court said, would complicate interstate business too much.
The issue of online sales tax came up again in a 1992 court case, when the North Dakota Tax Commissioner sued Quill Corp., an Illinois-based office supply retailer, claiming the state should be getting taxes from the company’s sales to North Dakota customers. In the end, the Supreme Court once again sided with the merchant, declaring that Quill’s lack of physical presence in North Dakota exempted it from local and state sales tax laws.
Online Sales Tax Rules: Physical Presence
In addition to Congress, many state governments are also currently pushing for online sales tax collection. They’re hurting for money, and online sales tax laws could help bring in a healthy new stream of revenue. States currently pushing to collect these online taxes include: Arkansas, California, Connecticut, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
Only five states aren’t currently effected by online sales tax laws (or the lack thereof), and that’s because they don’t require sales tax at all. Neither Alaska, Delaware, Montana, New Hampshire, nor Oregon requires its residents to remit sales tax when making a purchase -regardless of whether it’s online or offline.
But because of the Supreme Court’s previous “physical presence” rulings, many states that are affected by these missing online sales tax revenues are trying to find tax loopholes, or at least work to broaden the definition of the phrase in order to begin collecting online sales tax from retailers. In fact, some states have even started setting revenue thresholds, requiring merchants to collect and remit online taxes according to the state’s applicable tax laws, if they hit a certain amount of revenue from customers in the state.
In general, though, states are forced to abide by the physical presence standard when it comes to online sales tax. Essentially, having a “physical presence” in a state means the business owns property, pays rent, makes sales, remits taxes, or collects commission there.
Historically, a merchant can be said to have a physical presence in a state when:
- It owns or operates a store or office within state boundaries.
- It owns a storage warehouse in the state.
- It has employees located in the state.
Sometimes, it has even been extended to include businesses that:
- Have sales representatives travel to the state.
- Conduct business at or attend trade shows in the state.
- Have substantial advertising or promotional material in the state.
- Do business with an affiliate or partner in the state.
In situations when merchants don’t have a physical presence in the state where the customer is located, they’re not legally obligated to charge online sales tax. The customer, however, is technically supposed to pay their state’s sales tax, even though the store they bought from didn’t charge them for it. In this situation, instead of being called a “sales” tax, it’s called a “use” tax, and the customer is responsible for remitting the payment directly to their state.
Use taxes are a way for states to ensure they still get the applicable taxes they’re due on any purchases made within state boundaries, despite the venue the sale was completed in. Unfortunately, online use taxes are difficult to collect, especially on lower-priced purchases. California and New York have both made efforts to better enforce the payment of online use taxes in recent years but, for the most part, these have been ineffective. The focus remains on collecting online sales taxes from the online retailers themselves.
Online Sales Tax by State
So how does an online retailer know when to collect online sales tax? And what are the current rules for your state? Check out our state-by-state online sales tax guide below:
Alabama Online Sales Tax
Alabama’s sales tax law establishes that businesses with a physical presence in the state, such as a building, store, office, or local sales representative, has a tax nexus. This requires them to charge the appropriate state sales tax when doing business with in-state customers.
The state also establishes a tax nexus with what it refers to as “remote entities.” These are businesses with a significant link to Alabama, meaning they have a major stockholder, partner, or owner of the company located in the state. For these retailers that are located in or have a significant link to Alabama, the onus of paying online sales tax falls on the customer.
More Alabama online sales tax resources:
Alaska Online Sales Tax
Alaska is one of only five states that do not have a sales tax law, let alone one for online sales tax. That means, regardless of whether sales are made in person or over the Internet, customers in Alaska are not subject to any sort of taxes or fees. There are, however, 62 cities and municipalities that charge for sales tax if you happen to be located in those cities. Customers who live in those areas may be required to pay taxes when making purchases in those areas.
More Alaska online sales tax resources:
Arizona Online Sales Tax
Arizona establishes a tax nexus for any business that has a physical presence in the state. This can stem from an ownership or lease of Arizona property, an employee who spends more than two days a year in the state, or maintenance of a company office or branch within state boundaries.
It can even extend to independent contractors or non-employee representatives of the company if they are present in Arizona for more than two days a year. Businesses without a physical presence in the state, even those whose products are sold in independently owned Arizona stores, are not required to collect online sales tax.
More Arizona online sales tax resources:
Arkansas Online Sales Tax
Arkansas, which officially refers to sales tax as a “gross receipts tax,” only requires companies to collect taxes from in-state customers if they have a physical presence within state boundaries. Under Arkansas law, that nexus exists if they own or operate a warehouse, store, office, storage facility, rolling store, motor vehicle, or delivery conveyance in the state.
In 2011, Arkansas enacted what’s referred to as the “Amazon Law,” which establishes some exceptions to the state’s physical presence rule. The law says that certain out-of-state retailers, ones with a special affiliation to Arkansas, can be required to collect online retail sales tax. This special affiliation can exist if 1)the company has an agreement with or compensates one or more Arkansas residents to direct buyers to their website or online store, and 2) the seller’s gross receipts from Arkansas sales is more than $10,000 annually.
More Arkansas online sales tax resources:
California Online Sales Tax
In general, California follows the standard rule of “physical presence” when requiring businesses to collect online sales tax. There have been, however, a few recent changes to state law that may affect some online retailers. In 2011, California enacted two bills, AB 28 and AB 155. These bills establish a few exceptions to the physical presence rule, namely businesses with click-through, affiliate-type relationships to California residents.
According to the bills, if a business has an agreement with and compensates a person in California for directing buyers to their website, and that business has total cumulative sales of more than $10,000 from directed California buyers and $1 million from California as a whole, they are required to collect and remit online sales tax.
It’s important to note that California exempts a number of items from online retail sales tax laws, including electronic products and software, cold food products, and resale items.
More California online sales tax resources:
Colorado Online Sales Tax
Colorado’s policy on online sales tax requires any company “doing business” in the state to collect and remit sales taxes. Under state law, this means the company either sells, leases, or delivers tangible property in the state, and they also own or maintain an office, sales room, warehouse, or similar place of business in Colorado boundaries. It can also refer to individuals or employees who sell, deliver, or lease goods and who regularly make sales, advertise, or solicit in the state.
Additionally, any business that is a part of a larger corporation in which a partner or sister company has physical presence in Colorado is also required to collect online sales tax. In 2010, state congress passed a law to require online retailers without physical presence in the state to post notices on their website, notifying Colorado customers of their obligation to pay use taxes when making purchases. The law has since been rescinded.
More Colorado online sales tax resources:
Connecticut Online Sales Tax
Any company or individual “engaged in business in the state” is required to collect and remit online sales taxes from customers in Connecticut. According to the law, this can extend to include any party that sells tangible property for use, storage, or consumption in the state or that occupies, maintains, or uses (even temporarily or indirectly) an office, warehouse, sales room, place of distribution, or storage facility in Connecticut.
It can also include businesses that advertise or solicit regularly in the state, or those that are primarily owned or controlled by Connecticut residents. Additionally, Connecticut also has an “Amazon Law,” requiring certain internet retailers to remit online sales taxes if they meet these requirements: 1) they have an agreement with and compensate at least one Connecticut resident for referring potential customers to their website and 2) their cumulative gross receipts from those sales exceeds $2,000 a year.
More Connecticut online sales tax resources:
Delaware Online Sales Tax
Delaware is one of five states in the U.S. that does not require customers pay online sales tax when making purchases. However, the state does have a gross receipts tax, though that tax only applies to retailers and businesses located within state lines.
More Delaware online sales tax resources:
Florida Online Sales Tax
Florida requires businesses with a physical presence in the state or those who qualify as a “dealer” to collect online sales tax for the state. This includes any business that maintains or has, either directly or through a subsidiary or partner, an office, distributing house, warehouse, or place of business in the state.
It can also include anyone who manufactures products, leases property, or solicits business in the state. State Congress recently proposed an “Amazon Law,” requiring online retailers who have affiliate, click-through relationships with Florida residents to collect and remit state sales taxes. The law was never passed, and its future remains unclear at this point.
More Florida online sales tax resources:
Georgia Online Sales Tax
In Georgia, persons or entities with a physical presence in the state, also called “dealers” under Georgia law, must collect and remit online sales tax. Specifically, a “dealer” has an office, distribution center, sales room, warehouse, service enterprise, or “any other place of business” within Georgia lines.
Georgia also has an “Amazon Law,” which expands the state’s sales tax statute to include select online retailers who lack a physical presence in the state, namely those with an affiliate-type relationship with Georgia residents. Passed in 2012, the law says that any retailer who has an agreement with a Georgia resident to refer potential buyers to their website, compensates that resident for their referrals, and has a 12-month gross receipt total of $50,000 or more from Georgia customers must collect the appropriate online retail sales tax for the state.
More Georgia online sales tax resources:
Hawaii Online Sales Tax
In Hawaii, sales tax is referred to as “general excise tax” under state law. Retailers are only required to collect these excise taxes if they have a physical presence in the state, meaning they have at least one or more employees, representatives, pieces of property, or closely-related subsidiaries located within state boundaries. When sales are made through a retailer without a presence in Hawaii, residents are expected to pay the state’s use tax instead.
More Hawaii online sales tax resources:
Idaho Online Sales Tax
Idaho law specifically states that a retailer must have a legitimate tax nexus in order to be held responsible for collecting and remitting online sales taxes from customers. Online retailers only have this nexus if they own or operate a business location within Idaho lines or they employ workers in the state. Other internet retailers have no nexus and are not required to collect state sales tax, and any Idaho customers they sell to must remit a use tax to the state directly.
More Idaho online sales tax resources:
Illinois Online Sales Tax
In Illinois, sales tax is referred to as a “retailer’s occupation tax.” In recent years, Illinois state legislature has attempted to amend tax laws to include certain online retailers, specifically those with a click-through, affiliate-type relationship with Illinois residents. The new law was called the Main Street Fairness Act and was recently struck down as unconstitutional by the Cook County Circuit Court.
Now, the state simply abides by the physical presence rule, requiring any business or retailer with a physical presence in the state to collect and remit online retail sales tax to the state.
More Illinois online sales tax resources:
Indiana Online Sales Tax
Under Indiana state law, sales tax is instead referred to as “gross retail tax,” and any retailer who is “engaged in business” in the state is required to collect state sales tax. “Engaged in business” can include a retailer that maintains or occupies, either permanently or temporarily, an office, place of distribution, sample room, warehouse, storage place, or other place of business in Indiana.
It can also include merchants who have representatives, agents, sales people, canvasses, or solicitors in the state. Indiana also has a special agreement with Amazon.com, requiring the site to collect and pay online sales tax from Indiana customers.
More Indiana online sales tax resources:
Iowa Online Sales Tax
In Iowa, any “retailer maintaining a place of business in the state” must collect and pay online sales tax from Iowa customers. This can include merchants with an Iowa office, distribution center, sales room, or warehouse, as well as those retailers with a representative operating in the state or those with an Iowa subsidiary or partner organization. Iowa also participates in the Streamlined Sales Tax Project, which encourages businesses to collect online sales tax in every state they make sales in.
More Iowa online sales tax resources:
Kansas Online Sales Tax
In Kansas, any retailer with a nexus, or “means of connection,” to the state must collect and remit state sales tax. Under state law, a nexus exists if the retailer does any of the following in the state: operates, owns or rents a business location, has sales or service representatives, operates mobile stores, stocks inventory, provides tangible property for lease or rent, delivers merchandise to customers using company vehicles or common carriers, and provides or contracts installation, construction, repair, or other maintenance services.
Kansas state legislature recently moved to amend online sales tax laws to include online retailers who have affiliate relationships in the state; the law was never passed.
More Kansas online sales tax resources:
Kentucky Online Sales Tax
Kentucky’s online sales tax policy follows that any “retailer engaged in business in this state” will be required to pay state sales tax. This means that those retailers with a warehouse, store, office, or sales rep in Kentucky in addition to retailers that have those sames entities maintained or controlled by a subsidiary or related relationship will have to have remit sales tax.
More Kentucky online sales tax resources:
Louisiana Online Sales Tax
Under Louisiana law, a retailer must be “engaging in business in the taxing jurisdiction” in order to be responsible for collecting local and state sales tax. A retailer is considered “engaging in business” if it maintains directly or indirectly, or through a subsidiary an office, a distribution center, warehouse, or other place of business or if it employs an agent, sales person, solicitor, or other worker in the jurisdiction. Additionally, if they lease or sell property in the state, they are also responsible for collect online sales tax from customers.
More Louisiana online sales tax resources:
Maine Online Sales Tax
In the state of Maine, any retailer with a substantial physical presence in the state is required to collect online sales tax from customers. This can include merchants who operate or maintain a store, warehouse, office, or facility or sell or lease tangible property in the state. Maine law specifically excludes retailers who only solicit or advertise through catalogs, flyers, or electronic media in the state, as well as those who deliver goods via a common carrier like UPS, Fedex, or USPS; these merchants are not required to collect online retail sales tax.
More Maine online sales tax resources:
Maryland Online Sales Tax
Maryland’s online tax law requires that any out-of-state retailer collect state sales tax if: they maintain, occupy or use an office, sales room, distribution center, storage facility, warehouse, or other place of business in Maine; have an agent, canvasser, representative, sales person, solicitor, or other employee operating in the state; enter Maine on a regular basis to provide services or repairs; or regularly uses vehicles in the state to sell or deliver goods.
In Maryland, a retailer’s presence in the state doesn’t have to be substantial. According to the state comptroller, retailers must only have a “slight” presence in order to have a tax nexus and be required to collect online sales tax from customers.
More Maryland online sales tax resources:
Massachusetts Online Sales Tax
In order to be responsible for collecting and remitting Massachusetts sales tax, a retailer must be “engaged in business” in the state. This can refer to anyone who owns or leases property, regularly solicits sales, maintains stock, or has one or more employees in Massachusetts. The state also exempts a variety of items from online sales taxes, including food, medicine, newspapers, coffins, U.S. flags, and more.
More Massachusetts online sales tax resources:
Michigan Online Sales Tax
Michigan state law does not specifically define how physical presence or nexus is determined in relation to online sales tax liability. It does, however, outline several situations in which an out-of-state seller could be required to collect online retail sales tax. These situations include: when one or more employees reside in or are present for at least two days in the state; when it owns, rents, leases, maintains, or uses Michigan property; or when employees or partners act on behalf of the company in the state.
It can also include retailers who deliver goods in Michigan using their own vehicles or those of a partner or subsidiary. Companies that use a common carrier such as USPS, UPS, or Fedex are specifically exempt under Michigan law.
More Michigan online sales tax resources:
Minnesota Online Sales Tax
Retailers who “maintain a place of business” in Minnesota are required by law to collect online sales tax. This can be either by having or maintaining an office, place of distribution sample room, or warehouse, either directly or through a subsidiary, in Minnesota or having a representative or employee in the state. Additionally, if the retailer regularly solicits sales or advertises in or has an affiliate, subsidiary, partner organization, or stockholder in the state, they may also be responsible for Minnesota online sales taxes.
State law also establishes that any business that conducts activity in the state for four days or more in a one-year period will also have nexus in Minnesota and be responsible for remitting online sales tax.
More Minnesota online sales tax resources:
Mississippi Online Sales Tax
In Mississippi, state law specifically requires anyone “doing business” or “maintaining a place of business” within the state to collect and remit online sales tax. This can refer to any retailer or company that owns or operates property in Mississippi or employs workers or agents in the state.
In 2011, Mississippi legislature moved to create an “Amazon Law,” which would extend the sales tax nexus to out-of-state retailers who have an online or affiliate relationship with Mississippi residents. However, the law died in committee and was not passed.
More Mississippi online sales tax resources:
Missouri Online Sales Tax
In Missouri, any organization that maintains a place of business in the state, either directly, indirectly, or through a subsidiary, is required to collect online sales tax from customers to the state. Businesses that only deliver goods in Missouri via a common carrier, such as USPS, UPS, or Fedex, are not responsible for collecting state sales tax. Missouri residents who purchase from out-of-state or online retailers who are not required to collect online sales tax are responsible for paying a use tax directly to the state.
More Missouri online sales tax resources:
Montana Online Sales Tax
Montana is one of only five states in the U.S. that does not have a policy on online sales tax. Customers aren’t charged any sort of tax when making a purchase – whether with an in-state, out-of-state, or online retailer. Other states that do not require a sales tax are Alaska, Delaware, New Hampshire, and Oregon.
More Montana online sales tax resources:
Nebraska Online Sales Tax
In Nebraska, any organization “engaged in business” in the state is required to collect online sales tax. According to Nebraska law,” engaged in business” can refer to: maintaining, occupying, or using (even through a subsidiary or agent) an office, place of distribution, sales or sample room, warehouse, storage place, or other place of business in the state; having a representative, agent, sales person, canvasser, or solicitor in the state; renting or selling Nebraska property; soliciting orders from Nebraska residents by mail; having an owner or controller that operates a business in state; or having a franchisee or licensee operating under the same name in Nebraska.
When residents are not charged online sales tax from an online purchase, they are required to remit a use tax to the state directly.
More Nebraska online sales tax resources:
Nevada Online Sales Tax
Nevada law does not specify how tax nexus is determined for a retailer; it simply refers to the requirements of the U.S. constitution which, after the Quill case, require a business to have physical presence in the state in order to be liable for state sales tax. This could include organizations with a warehouse, store, office, or other business location in Nevada, or it could extend to those that have a sales representative or employee in the state.
Nevada and Amazon.com have recently reached an agreement, and the online retailer will begin collecting online sales tax from Nebraska customers no later than 2014.
More Nevada online sales tax resources:
New Hampshire Online Sales Tax
New Hampshire does not have a state sales tax, so customers are not required to pay taxes on any purchase, regardless of whether it is does in-state or online. Other states that do not have a state sales tax include Alaska, Delaware, Montana and Oregon. New Hampshire also does not have a state income tax.
More New Hampshire online sales tax resources:
New Jersey Online Sales Tax
New Jersey courts have affirmed on multiple occasions that tax nexus in the state is determined based on physical presence, including for corporate business taxes. Additionally, the Division of Taxation released information regarding internet retailers specifically, establishing online sales tax liability for retailers that: maintain a place of business in New Jersey, operate a website from a location in the state, have employees in the state, or own property in the state.
Retailers who simply operate a website outside of the state that can be accessed by New Jersey residents or those who advertise or solicit sales in the state are not responsible for collecting online sales tax. The state of New Jersey recently reached an agreement with online retailer Amazon.com. Starting July 1, 2013, the website will begin collecting online retail sales tax from its New Jersey customers.
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New Mexico Online Sales Tax
In New Mexico, sales tax is referred to as a “gross receipt tax” in state laws. Retailers are responsible for collecting New Mexico’s gross receipt tax when they engage in certain activities in the state, including: maintaining or utilizing an office, distribution house, sales house, warehouse, service enterprise, or other place of business; maintaining a stock of goods; regularly soliciting orders; or regularly delivering property via a private carrier.
Retailers who have a website operated by a third-party provider in New Mexico or those who use a third-party call center to accept and process orders are not responsible for charging online sales tax.
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New York Online Sales Tax
The state of New York requires any business or individual that qualifies as a “vendor” or an “affiliated person” to collect and remit online sales tax.” Vendors” include those who have business locations or employees in New York, solicit sales via catalogs or advertising in the state, or sell taxable items and regularly make deliveries in the state. Affiliated persons are those who have a stake or degree of ownership in an organization. If an affiliated person has New York ties, including if they are affiliated with another organization based in New York, live in New York, or otherwise do business in the state, their organization will need to collect state sales tax.
Affiliated persons can also include subsidiary and partner companies with New York connections. In addition to vendors and affiliated persons, some online retailers may also be required to collect online retail sales tax because of the state’s “Amazon Law.” Enacted in 2008, the law pertains to internet sellers who have online, referral-based relationships with New York residents. Any retailer whose sales gross more than $10,000 from these referrals in a 12-month period will need to remit online sales tax to New York.
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North Carolina Online Sales Tax
In North Carolina, retailers “engaged in business” in the state are required to collect state sales tax. “Engaged in business” can include retailers with a warehouse, store, office, or other location in the state (even indirectly), or those who have an office or sales representative in North Carolina – even for a short time. The state recently amended its sales tax law to also include retailers of “remote sales,” which require certain out-of-state online sellers to collect and pay online sales tax.
A retailer is subject to this new amendment if they have an agreement with and compensate at least one North Carolina resident for online customer referrals and their sales from those referrals are more than $10,000 in a 12-month period. North Carolina law specifically exempts retailers who simply advertise to state residents.
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North Dakota Online Sales Tax
In North Dakota, retailers must maintain a place of business in the state in order to be responsible for collecting state sales tax from customers. The state’s administrative rules specifically address “remote sellers,” which internet retailers can likely be considered, establishing that they do not have enough physical presence in the state to be liable for online sales taxes. North Dakota residents are responsible for remitting a use tax to the state whenever they are not charged online sales tax for a purchase.
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Ohio Online Sales Tax
Ohio state law does not specifically outline how physical presence is determined in regards to taxation, however the state Supreme Court has affirmed the Quill decision on multiple occasions. The Department of Taxation has also said that any out-of-state retailer that has a “sufficient” connection to Ohio is required to collect and pay state sales tax. Sufficient connections to Ohio can include: regularly having employees operate in the state, making regular delivers in the state, or having another form of physical presence in the state.
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Oklahoma Online Sales Tax
Any retailer that maintains a place of business in the state is required to remit online sales taxes to Oklahoma. Though the law does not specifically define a “place of business,” it does extend to include places of business that are indirectly operated by subsidiaries or agents. Oklahoma also has a version of an “Amazon Law,” which requires online retailers to notify customers of their responsibility to pay use taxes on their purchases.
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Oregon Online Sales Tax
Oregon is one of just five states that do not have a state sales tax. Customers in Oregon, as well as Alaska, New Hampshire, Montana, and Delaware, are not require to pay online sales taxes when making purchases, whether done in-state or out-of-state.
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Pennsylvania Online Sales Tax
In Pennsylvania, any retailer that maintains a place of business within the commonwealth must collect and remit online sales tax from customers. According to state law, “maintain a place of business” can include: having or maintaining (either directly or through a subsidiary) an office, distribution house, sales house, warehouse or service enterprise in Pennsylvania; maintaining a stock of goods in the state; having employees located in or doing business in the state; or regularly soliciting or advertising to Pennsylvania residents.
The state’s Department of Revenue recently released a bulletin detailing additional situations in which “remote sellers” may have sufficient physical presence in the state and be required to collect online sales tax. These include: when property is store at a distribution or fulfillment center in the state, when there is a contractual relationship with someone physically located in Pennsylvania, and when an affiliate relationship exists with an individual or organization in the state.
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Rhode Island Online Sales Tax
Any retailer “engaged in business” in the state is required to collect Rhode Island sales tax. Under state law, this can refer to: maintaining, occupying or using an office, place of distribution, sales room, warehouse, or other place of business in the state; having a subsidiary, representative, agent sales person or other employee do business in the state; or regularly soliciting sales in Rhode Island.
Rhode Island also has an “Amazon Law,” which pertains to online retailers who have affiliate or click-through arrangements with Rhode Island residents. Under this law, any internet retailer who 1) has an agreement with a Rhode Island resident to refer potential customers to their website, 2) compensates the resident for those referrals and 3) has more than $5,000 in sales from said referrals, is required to collect and remit online sales tax.
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South Carolina Online Sales Tax
Any retailer “maintaining a place of business” in the state is responsible for collecting South Carolina sales tax. This can include doing maintaining or having a subsidiary, office, distribution center, sales house, or warehouse in the state or having an agent, even temporarily, do business within state lines.
Though state laws do not address internet retailers specifically, a recent ruling does establish precedent for mail order businesses, concluding that the retailer is not responsible for online sales taxes if the catalogs are mailed from outside of South Carolina.
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South Dakota Online Sales Tax
In South Dakota, retailers with offices, distribution centers, sales rooms, warehouses, or other business locations in the state are responsible for collecting sales tax from customers. Additionally, if they have an employee or agent who does business in the state – even temporarily – they also must abide by state sales tax regulations.
The South Carolina Department of Revenue addresses online retailers specifically on its website, establishing that internet and out-of-state catalog companies are only required to collect online sales tax if they have a business location, employees, or sales representatives that enter the state.
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Tennessee Online Sales Tax
In Tennessee, out-of-state and internet retailers are required to collect state sales tax if they: have an office, distribution point, sales room, warehouse, or any temporary or permanent place of business in Tennessee; have an agent, sales person, canvasser, solicitor, or other employee operating in the state; or furnish taxable property or service while in Tennessee.
Although internet retailers are not addressed specifically, according to the state’s Sales and Use Tax Guide, mail order companies with no physical presence or location in the state are not responsible for collecting online sales tax. The Tennessee state legislature also recently enacted a new law, requiring Amazon.com to collect online sales tax from its Tennessee customers.
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Texas Online Sales Tax
Texas requires any retailer “engaged in business” in the state to collect and pay state sales tax. This can refer to retailers who: maintain or occupy a physical business location either permanently, temporarily, or through a subsidiary in Texas; have a representative, agent sales person, solicitor, or other employee operating in the state; sell or lease property in the state; engage in regular solicitation of sales or advertising in Texas; has a Texas franchise or licensee; or are owned, even partially, by a person who conducts business in the state.
Additionally, according to the Texas Comptroller, out-of-state retailers who only conduct business in Texas via mail, phone, or the internet are not required to collect sales tax.
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Utah Online Sales Tax
Utah state law outlines a number of circumstances in which a retailer may be required to collect sales tax from customers. These include when: they have or use an office, distribution house, warehouse, service enterprise, or other business location in the state; maintain a stock of goods in Utah; regularly solicit to Utah residents via mail, email, or the internet; regularly deliver in the state (not via common carrier or U.S. mail); or lease or service property in Utah.
Additionally, if a retailer holds substantial ownership (10% or more) in or is owned in part by a related seller in Utah, they will also be responsible for collecting online sales tax for internet transactions.
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Vermont Online Sales Tax
In Vermont, any retailer considered a “vendor” in the state must collect state sales tax from Vermont customers. Under state law, “vendors” are anyone who: maintain a place of business in the state; solicit sales in Vermont; own or control a similar line of business in the state; or who have a Vermont franchisee or licensee. For retailers who are not required to collect sales tax, Vermont law requires they notify customers of their responsibility to pay state use taxes on their purchases.
The state also has a new law establishing an online sales tax for retailers who have online affiliate relationships with Vermont residents. The law will not go into effect, however, until at least 15 other states have adopted similar laws.
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Virginia Online Sales Tax
Any retailer considered a “dealer” with “sufficient activity” in Virginia is required to collect and pay state sales tax. “Sufficient activity” can include: maintaining or having an office, warehouse, or place of business; soliciting business through employees, independent contractors, or other representatives; advertising; making regular deliveries; having a franchise or licensee; or renting or leasing property. It can also include retailers that are owned or controlled by the same interests that own or control a business in Virginia.
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Washington Online Sales Tax
Washington law establishes that any retailer who “engages in business activity” or “maintains a place of business” in the state is required to collect sales tax. Retailers may meet these definitions if they: maintain, occupy, or use an office, place of distribution, sales room, warehouse, storage facility, or other location in the state; solicit sales in the state; employ sales agents or representatives who do business in Washington; have a franchise or licensee in the state; or are owned or controlled by the same individual/company that owns a similar business in the state.
Additionally, if retailers maintain inventory or stock in Washington or regularly deliver goods in the state (not by U.S. mail), they are responsible for collecting online sales tax for internet transactions.
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West Virginia Online Sales Tax
In West Virginia, any retailer “engaging in business” in the state must collect sales tax from West Virginia customers. Under state law, “engaging in business” can mean either maintaining or occupying a physical location in the state or having an agent or employee work in the state, either permanently or temporarily.
West Virginia residents are responsible for paying a use tax when an online or out-of-state retailer does not online sales tax on a purchase. The state provides a form for paying these use taxes in its personal income tax package.
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Wisconsin Online Sales Tax
Wisconsin establishes that retailers with a physical presence in the state must collect and pay state sales tax. This physical presence exists if the retailer: maintains, occupies, or uses a place of business in the state; has an employee in the state; or is affiliated with or controlled by a person or organization with Wisconsin ties.
In general, the Department of Revenue states that if a retailer does not have a physical presence via one of these circumstances, they are not required to collect and remit online sales tax.
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Wyoming Online Sales Tax
Wyoming law requires any retailer that qualifies as a “vendor” to collect state sales tax from Wyoming customers. Although the law defines “vendor” as any person or company engaged in business or selling property or services that are taxable in the state, it does not specifically address the issue of physical presence.
In general, however, the state follows the Quill decision, which asserts that a retailer must have an office, store, warehouse, or other location in the state or employ a worker or representative in Wyoming in order to be responsible for collecting and remitting online sales tax.
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Note for all states: While these are the current laws and regulations regarding Internet sales tax, they are subject to change, especially with federal legislation on the agenda in the coming months.