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Jean   Murray

On Cyber Monday - Collecting Sales Tax for Online Sales

By November 25, 2012

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It's Cyber Monday, the first Monday after Thanksgiving, and the official day for online businesses to bring out great deals for online buyers. It's also a day to be reminded that in some states, online sales are taxable, so you must collect sales taxes.

The online sales tax issue has been rolling around for several years because states see tax dollars not being collected, which means they don't go into the state's tax funds for state spending. But how can a business collect money from online customers? Good question.

How do you know if you must collect sales taxes for online sales? It depends on two factors:

1. Where your customer lives (state), and

2. Whether that state has a law requiring sales tax be collected by businesses with a tax presence (called a "nexus") in that state.

In the past couple of years, states have been broadening the concept of the "tax nexus" to include affiliates located in the state. So, if a big online seller like Amazon has affiliates in a state like California, and California passes a law requiring that affiliates collect sales taxes, then those taxes must be collected from all buyers in California.

I have some information that might help you determine your state's laws regarding online sales tax:

TheStreet.com has a map from October, 2011, showing the status of online sales taxes in each state. The most recent map I could find, from the National Council of State Legislatures, shows states which comply with the Sales Tax Clearinghouse and who are eligible to participate in a national sales tax, if one is enacted.

Nolo also has information on online sales tax laws in each state.


Read more about Online Sales Tax: The Background and Issues

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