I’m Making Sales Over the Internet. Do I Have to Collect Sales Tax on All the Sales I Make?
If you are selling goods over the Internet and your company has a presence in the state of delivery, your company has established nexus and will be required to register to collect sales tax on all taxable items regardless of method of order placement. At a minimum, retailers will be required to collect tax in their home state – which can be where the company is incorporated or established and also where the owners reside, if different.
Whether the order is placed over the Internet or through traditional means, if a company has nexus in the state to which the product is being shipped, sales tax should be billed and collected.
For example, if a Pennsylvania retailer makes a taxable sale and ships the item to a customer in Pennsylvania, the retailer has nexus and sales tax is collected on the sale. If the Pennsylvania retailer ships the item to a customer in any other state, they will be required to register and collect sales tax if they have nexus in the state into which they are shipping.
If you’re making sales over the Internet and you are using a fulfillment house to fulfill the orders, you may have nexus for sales tax purposes in the state where the fulfillment house is located. The presence of inventory in a state creates nexus for not only sales tax but also for income tax purposes.
Online retailers should also be aware of “click-through nexus” and “affiliate nexus” laws. For more information on nexus, “click-through nexus” and “affiliate nexus,” visit our What is Nexus? FAQ.
The Multistate Tax Commission (MTC) had negotiated a special deal for online sellers that may have sales and income tax obligations from previous unpaid taxes in 25 different states. The MTC put together a special amnesty initiative program for online sellers that ran from August 17, 2017 to November 1, 2017. The program is now over. If you didn’t take advantage of the program but realize you need to evaluate your activities, you can contact us here.
NOTE: On June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair. This decision overruled the physical presence rule for sales tax nexus for sales made over the internet, meaning states now have right to require tax collection from online merchants and other remote sellers with no physical presence in their states. Looking strictly at the South Dakota economic nexus legislation that was addressed in this case, South Dakota’s law minimizes the burden on out-of-state sellers. The legislation provides a safe harbor for small sellers: a remote seller must make in-state sales exceeding $100,000 or makes 200 or more separate sales transactions in the previous or current calendar year for the nexus provision to apply. The legislation also ensures that the nexus provision does not apply retroactively.
Many other states have enacted economic nexus legislation, some of it very similar to South Dakota’s legislation. To stay updated on this type of legislation, visit our Remote Seller Nexus Chart and our Remote Seller Resources page to see legislative activity in each state. The Court’s decision leaves a lot of questions unanswered, we’ll be working to give you the latest information on the implications of this case. For more information, you can read our blog on the decision or watch Diane Yetter’s live debrief and Q&A session.
Looking for more information? Check out the following resources: