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Internet is NOT a Tax Free Zone – What Online Retailers Need to Know About Sales Tax

In the last decade, the Internet has exploded with retail businesses selling everything from consumer goods to commercial supplies. However, with the emergence of the e-commerce model have come issues concerning the proper financial procedures relating to sales and income tax. Oftentimes, well-meaning businesses decide to set up shop online, only to realize they do not have an efficient way for collecting taxes across multiple regions.

So, is it a Tax Free Zone?

The Internet is definitely not a ‘tax free zone’, nor should taxes be an afterthought when selling goods online. However, many have dropped the ball because collecting the right amount in taxes during online sales has not exactly been enforced in some US states, as well as in other countries. That is about to change.

Back in the 1990s, the US Supreme Court ruled that states could not require online retailers to collect sales tax unless they had an actual physical presence established in the state. In other words, if an online retailer maintained a virtual inventory or did not operate from a location in a state, there was no method for ensuring that sales tax was being collected on a regular basis. However, new legislation to correct this has been introduced in the House and Senate.

What to Expect in Near Future?

Figures from the National Conference of State Legislatures show that nearly $23 billion in uncollected online taxes annually could have a significant impact on state budgets; therefore consumers who are supposed to be paying taxes for their purchases can expect to start seeing more enforcement. Additionally, traditional brick and mortar retailers are pushing for online retail tax collection because for years this has given online stores an unfair advantage.

What you Need to Know as an Online Retailer?

As an online retailer, it benefits you to start developing a process for collecting the right amount of sales tax for your e-commerce customers. With the right amount of programming, you can set up a tax collection system that ensures this compliance now, rather than once your region requires it. Additionally there are several options for tax processing offered by third-party software and payment gateways. Some of the larger online payment providers are giving users the option to collect taxes, with the default setting automatically collecting on product sales. It is important to note that taxes on services and third-party shipping fees are not collectible in most states, while tangible products and direct shipping are taxable.

As a result of the movement towards a more consistent economy, both online and in physical stores, many retailers are offering incentives to consumers for their purchase habits. For examples, big e-commerce retailers often offer discount coupon codes to customers who make a majority of their purchases online, due to the cost savings of not having a physical location to maintain. By collecting email addresses during the online ordering process, this can help drive marketing campaigns and encourage repeat business.

Your best course of action as an online retailer is to choose a payment product that collects sales tax seamlessly with your current inventory and ordering system. Maintain a reporting structure that allows you to show documentation of this activity, in case you are audited. This will not affect your sales in a negative way, if you combine your efforts with e-mail list building and customer loyalty programs.

Author Bio:- Robert writes on topics related to small business and taxation. If you are looking for an online sales tax institute, you can visit the website and enroll in online sales tax courses. The institute offers all sorts of courses and webinars for sales tax and best practices.

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