What Law Governs When a Customer in Another State Buys My Product Over the Internet?

A Business FAQ with Mary E. Vandenack.

If you sell products over the internet, it is important to be aware that you are going to be subject to the laws and regulations of the state that you are located in, the states that you are selling in, and certain federal laws. There are going to be laws that govern your relationship with the persons who are buying your product, and there will be laws impacting you from a tax perspective so you are going to want to become familiar with each. It’s extremely important to give a lot of attention to your website terms and conditions. There are certain things that you can cover in those terms and conditions. You cannot get out of the application of different federal and state laws in those terms and conditions, but you can engage in certain aspects of control.

© 2014 Parsonage Vandenack Williams LLC

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Do I Have to Collect Taxes for Sales Made Over the Internet?

A Tax FAQ with Mark A. Williams.

If you make a sale over the Internet, generally, if sales tax apply you do have to collect the sales tax. The complication is you might be a business in the state of Nebraska and you might make one sale in the state of Louisiana. If you’re not advertising in that state and you don’t have a business location in that state, generally you wouldn’t be required to collect sales tax there. There is a legal concept called “nexus.” If you don’t have sufficient nexus, you usually don’t have to pay sales tax; however, some states are adopting laws that just require on every sale in that state you do have to pay sales tax. So it’s a very complex set of rules right now that are changing every day because of the growth of the Internet and you need to make sure you have good tax advisers to help you through that process.

© 2014 Parsonage Vandenack Williams LLC

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Does an Out-of-State Retailer Have to Collect Sales Tax?

A Tax FAQ with Mary E. Vandenack.

As a generality, an out-of-state retailer is subject to collecting tax in another state if they have nexus with the state in which they are making a sale. The definition of nexus varies state to state so it’s really important that a business look at what nexus means in a particular state.

In addition, different states tax different types of things so you have to really understand the nature of the business to determine whether you’re going to be subject to sales tax in another state.

© 2014 Parsonage Vandenack Williams LLC

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Internet Sellers Should Understand Sales Tax Provisions in 12 States That Have Special Remote Sales Tax Policies

Since 1992, when the Supreme Court decided Quil Corp v. North Dakota[1], states have to be careful about how they collect sales tax from remote sellers, otherwise they might violate the Constitution. At the present time, U.S. Congress is in the midst of debating measures to provide for taxation of remote sellers uniformly across all 50 states. see Marketplace Fairness Act, S. 743. However, with the Supreme Court ruling still the law of the land and no federal legislation enacted, 12 states have different and inconsistent rules on tax collection from remote sellers, including internet sales.

Currently, 25 states claim to have power to collect taxes on internet sales to buyers in their state, but only 12 of those have a statute in place. Those 12 states are: Arkansas, California, Connecticut, Georgia, Illinois, Kansas, Maine, Minnesota, Missouri, New York, North Carolina, Pennsylvania, Rhode Island, and Vermont. Each state has different variations and provisions about when and how to collect taxes if you sell into their state.

 Without a federal law or uniform code on the matter, it is important to understand and know what taxes you must collect and pay to each of those 12 states as a remote seller. While it may take extra time up front, be sure to investigate prior to selling into these states to ensure you aren’t stuck with extra tax liability.

 [1] Quil Corp v. North Dakota, 112 S. Ct. 1904 (1992).

© 2014 Parsonage Vandenack Williams LLC

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