Internet sales tax has become commonplace for online retail businesses, but it hasn’t always existed. When online sales first began, there were no taxes on purchases made to online retailers. There weren’t many regulations for making purchases online and consumers didn’t worry about the extra charge on their purchases. Because of this, more and more people would shop online rather than going to traditional stores, especially during the holidays.
But, somehow, we all knew that freedom from being taxed wouldn’t last forever. Many states are making it a requirement for online retailers to calculate sales tax on all purchases. They claim their states are losing billions of dollars in revenue from the lack of sales tax, and that it is necessary to enforce this in order for the states to thrive. Traditional and online retailers alike are asking for a reform for online taxes due to the fact that brick and mortar stores feel that online retails have an advantage over them because they don’t have to charge sales tax.
All states now require that online retailers must collect sales tax for customers who reside in the same state as the physical state of the business. Some of these states have harsher rules that include merchant accounts, distributors, warehouses, drop shippers, and sales representative locations. The tax regulations must be understood and followed in order to claim the correct figures at tax time. If the sales taxes aren’t paid, there will be penalties that can potentially hurt your business. As well as paying the amount that is owed on those sales taxes, there will also be penalties and interest incurred for each year the sales taxes are not paid.
If you follow this check-list, you should be in good shape:
- Check each state your business works in to find out if you have to collect sales tax from the customers in that state.
- You have to register to collect online sales tax in the states you do business in.
- You can collect sales tax automatically with e-commerce or shopping cart calculations.
- You must file your tax return in the correct state(s) where you do business and send the taxes with your returns.
There are many things to look at when choosing an e-commerce solution that allows you to automatically collect internet sales tax. They are:
-An easy sales tax calculator that is built into your website.
-A tool that automatically calculates the tax at check-out.
-An easy-to-set up program for state, county, postcode, or country tax percentage
-The ability to mark down non-taxable products
-The ability to tax Canadian customers
-The ability to choose if tax should be applied before or after discounts
-The ability to determine if certain groups should be exempt from sales tax
To make sure you have no issues on your tax return, make sure you have good sales tax software on your website. It should be able to accurately calculate and record all of your internet sales taxes. Many e-commerce solutions have this feature, which is easy to set up and all you have to do is enter the required information and the program will do the rest.