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Internet Taxation

Are Businesses Required to Collect Tax on Sales Made Over the Internet

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Internet sales are NOT tax-free. There is a very common misconception that the Internet Tax Freedom Act prohibited states from imposing a tax on transactions conducted online. However this Act simply prohibited states from imposing new taxes on internet access fees.

Sales Tax Requirements Apply To All Transactions:

As discussed earlier in the [Nexus section](/sales-tax-information/sales-tax-help-questions/nexus/), sales tax registration requirements (and rules) apply regardless of business size, business model or order method. All sellers (whether bricks-and-mortar or on-line) must collect sales tax on all sales delivered into any state in which they have established nexus.

All Sales Have (Sales or Use) Tax Due:

If the business does not have nexus in the state and does not collect the sales tax, the item may still be taxable. It is then purchaser's legal obligation to remit the use tax directly to the state where they are using the item if it is taxable. (This is why we state that internet sales are NOT tax-free.).However, just because the customer has the ultimate liability for the tax does not relieve the seller from their legal obligation to collect the tax when and where they have nexus.

Sales Tax Nexus is The Key Issue for E-Commerce Operations:

The definition of nexus (again - the issue that determines your need to collect sales tax) varies by state - and for that reason it is important for all sellers (regardless of type) to be aware of sales tax nexus requirements for any jurisdiction in which they have activity (see also [Nexus section](/sales-tax-information/sales-tax-help-questions/nexus/)). It is also important to recognize that nexus definitions have broadened substantially over the years - and continue to broaden.

Nexus Through Activities: Today, even activities like trade show attendance, deliveries, service visits and the use of marketing affiliates or agents can potentially create nexus.

Nexus Through Third Part Hosting: While your on-line business may be (in your opinion) based in one state - nexus could potentially be created based on the third-party vendor hosting your web site in another state. (This is most likely if you own any of the equipment located at the hosting company - although rules vary by state - and are changing constantly.) If you have a third party fulfilling your orders, and you own the inventory at their location, this also could create nexus and a registration requirement.

Nexus Through Affiliates & Agents: This issue is related to the Amazon Law debate which is often in the news. If you have third party affiliates to whom you pay referral fees or commissions, this can create nexus for you in some states. This is the subject of significant activity at the state level and something you will need to monitor.

Taxation Basics For Drop-Shipment Activities:

Drop ship transactions differ somewhat in that the initial purchase by the retailer (from the supplier/shipper) is in effect a purchase for resale - which is normally exempt from sales tax. If the product supplier/shipper is shipping the order directly to a state in which they are not registered (and/or do not have nexus), then the supplier/shipper does not have an obligation to collect sales tax for that state. However, if the retailer is not registered in the ship-to state but the supplier/shipper is, the supplier/shipper is obligated to collect tax from the retailer on the transaction unless the retailer can provide valid exemption documentation for the ship-to state. If you are involved in drop-ship transactions (as a retailer or supplier/shipper) this is an important issue you need to consider, on a state by state basis. (See [Drop Shipment section](/sales-tax-information/sales-tax-help-questions/drop-ship/) for additional details.)

Taxability of Web Advertising Services and Digital Goods:

While taxability rules are changing rapidly for goods and services sold on-line, the taxability of services which facilitate such commerce (like banner ads and directory listings) are changing rapidly as well. While services have traditionally been exempt from sales tax, some states now tax services (as well as digital goods) and others are considering such a move, in order to bring in much needed revenue. The Sales Tax Institute monitors legislation regarding these issues. Please visit our News & Tips page to see the latest updates.

Internet Taxation Assistance and Other Resources:

If you require assistance regarding sales tax issues, YETTER is available to provide a broad range of services. Please call Diane Yetter at 312-701-1800 to discuss your requirements. The Sales Tax Institute also offers classes which review sales tax basics - through to advanced issues and best practices.

See the CURRENT list of all Sales Tax Institute Online Courses & Webinars - Including Puerto Rican VAT Reform.

Are you a multi-state company with an INTERNET TAXATION question that we have not yet covered here - or in our Sales Tax Archives (below)? If so - Submit it here.

Sales Tax Questions - Internet Taxation

Filter by topic or industry using the dropdown menus, or use the search field to filter by search term.

Question/TopicDateTopicsIndustries
Are web advertisements subject to sales tax? What about web listings? 2011-08-16Internet Taxation
Taxability of Product or Service
Advertising
E-Commerce / On-Line Sales
We are an on-line publisher. Do we have to pay sales tax ?2011-08-14Internet TaxationDigital Products
E-Commerce / On-Line Sales
Printer / Publisher
Do I need to charge sales taxes on my online orders? Also, do I need to register with NC?2011-08-09Internet TaxationE-Commerce / On-Line Sales
We are an e-commerce (only) broker. Do we need to collect sales tax?2011-06-15Internet TaxationAffiliate / Agent / Dealer
E-Commerce / On-Line Sales
Plants / Horticultural Products
Does an agent's promotional activity (not mine) trigger nexus for me?2011-06-09Internet TaxationAffiliate / Agent / Dealer
E-Commerce / On-Line Sales
Pet Products
I will sell via the web. Do I need certificates of authority for all states? 2011-05-23Internet TaxationE-Commerce / On-Line Sales
Food / Wine / Restaurants
Is there sales tax on on-line sales? Someone told me not to report sales tax on web orders. Is that true? 2011-01-24Internet TaxationDigital Products
E-Commerce / On-Line Sales
Printer / Publisher
I have created a program that I will sell online. How much tax to charge?2010-12-03Internet TaxationComputers / Technology
Digital Products
E-Commerce / On-Line Sales
We sell internet based webinars. Customers are all over USA. Any nexus issues?2010-09-06Internet Taxation
Nexus
E-Commerce / On-Line Sales
Trade Show Sales / Visits
Training / Seminars
Do we charge a state sales tax for items purchased by phone or internet for other states?2010-02-22Compliance - Basics
Internet Taxation
E-Commerce / On-Line Sales
Food / Wine / Restaurants
Telephone Orders
Which states require you to collect sales tax on a product sold over the internet if you have a physical presence in that state?2010-01-18Internet TaxationE-Commerce / On-Line Sales
Didn't the Internet Tax Freedom Act (ITFA) ban taxes on sales over the Internet? 2009-06-04Internet TaxationE-Commerce / On-Line Sales

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