The basic fundamentals of an ecommerce business is quite simple, all it involves is the purchase and selling of products over the internet. There are several administrative hassles involved in ecommerce which are not that simple however. These administrative issues can give rise to several difficulties which can cause a lot of troubles to business owners and one of the most profound trouble, in this regard, is that of the sales taxes.
In this article, you will learn about the various essential details that an ecommerce firm needs to consider in order to properly calculate their sales tax amounts.
Dealing with Sales Tax
The sales tax is primarily a taxation done on transactions. It is a tax which is paid by the consumers and then collected by the retailers who will hold it in a trust till the time when the remittance is made to the correct tax collecting authority alongside the necessary sales tax returns. There are no specific federal and national sales tax policy in practice within the United States. Instead the regulations are varied according to the different states:
- 45states along with Washington, D.C. have a specified state sales taxes.
- 37states have an additional local sales tax (this includes Alaska, which does not have a state sales tax).
- 6 states have a policy of following the home rule (Alabama, Alaska, Arizona, Colorado, Idaho, and Louisiana), this means that the different cities and counties, or special tax jurisdictions are able to collect and also administer sales tax in an independent manner.
- 5 states have no state sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon, or the NOMAD states).
If all of these are added up then there are over 13,000 separate sales tax jurisdictions within the United States and each of them have their own rates, and boundaries. The reporting codes for all of them are also different.
Complications of Sales Tax
The vast number of separate jurisdictions is the main reason why the sales tax procedure is so complicated. Compliance with sales tax regulations can be quite taxing. The rate of the sales tax, the rules of the product taxation and various other regulations differ from state to state. At times, the rules are different from one city to another within the same state also. The companies which have an obligation of collecting their sales tax from multiple states have to comply with all the pertinent laws from different states.
Who should collect the Sales Tax?
If you need to collect the sales tax in your state will depend mainly upon the nexus. The nexus is a link between the taxing authority and a certain business. Thus, this means that the state will not be able to force a business to remit sales tax if the business does not have nexus within the state. However, business ventures are also mandated to have their registrations done in a nexus and follow the necessary sales tax regulations.
Presence of the Nexus
The physical presence of the nexus is important in a jurisdiction which means having a physical office, as is the physical presence of the business establishment. However, there are further complications here like what should be done with travelling sales men or ecommerce agencies and people who keep their business online. Different states follow different regulations in this regard. The regulations vary depending upon the time it requires for the sales products to reach the consumer or the sales representatives to reach the jurisdiction headquarters, for instance:
- One day in Colorado or Texas
- More than two days in a single year in Arizona
- At least about four days in a year in Minnesota
Calculating sales tax is quite time consuming. You can hire professional state sales tax calculator to help you sort out the taxation issues of your ecommerce venture. You can find several good tax advisors from the internet.