Internet Sales Tax Just a Matter of Time?

Internet business have been blooming steadily each year and with the new growth comes the changes to the way business is being done. Tax related issues are often confusing to the newbie so it is imperative you understand the laws that govern your state, the Federal Government, and the Internet to make sure you are always in compliance.

One of the more confusing aspects of an Internet business is dealing with sales taxes because you are essentially running an international business. Understanding the ins and outs of Internet sales can help ensure you setting up business the right way. Internet sales have been so popular because of a consumer's love of a bargain. Not having to pay sales tax on online sales is one reason so many more consumers are shopping online. Moreover, many sites like Amazon offer a yearly cost for shipping so you can essentially limit your shipping costs to one flat rate for the year which means the more you order the more you save.

Here is what you need to know:

Who Collects Sales Tax

Sales tax obligations are based on where the buyer resides and is not based on the location of the seller. A business operating without a physical retail location or store warehouse in any state does not have to collect sales tax for sales made to customers in particular state.

An exception to this tax rule is when large retailers with local retail locations sell their product online tax fee. These businesses have separated legally to establish a new Internet business. A prime example is the national consumer products company Target. While there are many Target locations in the country, the retailer has developed a separate business for their online sales. Even though a customer is purchasing a product from the retailer has a store located down the street, the customer will not have to pay sales tax because the online store does not have a physical presence in the state.

When the Customer Is Obligated

If you do not pay sales tax on a purchase over the Internet but live in a state that collects tax, you are still obligated to pay the money to the state. If you pay the tax directly to the state, the tax is then referred to as a use tax. It all depends on the obligated party as to whether the terms 'use' or 'sales' is used. Traditionally, the only use tax a state government will pursue collections on is for large items that require additional licensing such as motorcycles, vehicles, RVs, and boats.

How Long Will Internet Stay Tax-Free?

There is no concrete outlook for the tax-free Internet shopping of today. In fact, with a new bill introduced to Congress this past July, there may be new rules set forth on Internet sales tax if Democrat Bill Delahunt has a say. The new bill proposes new rules for Internet sales be written, taking away the opportunity for consumers to shop online without paying sales tax to the state.

The Internet sales tax has been an issue with state government officials putting pressure on Congress to require that sales tax be paid for online sales. Officials say that the loss of revenue from state sales tax has caused budgetary problems that interfere with schools and police departments. They feel that online businesses should have the same tax obligations that physically present retail locations do.

In light of the tough times experienced in the last few years around the country, the new pressure on Congress may go further than in the past with the change for Internet sales coming sooner rather than later. There has been some progress made in that a new tax agreement known as the Streamlined Sales Tax Agreement (established in 2002) has been shown to reduce the complexity of sales taxes for all states. To date, 24 states have signed on with the agreement which simplifies present tax codes and makes them more standard across the board. If a majority of states agree with the tax changes, it may be easier to appeal to Congress.

This article was written by blogger Matt Robinson of TaxDebtHelp.com. For more information on tax news, guidance, and opinion visit their tax help blog today.