What the New Tax Laws for Online Sales Mean for Your Ecommerce Site
For years, businesses were only required to collect state sales tax on online purchases if they operated a physical store in the state. Because traditional retailers had to charge sales tax on every purchase, that gave online retailers a price advantage over physical stores. As of last year, that could be changing.
In the summer of 2018, the Supreme Court ruled that states can require businesses to collect sales tax on online purchases even if the business does not have a physical presence in the state.
As of the end of 2018, 34 states had adopted laws or regulations requiring online merchants to collect state sales tax on remote sales made to state residents, and several others are in the process of following suit.
If you sell goods or services on your website, here’s what you need to know about the new tax laws.
Remote seller: You are a remote seller if you sell products or services for delivery into a state in which you do not have a physical presence.
Revenue thresholds: Most states will only require online businesses to collect sales tax after they reach a specific annual threshold in the state, either by gross revenue (usually $100,000 or $250,000) or number of separate transactions (usually 200). That means if your revenue and/or transactions in the state are below the threshold set by the state, you do not have to collect sales tax on any purchases as long as you stay under the threshold. If your sales and/or transactions surpass the threshold within the calendar year, you must begin collecting sales tax on the first day of the next calendar month. For more information, see this current list of state thresholds.
Registration: If you qualify as a remote seller and your sales meet or exceed the threshold for a state, you are required to register to collect and remit sales tax for that state. You can register with each individual state or use the Streamlined Sales Tax Registration System (SSTRS), which lets you register once to pay and remit taxes for all 23 Streamline Sales tax member states. If you register through SSTRS you will be registered in all member states, but you will only have to collect and pay tax to a state if you have sales in that state.
Certified Service Provider: If you need help registering and calculating state tax, you can contract a Certified Service Provider to perform all of your sales tax functions, including registering your business, identifying which products and services are taxable, and maintaining records. If your business meets the definition of a “volunteer seller,” you will not be charged for the CSP’s services.
Volunteer seller: Your business qualifies as a volunteer seller in a state if it has no fixed place of business in that state, less than $50,000 of property in the state, less than $50,000 of payroll in the state, and was not previously collecting sales or use tax in the state.
Exemptions: Some states offer exemptions from collecting and paying sales tax on online purchases. These exemptions are made based on the type of product sold (i.e., necessities such as food, clothing, or medicine), the type of purchaser (i.e., government agencies or charitable, religious, or educational groups), or how the product is used (i.e., resold or incorporated into other goods as with manufacturing or agriculture). For a list of common types of exemptions, visit the Sales Tax Support website. If you think your business qualifies, you will need to contact the state directly.
No sales tax states: Five states do not collect any state sales tax—New Hampshire, Delaware, Montana, Oregon, and Alaska—so online merchants still do not need to collect sales tax for online sales to residents of those states.