Do you have reason to question your online business compliance with U.S. Sales Tax legislation?
- “As an online MLM company, do we have to charge sales tax?”
- “Does sales tax apply to online businesses”?
- “If we drop-ship products to clients in a U.S. State where we don’t have an office, do we still have to charge sales tax?”
At Multisoft, we field these type of questions on a regular basis.The answer is “Yes”. You are obliged to collect and remit sales tax to an appropriate State government office.
U.S. Sales Tax Legislation
The good news is that your business does not pay the tax, it is levied on the buyer. The bad news is that you, as an online product or service provider, must collect the sales tax and administer its remittance to the tax authorities in the applicable State.
As of Jan 2017, only 5 U.S. States do not levy sales tax. They are Alaska, Delaware, Montana, New Hampshire, and Oregon.
As for the other State, you face an administrative inconvenience. Sales Tax legislation is a conglomeration of U.S. State laws, and every State has a different sales tax rates. It generally varies between 8 – 10 percent of the selling price.
This should not surprise you a great deal. The United States is governed by Federal, State, and local Council laws. Sales Tax is no exception and you would face similar problems in any business issue that transcends State borders. Let’s face it, if you drive your car across a State border, you confront new and different State laws.
It used to be that online businesses were not required to collect sales tax on their sales. In 2013, The government introduced the “Federal Marketplace Fairness Act”. It authorized U.S. States to charge Sales Tax on out-of-state e-commerce sales. Following a subsequent Supreme Court hearing, and heavy Congress lobbying, States have amended their laws, requiring out-of-state sellers to collect sales tax.
There are still unclear and confusing issues as to when an out-of-state company is required to start collecting sales tax. Some States based this decision of a company’s “economic presence” instead of its “physical presence”.
A sales tax amnesty for U.S. online retailers expired on 1 November 2017 and this amnesty is no longer valid. The amnesty obviates back taxes, interest, and penalties.
Sales Tax on International Sales
In general, no sales tax is payable on export sales to countries outside of the United States. However, there is an important proviso you can handle in two different ways:
- The goods sold must be shipped directly outside the United States and not via an intermediary address inside the country.
- The goods can be shipped via a authorized import-export Agent in the U.S.
The recipient may need to pay import duty at the receiving end but this does not concern the U.S. based seller.
A U.S. company who has commercial interests in another country and sells goods or services through a local branch office in this country has to comply with local commercial laws and regulations.
If you have any questions about these or any other payment gateways or merchant accounts, please contact me. I would love to spend some time with you.
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