US Sales Tax and your Online Boutique
Understanding sales tax is a very important part of selling online. Many believe that since they created their store online that they don’t have to worry about sales tax. This isn’t true and unfortunately many online boutique owners get burned because of forgotten tax payments.
US sales tax is tax collected on the sale or lease of goods or services. The tax is calculated by multiplying the price charged on the goods or services purchased or leased. Each state has it’s own sales tax rates. This tax is usually imposed on brick and mortar businesses with a physical storefront. It’s also imposed in brick and mortar businesses with an online store.
How US sales tax is collected
States require that businesses charge buyers the sales tax at the time of sale. That is, the tax is added to the purchase price. The businesses are then required to remit the collected taxes at the time in which they file their tax returns. In general, this tax is charged only once. However, in instances where a good or service is sold more than once as in the case of second hand goods, the tax might be charged more than once.
Does the US sales tax apply to online stores and boutiques?
Currently, the sales tax only applies to online businesses with a physical presence in a particular state. States also have the authority to collect sales tax from retailers operating in other places. This leaves out retailers that sell their products exclusively online. However, a bill that’s yet to be passed in Congress aims at changing this.
How do you define physical presence?
Physical presence is where many online store owners get tripped up most believe be cause they do not have a retail location then they are safe to not charge sales tax. However this isn’t true, physical presences is defined by a term physical nexus. Physical nexus could be anywhere your business has a connection such as employees located in the state, warehouse, or even if you do fairs or shows in the state. If you have any documented connection to the state you should be charging the applicable state tax.
Do all of your online boutique orders get charged sales tax?
Here’s some good news you only need to charge sales tax for orders in the states where you’ve established you physical presence. For example I live in New Jersey, if a customer orders with a New Jersey address I would apply NJ sales tax to that order. However is an order is placed by someone with a NY address I would now charge sales tax. Even better news you only have to charge sales tax for the items that are taxable in the state. Using the NJ example again, NJ does not tax clothing items so as a business in NJ I do not need to charge sales tax for clothes. Many ecommerce solutions like Volution and 1ShoppingCart.com help to set up and charge orders for the applicable tax.