During the past few decades, online sales have increased and settled in everyday business for a wide variety of small to medium-sized companies. In case, you were selling something, then you should have an online component. If you do not have an online component, you must be thinking about it.
However, with online sales yielding higher income for companies, the states in which they do business expect to be compensated through both sales and income tax. Online enables any combination of cross-border transactions. It resulted in states struggling to gather what they rightfully own. You could gather more information about online sales tax having a significant impact on e-commerce sellers at https://www.payability.com/blog/sales-tax-impact-for-ecommerce-sellers/.
As an e-commerce seller, you should be aware of the below-mentioned questions on how sales tax impacts them.
Question #1 – How your state applies sales tax to transactions made online?
The challenge with e-commerce sales tax is that every state has its laws, formulas, and definitions in determining taxation. Usually, states might impose sales tax collection obligations on vendors if companies have a nexus in the state. On the other hand, companies not having a substantial presence in a state might not require collecting sales tax. It would be worth mentioning here that individual states have flexibility in determining what would define nexus and what would be taxed in case the nexus exists.
Question #2 – Would you still have to pay tax on the transaction where you purchase and the vendor does not withhold sales tax?
Yes, as if sales tax is not applicable, use tax would be applied. In case, you purchase a software package sold by a vendor in a different state and shipped to your state. You would be charged tax if the vendor has nexus in your state. However, if the vendor does not have nexus in your state and is not required to collect sales tax, the burden of paying the use tax would be on the purchaser in your state.
Question #3 – What would e-commerce sales tax imply for your business?
Creating consistency across all states would have a considerable impact on online purchasing. It would not be wrong to suggest that the pinnacle of e-commerce and the internet helping retailers enjoy immense success showed that aggressive online sales tax inspired a few shoppers to opt for land-based stores and abandon online purchasing.
Question #4 – How would you know about the coming changes?
It would be relatively easy, as you would be required to stay in touch with your CPA. However, you might also come across numerous organizations that have been looking forward to pursuing uniformity proactively. Consider checking in with Streamlined Sales Tax Project or SSTP and Multistate Tax Commission or MTC to keep up with the developments.