Internet business--anyone have one as a client


C

clj1219

We have taken on a new client. A very new Internet-only
business. They sell gift baskets which are then drop-shipped
for them. We're at a loss about what they might need in the
way of sales tax, etc.

Anybody, especially those of you in Georgia (and you know
who you are), who has this type of client and would be
willing to help us out in advising them, please PLEASE let
me know. E-mail me if you can.
 
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C

cpabakem01

NOTE: This posting is too large! If you reply to it, cut-n-paste
the section to which you are replying.
=================================================================

What Are Sales Taxes?
Sales tax is assessed by state and local governments on the final
purchaser of most products. A business which purchases products for
later sale is not the final purchaser, so many business-to-business
sales are not subject to the sales tax. Although sales tax is assessed
on the purchaser, it is required to be collected by you, the vendor of
the products. You are also responsible for sending the tax to the
appropriate authorities.

Sales tax differs from use tax in that sales tax is a tax on purchases,
whereas use tax is levied on consumption. In practice, however, the
taxes are very similar; both are charged to the final purchaser of an
item as a percentage of its retail price. The main difference is that
the vendor is responsible for sending sales taxes to the authorities,
while the final purchaser is responsible in the case of use taxes.


Do All States Tax the Same Items?
No. Each state has the right to define how, what, and when they apply a
tax.

Four states don't even have sales or use taxes. And all the taxing
states have exemptions and exceptions to their general rules.

For example:

California exempts food, prescription drugs, shipping, and services.
New York exempts food and prescription and non-prescription drugs.
New Mexico only exempts prescription drugs.


Do All States Tax at the Same Rates?
No. For example, Washington's rate is 6.5 percent, Idaho's rate is five
percent, and Oregon has no tax.


Are All Tax Rates Within a State the Same?
No. States can tax different items at different rates. For example:

Tennessee's new sales tax is basically seven percent. But, the tax
ranges from six percent on food and food ingredients to 7.5 percent on
interstate telecommunication services to 9.25 percent on big-ticket
items sold in certain counties.


Do Cities and Counties Have the Right to Add to the Basic State Tax
Rate?
Yes. To add considerable complexity to an already complicated system,
counties and cities within states also have the power to assess sales
and use taxes.

For example:

In the City of Placerville, located in El Dorado County, California,
the tax rate is 7.50 percent. This rate reflects the 7.25 percent
statewide base plus 0.25 percent for a public safety district. The 7.50
percent rate applies only within the city limits of Placerville. The
tax rate in areas of El Dorado County outside the City of Placerville
is 7.25 percent.


Are Items I Buy for Resale Taxable?
In most states, nothing you buy for resale is taxable.

For example:

Maureen owns a bookstore. She buys 75 percent of her books from a
wholesaler and the rest from small specialty printers. The sales of the
books from the printer to the wholesaler and from the wholesaler to the
retailer are "sales for resale" and are not subject to sales tax.
That's also true when she buys directly from the manufacturer (in this
case, the small specialty printers). Only the sale from Maureen (the
retailer) to the consumer is subject to the sales tax.


If I Run a Business, Do I Have to Pay Sales Tax?
Businesses can also be consumers for purposes of sales tax assessment.
Many states do tax goods consumed by businesses in producing,
distributing, selling, or otherwise carrying on their business.

Jake runs one of the specialty printing houses that sell books to
Maureen's bookstore. His sales to Maureen are not subject to sales tax.
But, as a manufacturer, he is the consumer of equipment, supplies,
computers, and furniture that, barring state exclusions, are subject to
sales tax.


If I Run a Business, Who Do I Pay: the City, the County, or the State?
The state assesses your sales taxes according to the location of the
transfer of ownership of the property. In other words, if you take
ownership of goods from a person or a common carrier (such as UPS,
FedEx, or the Postal Service) at your place of business, then the city,
county, and state where your business is located has taxing authority
over the transaction.


If I Run a Business and Don't Owe Sales Tax, Do the States Require Any
Paperwork?
Nearly all businesses doing business within a state must register with
that state and file sales tax returns to declare the extent of their
activities in the state.

For example:

When selling for resale to Maureen's bookstore, Jake the printer
doesn't collect sales tax, but may still be required to file a report
showing taxable and nontaxable transactions.


Are There Any Federal Laws Governing Sales Taxes?
There are only a few federal laws regarding sales taxes. The purpose of
the federal laws is to prevent states from imposing state taxes outside
of their jurisdictions. The most recent federal law is the Internet Tax
Freedom Act.


What Are Use Taxes?
Most people are familiar with sales tax, but have never heard of a use
tax. It is a tax on consuming, storing, or using a product for which no
sales tax has been paid, and generally the consumer, not the vendor,
must send the tax to the state. The process for figuring the use tax is
just like figuring the sales tax, but, most consumers have no idea how
to do the calculation, and very few even know that any such tax is due.

States generally impose a use tax to collect taxes from their citizens
who buy items from an out-of-state vendor who is not required to
collect sales tax for that state. The tax insures that the state gets
its money from all purchases by its citizens, whether they buy locally
(in which case they must pay the sales tax) or from out-of-state
sellers (in which case the citizen often owes the use tax).

The use tax has been sitting on the law books of most states for
decades but until recently, they didn't make a serious attempt to track
or collect it. Now with the rise of sales-tax exempt catalog, TV, and
Internet sales, many states are starting to enforce the use tax. Some
have even added a line to their income tax return, just for the use
tax.

Advertisers often claim that if a product is not subject to sales tax,
it is tax-free. But, for the consumer, the purchase may be subject to a
use tax. If you're considering a significant purchase of goods or
services, you may want to check with your state's taxing authority to
be sure that your purchase is not subject to use taxes.

For example:

Herb purchases furniture for his Massachusetts home from an
out-of-state firm and pays no sales tax. However, Massachusetts law
requires that he pay the five percent Massachusetts use tax. The use
tax applies because the furniture was not subject to a sales tax in the
other state and because it is for use in the Commonwealth of
Massachusetts.


What Are the Use Tax Rates?
Generally, the use taxes are identical to the prevailing sales tax rate
for the place where the item will be "consumed."

For example:

Joe lives in Gary, Indiana but runs a florist business in Chicago,
Illinois. He just bought a new computer monitor for his business on
eBay.com, using his business address for the delivery. The seller has
no physical presence in Illinois, so did not collect any sales tax for
Joe's purchase. Alas, since Joe plans on using the monitor for his
florist business in Chicago, he must pay a use tax at the Chicago sales
tax rate of 8.25%.


If I Paid a Sales Tax, Do I Also Pay a Use Tax?
Even if you paid another state's sales tax on the out-of-state
purchases, some states still charge their own, higher tax rate. Your
taxing authority credits the amount you paid against any use taxes you
owe.

For example:

Sterling bought adobe bricks in New Mexico for a house he's building in
Texas. He paid the five percent New Mexico sales tax on his purchase.
But Texas's tax rate is 6.5 percent, so Sterling owes Texas 1.5 percent
on the bricks.
In most cases, you may not claim a credit for sales tax or value-added
tax paid to another country.



If My Purchases Aren't for Business Use, Do I Have to Worry About the
Use Tax?
Yes. The use tax is a consumption tax, not a business tax. If you're
considering a significant purchase of goods or services, you may want
to check with your state's taxing authority to be sure that your
purchase is not subject to use taxes.



If I Have a Business with Out-of-State Customers, Whose Taxes Do I
Collect?
The other state has the right to collect some kind of taxes on the
transaction.

For example:

If a business in California sells its product to a consumer in Utah,
and the consumer takes title to the product in Utah, then Utah has the
right to assess and collect tax on the transaction.
But is the California business responsible for collecting the Utah
taxes? Or does Utah have to collect that tax from its citizen directly?

Because we are now talking about interstate commerce, the federal
government steps in at this point. The federal government has given
states the authority to require companies to collect and remit taxes.
But a state only has taxing power if the company has a nexus in the
state.

The federal government in general defines a nexus as a physical
presence in the state. If your company has either property or employees
in the state or physically solicits sales within the state, for example
by pitching products at a convention there, or visiting a potential
customer there, your company has a nexus of operations in that state.

If the California company has neither assets nor employees in Utah and
does not physically solicit sales in Utah, that company does not have
nexus in Utah and therefore would not be required to collect and remit
Utah sales tax. The consumer may be required to pay Utah a use tax.

Bottom line: If you do not have a nexus of operations within the state,
you do not have to collect sales taxes for that state. And even though
your customer may have to pay use taxes, you don't.



If My Business Has a Nexus, What Should I Do?
If your business does have a nexus in the state, find out if your
products and services are taxable in the state. If your sales are
taxable, then you must research the proper filing, collection, and
remittance requirements for the sales tax.



If I Have a Business with Out-of-State Customers, Why Do I Have to
Worry About Collecting Sales and Use Tax?
If your business has nexus with a state, the danger in failing to
register, collect sales tax, and file sales tax returns is that the
required sales taxes become the business's debt to the state. In other
words, your company as collection agent becomes liable for the default
if you don't collect the taxes.



Do All States Have the Same Definition of Nexus?
No. The exact definition of nexus is determined at the state level.
Different states have different rules on what will create nexus in
their state.

For example:

Florida requires a consistent physical presence-employees attending
seminars or conferences don't establish nexus.
New York requires only a series of temporary visits to create nexus.
California requires only short visits to the state (more than seven
days in a 12-month period) to create nexus.
As you can see, sales and use tax problems for the small business owner
can be quite complex. If you have customers in a state, you must
determine if your business conducts any activities in the state that
creates nexus. For some states, acts such as attending a sales
convention as a vendor, or visiting a customer in the state on a sales
call, will be enough to generate nexus. For many states, hiring
employees who work from their homes creates nexus in the employees'
home states.



Does the Internet Tax Freedom Act Turn the Internet Into a "Tax-Free"
Zone?
No. The bill doesn't bar sales or use taxes on Internet sales. It only
bars any new or discriminatory taxes on access to the Internet (your
ISP, or Internet Service Provider). It also addresses the concern that
multiple taxing agencies or authorities could try to assess tax on the
same transaction.

For example:

Ron's Computer Warehouse is actually a computer in his home in New
Mexico with warehouses in a variety of states. He also uses an
out-of-state ISP. Ron sold Brenda in Utah six different software
packages that were then drop-shipped from two different warehouses (one
in California and one in Washington).
The law addresses the concern that Utah would assert nexus to Ron's New
Mexico-based company as a result of his Internet activity. Or even
worse, that California and Washington could have jurisdiction over that
transaction because the goods were drop-shipped from warehouses within
their state or that the Internet hub servicing either Ron or Brenda
created nexus.
The goods or services sold via the Internet are still subject to the
sales and use tax rules that existed long before the Internet became
popular. Prior to the Internet, mail order companies and telemarketers
faced the same issues as those in Internet commerce.

The Internet Tax Freedom Act simply suspends the period for
implementing new taxes on Internet commerce until the states put into
place sensible rules to solve the issues related to the Internet. In
fact, a dozen states are entering a pilot program to start collecting
taxes on remote sales now that the technology exists for them to do so
without "undue burden" on remote vendors.
 
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P

Paul

We have taken on a new client. A very new Internet-only
business. They sell gift baskets which are then drop-shipped
for them. We're at a loss about what they might need in the
way of sales tax, etc.
Sales tax would be due for any in-state sales. Go with the
billing address as the county of sales.
Anybody, especially those of you in Georgia (and you know
who you are), who has this type of client and would be
willing to help us out in advising them, please PLEASE let
me know. E-mail me if you can.
I've had several internet only based businesses. Some are
service based, some are product based.
 
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H

Harlan Lunsford

We have taken on a new client. A very new Internet-only
business. They sell gift baskets which are then drop-shipped
for them. We're at a loss about what they might need in the
way of sales tax, etc.

Anybody, especially those of you in Georgia (and you know
who you are), who has this type of client and would be
willing to help us out in advising them, please PLEASE let
me know. E-mail me if you can.
Carol, you just need to call the local GA DOR office,
Atlanta, I guess, and ask for whoever the person is who
handles sales tax questions for that day. Perhaps the GA
DOR itself is only a local call for you, and if so, go
straight for the horses mouth.

I think most all states handle it the same way, something
about a multi state tax compact... words to that effect.
And if GA handles same way as in a neighboring state (and
you know which that is), only the state rate is charged to
shipments within GA. At least that's the way it was last
time I checked with GA about a year ago in response to a
poster asking the question on this board. He was in
LaGrange, and later came to see me for his 1120-S.

ChEAr$,
Harlan
 
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H

Harlan Lunsford

What Are Sales Taxes?
Sales tax is assessed by state and local governments on the final
a bunch snipped here for brevity, the soul of wit.

fact, a dozen states are entering a pilot program to start collecting
taxes on remote sales now that the technology exists for them to do so
without "undue burden" on remote vendors.
Wow, that must have taken you a long time to write just for this
newsgroup. My hat's off to you.

Unless of course, you merely cut and pasted from another source.
But I guess you didn't do that, since you didn't make attribution
nor use quotes.

Good job!

ChEAr$,
Harlan Lunsford, EA n LA
 
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C

clj1219

Thanks, Paul. That's what we thought, but needed
verification from someone else.
 
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C

clj1219

Actually, Harlan, the Dept. of Revenue has a field office
just down the road from me. Literally. We have a contact
down there in fact.

Did you get through the stormy weather OK? We did fine here
but my office building, about 15 miles from where I live,
sustained minor damage. And we're outside of Atlanta!!!
 
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R

Rick Merrill

We have taken on a new client. A very new Internet-only
business. They sell gift baskets which are then drop-shipped
for them. We're at a loss about what they might need in the
way of sales tax, etc.

Anybody, especially those of you in Georgia (and you know
who you are), who has this type of client and would be
willing to help us out in advising them, please PLEASE let
me know. E-mail me if you can.
Sales of products on the internet were exempted for another
year (or so?).
 
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H

Harlan Lunsford

Actually, Harlan, the Dept. of Revenue has a field office
just down the road from me. Literally. We have a contact
down there in fact.
Well please check with him about any requirement to collect
local sales tax on sales in Georgia OUT of county when
seller has no situs in that county. I'd like to know what
they tell you.
Did you get through the stormy weather OK? We did fine here
but my office building, about 15 miles from where I live,
sustained minor damage. And we're outside of Atlanta!!!
All safe and secure here. Maybe 15 min of heavy rain that
Monday, some wind, but no damage.

ChEAr$,
Harlan
 
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Harlan Lunsford

Rick said:
(e-mail address removed) wrote:
Sales of products on the internet were exempted for another
year (or so?).
ONLY if the sale is not within one's state.

ChEAr$,
Harlan Lunsford, EA n LA
 
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