Internet sales tax is now becoming an integral part of an ecommerce business, but that hasn't always been the case. Back in the old days of ecommerce, consumers and retailers alike were able to enjoy freedom from paying this tax. Regulations were almost nonexistent at the time and online shoppers grew accustomed to not having to pay website sales tax. As a result, e-commerce businesses have gotten an edge over their offline counterparts.
Unfortunately the free ride is almost over. Several states are beginning to crack down and cry foul over the loss of billions of dollars in tax revenue from past years. Retailers that are not selling online are also arguing that online businesses have an unfair advantage, because they are not required to charge the same tax. Both parties are calling for a new national internet sales tax to be set up.
For now, the majority of states only require online retailers to collect internet sales tax from customers who live in the same state as the physical location of their business. Some states have stricter rules and take into consideration merchant account, distributor, warehouse, drop shipper and sales representative locations as well. It's critical that you go over the tax regulations of all the states with any kind of link to your business. If you fail to pay the required taxes, there will be consequences that could significantly hurt your business. Not only must you pay back the amount owed, you will also be fined interest and penalties for each year that you did not pay.
Follow this checklist to get started:
- Review the regulations of each state that your business is involved with and figure out whether or not you have to collect internet sales tax from consumers in that state
- Register to collect taxes in the state or states where applicable
- Collect website sales tax automatically through a reliable e-commerce/shopping cart solution
- File a tax return to the appropriate state(s) and include all of the proceeds with your return
There are several important features to look for when selecting an e-commerce solution that is able to automatically collect internet sales tax from select customers. They include:
- Easy to use website sales tax wizard built into the store admin
- Tool to automatically calculate the tax amount during checkout
- Easy setup which allows you to select tax percentage by state, county, zip code or country
- Be able to mark down nontaxable products
- Support Canadian tax system
- Determine whether tax should be applied before or after discounts
- Determine whether specific customers or customer groups are exempt from taxes
To make sure you abide by all the new tax regulations, you must rely on a good
sales tax software to calculate and record accurate internet sales tax. Not only does your e-commerce solution have to provide this feature, set up also needs to be easy enough so that you only need to enter the required information once and it will automatically do the rest.
