USA Online State Shipping Taxes

[ackerley1]

Does anyone have information on the tax laws and taxability of products sold in one state to another.

I have heard various reports:

1) Only if buyer and seller are in the same state, then local state tax is applicable.
2) Depending on the buyers state, there may or may not be their local state tax applied.

So I need to know what the official verdict of this is for online sales.

And if it varies depending on state then is there a program/plugin/script that can be integrated into my site?

Current site allows for each state to be set up independantly, so need to know the applicable laws and if there is a way to simplify this process.

Thanks

[wige]

As far as I know, there are two different principles that apply to taxation of online transactions. The first principle is universal (applies to all states) and has to do with "signifigant business presence" in the state. If you have a business location, be it a retail location or a corporate office in the same state as the purchaser, then sales tax applies.
The second condition is that some states consider tax to apply on all transactions that take place in the state, if the customer is in that state. This changes fairly rapidly, and can even involve local or county level sales taxes above the states sales tax rate in states where this applies.
Unfortunately, the rapid rate at which the state sales tax rates change can make it pretty hard to keep track of what you have to charge in which state, if any tax is required at all. I am not too familiar with specific software plugins, but I have seen sites handle this in two ways. Some sites do use a plugin as you are obviously considering, and I have seen other sites that post a notice that tax is only collected on transactions with customers in that state, and that any other taxes are the responsibility of the customer to report and pay to the state. I think at that point the customer would report it as a Use Tax. Of course, I am not a lawyer, and if you were considering taking this route you should consult one to make sure that this approach is legal in your area, and to ensure that your disclaimer is worded properly.

[dvduval]

Yes, I have always used #1. The buyer and the seller are in the same state. Otherwise it is "interstate trade" and local taxes do not apply (the way I understand it).

Some companies have offices in multiple states, in which case multiple states may be involved when assessing sales tax.

[wige]

At one time, there was a federal law preventing states from imposing sales tax on Internet transactions when the seller and the buyer were not in the same state. That expired in 2003, and since then some states have enacted legislation to tax Internet transactions that have a "nexus" (major party - eg buyer or seller) in that state. Currently, as far as I can find, there is case law that supports the concept that a state can not place the burden of collecting a sales tax on the seller if the seller is not located in or does not have a significant presence in, that state, however the state can require the buyer to report and pay the tax. Because of the amounts of money involved, states are seeking ways around this, but at the federal level there is no current regulations covering this that I could find. As of right now, it seems that unless the state in question can show the seller has a significant presence in the state, the seller can't be forced to collect the tax. Essentially, this changes it from a sales tax (where the seller collects and remits to the state a tax based on the amount of the sale to the state) to a use tax (where a purchaser is required to report to their home state the value of an item that was not taxed but purchased for use in that state, and pay the tax to the state directly).

Again, IANAL but I believe the current standing is essentially, you collect the tax for sales to your own state (where you have a tax license) and out of state buyers are responsible for paying any applicable taxes in their own states (where you aren't licensed to collect taxes anyway).

Sadly, there is very little formal documentation on this issue, and all I was able to find were a few isolated Congressional reports.

[ackerley1]

Thanks for the info... I guess one small what if scenario is:

Company set up in Texas.
Logistics warehouse in Louisianna

Would they be required to charge taxes to buyers in both states or just in Texas?

[wige]

I think you would have to collect in both states - basically anywhere you have a physical location.