On the other hand, sales tax collection is probably not one of those things. Keep reading if you're new to calculating and remitting Internet sales tax and are overwhelmed. Here are some easy-to-follow instructions for figuring out, collecting, and remitting your state's online sales tax.

What Is The Sales Tax On The Internet?

The simplest definition of Internet sales tax is the tax imposed on the sale of a product or service by an online retailer or owner of an e-commerce company. An organization that sells goods or services must charge its customers for sales tax and then pay the money collected to the appropriate state agency.

There is no federal sales tax as of this writing. Since each state has its own rules and regulations, you have the option of 46 alternative situations. The laws for collecting and remitting sales taxes vary from state to state, location to location, and product type to product type.

What Factors Result In A Nexus For Sales Tax?

Link or tie is the literal definition of the term nexus. Nexus in sales tax, on the other hand, is only a clever mechanism for the state to determine whether or not you must pay them sales tax. In most cases, physical nexus indicates a physical presence in a state, such as your company address, a home office, a physical storefront, or even a warehouse where your items are housed.

You must collect sales tax if you have physical nexus in a state. Regarding sales tax compliance, physical nexus was formerly the most important criterion. Then, in a landmark decision known as Wayfair v. South Dakota, the Supreme Court reversed a decades-old ruling in June 2018.

The State Nexus Thresholds

It would help if you realized that there's no universal threshold for economic nexus to activate. After the Wayfair ruling, South Dakota established a sales tax threshold of $100,000 in sales and 200 transactions in 12 months for merchants to pay sales tax in the state. Although some governments have adopted these values, others have their parameters. Regarding sales, Tennessee set a minimum barrier of $500,000, regardless of how many transactions were completed.

Location-Based Tax

Understanding whether your firm is located in an origin-based jurisdiction or a destination-based state is critical to collecting sales tax.

Origin-Based Countries

Sales tax is collected depending on the location of the seller's business in origin-based states. Suppose your firm is in one of the 12 origin-based states (Arizona, California, Illinois, Mississippi, Mississippi, New Mexico, Ohioans, Pennsylvania, Tennessee, Texas, Utah, or Virginia). In that case, you should charge the appropriate tax rate. Be aware that the rate may comprise a combination of state, county, municipal, and district tax rates.

Destination-Based

If your state has a destination-based sales tax, your sales tax rate will depend on your customer's location or the final destination of the sale you make. In addition to the state and local tax rates, you'll also need to factor in any combination of the following: state, county, city, and district tax rates.

In general, distant sellers have nexus in a state other than their home state. Many jurisdictions, including origin states, require distant sellers with nexus to collect tax in a destination-based model if obligated to do so. Your home state's origin-sourcing rules will dictate how much of your taxes you pay.

Ecommerce Sales Tax

If you want to know how much you should charge your consumers, you'll also need to know how much you should charge for your items. Products and services are taxed differently depending on where they are purchased, whether at a higher or lower rate. Digital downloads are taxable in 17 jurisdictions, but groceries and prescription pharmaceuticals are typically charged at lower rates or are free from sales tax in many states.

Internet Sales Tax: Pros and Cons

"How can there be a 'positive' to a tax?" I hear you ask. However, that heightens the likelihood that this may catch you off guard. When it comes to internet sales tax, there are significant geographical peculiarities that give tax savings in other parts of the state.

Pro

State budget cuts are eased or even eliminated when the government obtains a new source of revenue. If you're concerned about the safety or health of your neighborhood, public services are a worthwhile investment. Prices don't always rise, despite what many people believe. Instead of raising their pricing, many firms choose to keep their prices the same and take the money from their earnings.

Con

It's a problem that many small company owners have with this. Small firms lack the financial wherewithal to withstand a sales tax price increase, giving more giant corporations an unfair edge. Others see this as an attack on the free market and against the American way of thinking, not merely encouraging entrepreneurship. However, it's essential for business owners to keep in mind. It's a new tax, and some people are prepared to take it, even if they don't like it.