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Sales Tax (US)
rcjordan




msg:656138
 2:59 pm on Jun 30, 2000 (gmt 0)

I hate to do it --open a thread on sales tax, that is-- because most webmasters do not believe what they might actually be getting into with product sales online.

At any rate, go out and get 06/29/00 copy of the Wall Street Journal. Heads up!

[edit obsolete ubb code]

[edited by: rcjordan at 11:40 am (utc) on Aug. 20, 2003]

 

rcjordan




msg:656139
 5:02 pm on Jun 30, 2000 (gmt 0)

US Sales Tax (subtitle: No, that's not right, that CAN'T be right!)

Q: If I make any money at this, I'll have to deal with income tax issues, but otherwise that's it, right?

Not quite, if your business is based in the USA and makes any product sales delivered to your home state, you'll almost certainly have to remit sales tax. The term is ''nexus'' and it generally means that you have a connection, link or tie in doing business in that state, and nexus in your home state is almost guaranteed. If you have the article warehoused and shipped from another state, or perhaps just occassionally send a salesman into an adjoining state, you may be subject to sales tax on any item delivered to an address in that state, too.

Nothing seems to spark more incredulous "No, that's not right, that CAN'T be right!" outcry than opening up the sales tax can of worms --mostly from newly-minted online entrepreneurs, but even existing brick-and-mortar companies get fouled up on 'nexus.' Additionally, the Sales & Use Taxes get pretty byzantine when it comes to tangible vs intangible items; physical products, unless excluded by the sales tax code (example: food items in some states) are tangibles. To round out this topic, I'll briefly tackle that issue by way of example, just to show seemingly small decisions might trigger significant sales tax liabilities. Many of those reading these pages sell software, data collected online, etc. Suppose you are a North Carolina business, and you market a database of information which sells for $2000 per copy. If you post it online and let your clients download it, it remains intangible and you do not owe sales tax. If a client requests that you cut a CD of the very same database and simply mail it to him as a courtesy, you owe the state $120.oo, because it is now tangible. (I requested and received a confirming interpretation from NC's Dept. of Revenue on this one.) Also, don't make the mistake of thinking that the states aren't vigilant on this. As a rule, these revenue agencies are better at what they do than the IRS, because their code is much less complex. Again, the answer is "Get a (good) CPA and/or lawyer" if your business is based in the USA and you start to sell ANYTHING online that is delivered within the US. I am neither an accountant nor a lawyer.

BTW, let's not get into rants about taxation in this thread (FOO would be the place) --let's keep this thread to the mechanics of sales tax collection as it relates to ecomm.

[edited by: rcjordan at 11:42 am (utc) on Aug. 20, 2003]

rcjordan




msg:656140
 12:36 am on Jul 8, 2000 (gmt 0)

Maryland Official Pushes Net-Tax Program [techweb.com]

tedster




msg:656141
 3:11 am on Jul 8, 2000 (gmt 0)

Most of my clients outsource their shopping cart service to a company that allows very precise custom settings for sales tax. So collecting the sales taxes is a smooth process. Remembering to pay the state (quarterly, in most cases) and having good enough records to justify the dollar amounts submitted -- that's a nagging detail for the bookkeeper, but it's easily doable.

Some states have added taxes on single items above a given dollar amount. In Massachusetts clothing is not taxable unless an individual article is over $400. That's a nasty bit of extra code to remember in a shopping cart.

The most troubling issue I've found, as the article referenced above suggests, is knowing what's taxable. Depending on the state and the type of goods, that's the real hornet's nest.

An absurd example: the state of Maine actually feels that anything MANUFACTURED in Maine, in whole or in part, entitles them to collect sales tax wherever the item is sold in the U.S. Now, they're not very good at enforcing this pipe dream of a law so far, but who knows. I grappled with this particular bear in brick and mortar mail order, and I don't like it at all.

Some states have tried out confusing laws that end up creating double and triple liability. So far, the rule of thumb seems to be only one state can tax any given sale, and then only on sales where buyer and seller are within that state. But what if an e-business pays income tax in Connecticutt, but their server is in California and their goods ship out of Ohio? Can each state have some kind of claim to sales tax when goods ship into their territory?

In general, my clients feel like if they worry too much about all this they'll never get the shop open for business. So they collect the obvious taxes and consider everything else "not broken until it breaks".

rcjordan




msg:656142
 4:41 am on Jul 8, 2000 (gmt 0)

>But what if an e-business pays income tax in Connecticutt, but their server is in California and their goods ship out of Ohio? Can each state have some kind of claim to sales tax when goods ship into their territory?

Somewhere in the print world, I just read an article where a state tried to claim nexus because an out-of-state ecomm site had its server hosted in their state. In that brief article, they did not go into much detail (was the server owned by the ecomm company or the hosting service, for instance?) but, the court ruled in favor of the ecomm company --no tax due.

As for the product being warehoused in another state, my bet is that nexus would be established if the ecomm company actually owned the inventory and someone was sub-contracting distribution for them.

> So they collect the obvious taxes and consider everything else "not broken until it breaks".

Probably the only choice anyone can make and keep their sanity. A realistic effort will -at the least- provide a chance of not being charged a penalty.

As always, a reality check is in order. A site doing $100/month in T-shirts probably isn't going to end up crossing swords with a state revenue agent. But, start shipping a few thousand dollars a month and you had better be sure to nail down your sales tax liabilities.

Disclaimer: I am not an attorney or accountant. Webmasterworld forums are for informational use only. Anyone suspecting that they may have a tax liability should seek the opinion of qualified legal and/or tax professionals.

Bradley




msg:656143
 4:55 pm on Jul 19, 2000 (gmt 0)


Ted and/or others:

I am looking for a tax calculation software package (to calculate tax in all 50 states) and a shipping service charge software package (to calculate shipping to all 50 states and internationally) that can be integrated into Cybercash.

Anyone have an recommendations? I'm in need of your assistance. Thanks.

yomebe




msg:656144
 9:25 pm on Jul 19, 2000 (gmt 0)

eXtropia.com has lots of cool hacks to use in thier open source software see if they have anything.

Bradley




msg:656145
 6:09 pm on Jul 20, 2000 (gmt 0)


To my surprise, it is amazingly difficult to find a provider that will provide:

credit card validation
tax calculation
AND
shipping calculation

For example, Cybercash only does credit card validation. Cybersource does credit card validation and tax calculation. I haven't found a provider that does all three.

Looks like I may have to use different vendors to complete the transaction.


tedster




msg:656146
 2:00 am on Jul 21, 2000 (gmt 0)

Americart does a remarkable job for most of my clients.
They provide a platform independent secure shopping cart service (item by item or database driven), and enough features to satisfy any situation I've some across. The cgi scripts go to their server, not the site's host, so the code is perfectly portable if your site moves.

Bradley's situation above (tax for all 50 states) is not a common online need, in my experience, and I don't remember that particular possibility. But they offer so many options, it might be worth checking with them.

They do offer a large variety of shipping calculation options, including exact UPS charges. You can calculate shipping by the number of items, item weight, or total order cost. You can easily create exceptions for individual items or time periods. I couldn't begin to list all the flexibility they offer, and at very reasonable rates.

They also have a seamless interface with several real-time transaction providers, so even though you're using two servicces, it almost like using one. One of my clients has now been with them going on three years, with never a problem.

I know this sounds like an ad, but really it's only a recommendation from a very satisfied user -- I would be the one who inherits my client's headaches. I don't get a piece of Americart's action in any way.

rcjordan




msg:656147
 3:13 am on Aug 5, 2000 (gmt 0)

US sites selling stuff, take this as a 'heads up' --be searching for good tax-table solutions for your cart software, you're going to need it...
Net Sales Sap Tax Revenues [pcworld.com]
or be checking out that little off-shore spot for the emigration

It's not that this particular article says anything new, it's just that I'm seeing the frequency/urgency of them accelerate rapidly. My guess is that red flags are dropping left and right in state revenue departments, and the governors will be rioting in Washington after they've had time to digest what the upcoming digital Christmas will do to their coffers.

rcjordan




msg:656148
 1:38 am on Aug 26, 2000 (gmt 0)

**GOTCHA !!** Sayeth the NJ tax man.
Now this poor company has the ol' tax nexus blues
"By virtue of the fact that we located a server on their premises, the State of New Jersey considers us to have had a 'business presence' within the state," Mr. Hudson says. "They are now saying that, from their point of view, we were required as a company to have collected sales tax on purchases made by New Jersey residents, whether those purchases were made on our Web site or not. They are now requiring us to file both sales tax reports and corporate tax returns for [last year] and to pay New Jersey corporate income taxes on all of our business conducted during that period, including business conducted outside of New Jersey. Plus we are apparently subject to interest and penalties on the sales taxes and income taxes they claim we should have paid but didn't."

--article here [infoworld.com], read it and weep.

GWJ




msg:656149
 11:49 am on Aug 28, 2000 (gmt 0)

Keep in mind a key sentence in the article. He did not lease the equipment. That is were the loop hole is/was I believe. He owned the equipment in the state of NJ.

rcjordan




msg:656150
 1:22 pm on Aug 28, 2000 (gmt 0)

Sorry, can't get off that easily... Nexus is just defined as having a business presence -lease or co-locate, I believe the tax man is going to say that your business has a presence. KA-CHING!

tedster




msg:656151
 3:42 pm on Aug 28, 2000 (gmt 0)

Although predicting the courts is always a risky business, I can't see simply leasing server space being upheld as a business presence, even if some states do try it (and they probably will.) It's too big a can of worms.

Heck, I don't even KNOW where the physical server is that some of my clients lease, just the business address of the company they lease from.

rcjordan




msg:656152
 4:30 pm on Aug 28, 2000 (gmt 0)

>and they probably will.) It's too big a can of worms.
No, it's really very easy.

>Heck, I don't even KNOW where the physical server
I suggest you find out. How strongly do I believe that they will track you down? --I had my leased server moved from Illinois to my home state in 1996.

tedster




msg:656153
 4:58 pm on Aug 28, 2000 (gmt 0)

Thanks for the caution.

I've been operating under the assumption that any attempts to get sales taxes this way would be started with a highly visible case -- and that any blanket attempts to collect back taxes from everyone leasing server space in a given state would be understood as too suppresive of eBusiness.

However, maybe I'm just in denial.

rcjordan




msg:656154
 5:10 pm on Aug 28, 2000 (gmt 0)

> a given state would be understood as too suppresive of eBusiness.

The state revenue departments are already lobbying US Congress HARD to kill the e-tax moratorium. The issue of nexus is already fully under their control and has plenty of precedent in the courts (their courts, remember) and this is a backdoor --but NOT new territory for them.

>maybe I'm just in denial.
Check out the 'subtitle' in the 2nd post of this thread.

PS Every year I have to fill in a list of businesses leasing space in one of my real estate properties.

tedster




msg:656155
 8:48 pm on Aug 28, 2000 (gmt 0)

OK. In order to do this, the state would need to create a list of every website on leased server space within their boundaries, right? Then, they'd have to be sure that property was being sold through that site, locate the out of state site owners and then take action.

It's true, that first part doesn't sound like so very much of a challenge. But the rest of it sounds like a big piece of work to me. So I've always assumed that they would go after a big case first.

rcjordan




msg:656156
 9:19 pm on Aug 28, 2000 (gmt 0)

>always assumed that they would go after a big case first.
Probably true. If your clients are selling coffee mugs and an occassional t-shirt, they might rest easy. But, I know for a fact that several of those that frequent this forum are advising companies that are doing a whole bunch more than that.

>OK. In order to do this........
Usually, the state revenue departments depend on cross-matching several sometimes seemingly unrelated databases to come up with a suspects list. It's a pretty easy to come up with a short list of ISP's and have them list corporate customers. Match that to, say, FedEx and UPS shipments by vendors INTO the state and you've pretty much determined who has shipped 'product' over their border.

Somewhere (here? SEF?), just two or three months ago, someone asked me if I thought the tax agents would hit a company for having a server in their state, to which I replied "I don't think so --not any time soon." Obviously, New Jersey wasn't paying attention.

GWJ




msg:656157
 1:21 pm on Aug 29, 2000 (gmt 0)

Well I made a few calls and it turns out my server is in....Jersey city, NJ...DOAH. Waiting on a callback from my CPA. Always something different.

GWJ




msg:656158
 4:39 pm on Aug 29, 2000 (gmt 0)

RCJORDAN this is cut from the article you mentioned...

"What irks me is that according to our accountants and tax attorneys, there are legal ways around this issue," Mr. Hudson says. "For example, had we leased the equipment we placed at Exodus instead of placing equipment there that we owned outright, apparently we would have been able to sidestep the issue."

My taxman confirmed this. What he used to verify, I do not know. He stated leasing the equipment does not show a "presence", he did say if I owned it would be a different ball game.

rcjordan




msg:656159
 4:46 pm on Aug 29, 2000 (gmt 0)

Got it, and thanks for the update.... but it doesn't count until you have it on paper from the department of revenue of XYZ state. I suggest you find it spelled out in the tax code (not likely) or get a letter ruling. At the very least, have it documented that you called and verified this with someone (and get the agent/representative name, they HATE to give out names) --this will at least save you from penalties and will also help defend against any forays the NJ tax men make into your state.

GWJ




msg:656160
 1:35 pm on Aug 30, 2000 (gmt 0)

So true. However I think I will forgo making myself known to the NJ taxman ;). Don't want to test my luck.

rcjordan




msg:656161
 4:41 pm on Aug 31, 2000 (gmt 0)

And here we have the state of CA trying to cross-link nexus to affiliated companies. California considers Net tax bill [usatoday.com]

GWJ




msg:656162
 12:18 pm on Sep 1, 2000 (gmt 0)

Well, just an update...

I called NJ Nexus department. They stated that basicly they are persuing just this type of activity. Guy even offered to take my name and number, by the way what is your URL, so he could "get back to me" ;). He did state that several other states are looking into this also.

I am going to follow my gut on this one. I started to call around in my state and have found three web hosts that at first glance answered all of "the normal questions" correctly. I will further review them and decide.

Always something, guess that's why I like doing this :).

Brian

rcjordan




msg:656163
 2:00 pm on Sep 1, 2000 (gmt 0)

Same general story, but better soundbites...
Commentary: Assault begins on federal Web sales tax moratorium [news.cnet.com]

GWJ, you've undoubtedly heard the age-old saying; ''a stitch in time saves a whole lotta tax penalty and compliance headaches.'' Thanks for the update.

rcjordan




msg:656164
 12:45 am on Sep 30, 2000 (gmt 0)

Companies AS Toys R Us, Sears, and J.C. Penney are getting behind an effort they hope will lead to changes in U.S tax law that would require all catalog and online companies to collect sales tax on all purchases.
-article here [infoworld.com]

rcjordan




msg:656165
 5:14 pm on Dec 10, 2000 (gmt 0)

A STATE-BY-STATE LEGISLATIVE attack on the sales tax advantage many Internet retailers now have over Main Street merchants will begin next year with a drive to simplify complex and sometimes bizarre sales tax rules.

A group of tax and policy officials from some 39 states, meeting as the Streamlined Sales Tax Project, this month may finalize "model" tax simplification legislation for adoption by state legislatures.

article here [infoworld.com]

spiky




msg:656166
 5:11 pm on Dec 13, 2000 (gmt 0)

whats the interantional dimension on this thread.

The web is throwing markets open to international competition. This is particularly the case for downloadable products, services, and small postable products.

Companies based in "tax free", non regulated markets are obviously going to take advantage of any tax discrepancies in individual states, let alone countries.

Just look at where your shirts are now made, to consider it wont happen to other bulk items in time is short sighted.

Billythekid




msg:656167
 9:51 am on Dec 20, 2000 (gmt 0)

>>For example, Cybercash only does credit card validation.<<

Try ICVerify integrated with Cybercash. It is capable of doing several different tax calculations during batch building. You have to set it up yourself but IC and Cybercash give detailed instructions. PS, don't bother unless you can code your own shopping cart. It is a programing job.
I believe the Linshare gateway is also addressing the tax issue but I don't have details. Tax is apparantly best handled in your gateway software and having the ICVerify/Cybercash gateway seems to workvery well.
One thing though, ICVerify is not happy being customized. And it isn't cheap. The best way for now seems to be to use the shopping cart software itself to toal the tax with the purchase and just keep a detailed accounting yourself. Most companies that use ICV use the tax feature to verify their own accounting. For more info, talk to the ICV reps and try to grab a look at the manual.

This 37 message thread spans 2 pages: 37 ( [1] 2 > >
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