From the ArcaMax Publishing, Succeeding in Your Business Newsletter:
http://www.arcamax.com/news/succeedinginyourbusiness/s-641558-500356
"I started a small online retail business earlier this year. I
understand that I have to collect and pay state sales taxes whenever
someone buys from me who also lives in my state. But my business is
growing, and I have customers now in virtually every state in the
United States. I am hearing more and more that I may have to collect
sales tax in some of these other states as well, but nobody seems to
have a clear answer on this. Where's the reality here?"
The short answer is ... the reality is changing, and few professionals
have a clear grip on where the law is going in this area. Since the
vast majority of e-commerce transactions are interstate in nature, and
since the U.S. Constitution prohibits states from imposing "burdens"
of any kind on interstate commerce, the vast majority of e-commerce
transactions do not result in taxes of any kind being paid to state
and local authorities.
Needless to say, state and local governments have lost billions of
dollars in sales tax revenue because of this, and they are desperate
-- truly desperate -- to get some of that money back in ways that do
not violate the U.S. Constitution. A handful of states are even trying
to get you to pay state and local income taxes when you sell lots and
lots of stuff to their citizens.
Two cases in point ...
In July 2009, Connecticut passed a law requiring "any company that
derives income from sources within this state ... evidenced by a
purposeful direction of business toward this state, examined in light
of the frequency, quantity and systematic nature of a company's
economic contacts with this state, without regard to physical
presence," to register and pay Connecticut state income tax on their
sales to Connecticut residents.
Now, you tell me what a "purposeful direction of business" is. Go
ahead, I double dog dare you.
It will be a while before the Connecticut tax authorities pass
regulations making some of this clear, but we can take a couple of
stabs in the dark:
Merely listing something for sale on your website, or on major
e-commerce platforms such as eBay, Amazon and Bonanzle, should not be
viewed as a "purposeful direction of business" to Connecticut
residents, even though you may have some Connecticut buyers, because
anyone on Earth can view your listings.
However, taking out banner ads on websites (such as those of the
University of Connecticut's "UConn Huskies" women's basketball team,
or the "Bridgeport Bluefish" minor league baseball team based in
Bridgeport, Conn.) that target primarily Connecticut residents, is
likely to be viewed as a "purposeful direction of business" to
Connecticut residents.
An e-commerce listing that offers "10 percent discounts to Connecticut
residents who buy before Dec. 24," coupled with a targeted e-mail
"blast" to 100,000 Connecticut residents, is almost certain to be
viewed as a "purposeful direction of business" to Connecticut
residents -- if you're doing stuff like that, you had better register
with the Connecticut tax authority now.
The second new law comes from New York. Effective June 2008, if you
are operating a business in New York that is an "affiliate" of one of
the major e-commerce platforms, and you sell more than $10,000 worth
of goods and services to New York residents during a rolling
four-quarter period, the e-commerce platform is required to collect
and pay New York state and local sales taxes on those sales (which, of
course, will be reimbursed by your business).
The law does not define what an "affiliate" is, but the clear target
are e-commerce platforms such as Amazon and Bonanzle where you create
an "affiliate" page and sell goods through the e-commerce platform. In
fact, accountants and tax lawyers of my acquaintance in New York refer
to the new law colloquially as "the Amazon bill." It is not 100
percent clear if eBay sellers are "affiliates" under the law, since
eBay customers buy directly from your business and not through eBay
itself. EBay does, however, offer an affiliate program to its members
(details are at
http://pages.ebay.com/help/sell/affiliate-program.html) as well as
co-operative marketing programs such as the eBay Partner Network
(www.ebaypartnernetwork.com) so participants in these programs
probably need to ask eBay whether the law applies to them.
The reactions to the New York law so far are mixed. After losing a
legal battle challenging the constitutionality of the law in New York,
Amazon.com has said it will comply with the law and collect sales tax
from its New York affiliates who sell more than $10,000 worth of goods
in New York each year. On the other hand, Overstock.com simply
terminated all its New York affiliates because it didn't want to incur
the cost of putting systems into place to comply with the law.
This will be a fast changing area of the law in coming years, so look
for updates in future columns.
Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author
and former host of the PBS television series "Money Hunt." This column
is no substitute for legal, tax or financial advice, which can be
furnished only by a qualified professional licensed in your state. To
find out more about Cliff Ennico and other Creators Syndicate writers
and cartoonists, visit our Web page at www.creators.com.
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