Sales tax ... who pays what when

[darylo]

Hi,
I have a question about sales tax. My company is just starting to look at having on line sales of our software. The software will not be shipped by physical media but by downloading it directly.

Now we are considering using an external hosting company to provide us with a virtual server on which to host the site.

So here is the scenario;
Our company has a presence in CA and MA.
The hosting company has a presence in TX and NY
I do not know where the actual server is located (though we could of course find out)

The question is; For sales, with the customer being in which states do we have to make sale tax payment.

Regards,
Daryl

[darylo]

does anyone pay sales tax even?

[marc77]

I could just state how this is handled in the European Union and Germany (seems that charging VAT is much more common here as in the US ;-)

The best solution would be to talk with your local tax office, bookkeeper or a specialized lawyer. Especially if you are unsure it could be problematic taking an unsecured advise and then being (years) later forced to pay sales tax afterwards - not sure about your profit margin, but it can tend to zero or negative in such a case.

[chocolate101]

does anyone pay sales tax even?

yes, everyone pays sales tax. don't you pay sales taxes??

[marc77]

yes, everyone pays sales tax. don't you pay sales taxes??

There are many US states not charging sales tax. Considering the European Union, I don't know a single country (or state of a country, where applicable) not charging VAT.

Anyway, I think a good general advise in all legal and (income) tax related questions is to ask a professional that can be later made legally responsible in case his/her advise was erroneous ;-)

[Cbarbra]

I think, there is separate section in taxation law addressing e-business issues. To find out where you should submit your tax payments; it's better to consult any professional, who can help you best in solving this problem.

[BasicECommerce]

My understanding was that you pay the state's sales tax in which your business resides. So, if your company is in Kansas, you pay the Kansas state sales tax regardless of where the buyer is located and where the server is located.

Then again, I'm no legal professional. Just like everyone else has said, consult a professional. Then, please post the information you obtained to help us all. This seems to be a popular/interesting thread.

[The Old Sarge]

Some US states only charge sales tax if the item is delivered to an address within the state. And in some states, only the buyer pays the tax, never the seller.

Our web business used to be based in Idaho. We only collected taxes on items delivered within Idaho. We sent collected monies to the tax commission on a monthly or quarterly basis. We have never collected sales taxes for any other state.

Some states that have no mechanism for collecting sales taxes on mailorder or Internet purchases require their residents to declare (or estimate) how much money they spent thru mailorder or online when they file their tax returns. The state then assesses the appropriate sales tax.

[darylo]

The real crux for me is whether the state that the hosting company is registered makes any difference in terms of for which customers I must withhold sales tax. The reason I ask is that I have been told it does but I can not find any information about it anywhere on the web which makes me suspicious of the advice I have been given.
Of course I will be consulting with an 3rd party expert on the matter but for now I am interested in becoming educated through the collective knowledge of others based on experience of doing business in the US.

[nodell]

The fact is that the sales tax requirements for an ecommerce business are exactly the same as a local brick and mortar store. Many states have different rules not only on sourcing such as where the product is shipped from and where the product is shipped to, but also different product taxability rules for those states. In addition, if you do not collect sales tax from your customers then they in some cases could have a requirement to pay use tax. Pretty confusing and complicated stuff.

I would suggest consulting with a professional on where you have Nexus (a requirement to pay sales tax) to determine your individual business needs. If you find that managing that part of your business becomes very cumbersome I would reccomend looking into a outsourced sales tax company (such as Avalara.com) to handle that for you.

[darylo]

Thanks for your advice
We are only starting on the path of ecommerce so I suspect outsourcing sale tax calculation is not realistic without some proof that the product will sell.

The thing that surprises me is that there is so little information on the internet about it. Ours is not unique position. It is one that every software (or any electronically delivered product such as ebooks) selling ecommerce site in the US is engaged in. Whether you are providing shareware or carrier grade software it is a commons circumstance.

Even if I pick a hosting company in MA I still do not know for certain what state the server is in if that company is multi-state. It seems to me that it is a quagmire that at best is not understood and at worst is ignored.

Of course all this said, consulting with a professional on where one has Nexus is good advice, and one I will follow regardless. However from my perspective I like to have some knowledge to challenge the advice I am given so I am confident it is sound. Usually I have to wade through the inaccurate information on the internet to find this position but on this subject the internet is throwing up very little other than http://www.lctjournal.washington.edu...05Royalty.html which is interesting. It seems to contradict the direct advice I have been given but it is from 2005.
Anyway thank you for your opinions
Regards,
Daryl