Do I Need to Pay Sales Tax for My Online Business?

[@offgridrvliving]

Thank you! Very helpful. As a small business - what about local (city, county, etc.) sales taxes. I understand there are over 12k jurisdictions in the US. If I sell a low cost (e.g., $2) product that sells over 200 transactions per state including many local tax jurisdictions... How can I possibly manage all those registrations? For one thing that would be time prohibitive. Avalara wants $349 for each jurisdiction (which equals over $4M for all of them!!!) So that 'solution' is cost prohibitive. Is it just me or is this overwhelming?

[@JamieTrull]

Great question, I would love to answer that for you on my next live show! You can submit this question here for me to answer: www.JamieTrull.com/KZbin

[@jamman7344]

Thank you for taking the time to educate us on text For e-commerce

[@JamieTrull]

you are so welcome!

[@wazup3333]

@@JamieTrull So If youre using Amazon or eBay as a platform to sell, how does that affect your tax liability when those platforms collect and remit the sales tax for you on your orders? How do you collect and remit if they do it for you on your orders? How does that affect reporting it to the state?

[@nimzzvlogs4987]

@@JamieTrull I'm from India and I want start dropshipping in usa but I don't understand sales tax in dropshipping bussniness Can u teach me How I deal with sales tax I sell in whole usa can u teach me How I deal with this and I want start dropshipping business

[@ZacHarvey]

Thanks for the video Jamie. I have a further question; If I've just started out and unlikely to cross any economic nexus threshold in the first year of business, should I even be collecting Sales Tax from my customers? As I realise some of the thresholds are based on the previous year, in which case if I went over but hadn't been collecting, I would presumably have to pay out of my own pocket? If it makes any difference, I'm not in the US but am selling into it and I have a connection with a supplier in Florida. Any advice would be greatly appreciated.

[@JamieTrull]

Sorry for the SUPER late response, just saw this! If you don't think you'll cross those thresholds, I honestly wouldn't worry about it. In many states, businesses have until Jan 1 of the year following when they have economic nexus to register, begin collecting, and remit sales tax. So if you hit it this year unexpectedly, you're likely fine to start collecting the first of the next year. But of course see if your state has any more specific rules for that.

[@BriannaMcClearieBroadwater]

Super helpful clarification! Can you talk about use tax and P&O taxes? @@JamieTrull

[@tetonenglish]

I'd like to sell downloadables and online courses without a live component. I've avoided doing anything for so long because of this confusing sales tax topic. It's like the chicken before the egg question. You can't collect sales tax until you sell something and you shouldn't register for sales tax in the state unless you meet the criteria. When do you start? Do you figure out where you're at quarterly or at the end of the year and then pay from your gross income? And what do we have to be aware of for international customer purchases?

[@tetonenglish]

I should have read the TaxJar article first before posting. So it looks like the majority of the thresholds are based on the previous 12 months of sales. So, basically, a company just starting out shouldn't have to worry about out-of-state sales tax, just in-state sales tax? (I'm in WY which has the rule of online product needing a live part to avoid sales tax.) And for international taxes, it's just VAT to worry about, which has a 10,000 euro threshold?

[@gn2650]

What about recruitment services?

[@antoniasanhueza2240]

Super helpful! Question, if I'm selling to a customer in another state where I don't have nexus. Do I still need to charge the sales tax of the state my business is located in or that transaction wouldn't have any sales tax? Thank you!

[@JamieTrull]

Typically there wouldn't be any sales taxes to collect since you don't have nexus where the sale took place. Hope that helps!

[@antoniasanhueza2240]

@@JamieTrull Thank you!

[@kimpurvis9875]

This is such a great video even though it is from a couple of years ago. I have been searching for a week to get this very clarification. Thank you so much! But... my question is and here's my situation, I have been selling digital products (with no tangible items) for a year and have not reached any thresholds. My state and nexus is California and digital products are exempt. Do I claim these sales as income even if I do not pay taxes on them? My payment processors (Stripe/Paypal) do not report earnings to the IRS until you reach $20,000. So since they are not reported should I not report them as income? Or if I do, will that alert and cause a new issue?

[@JamieTrull]

Hey Kim - thanks for the kind words! You will always report all your income for income tax purposes (both to your state and federal) even if you don't receive a 1099. This video is talking specifically about state/local sales tax, not income tax. So definitely make sure to report it all on your tax returns!

[@georgelopez9517]

Do you charge sales tax for video editing services in California? Editing is a service but also a product since you providing the client with an end product that they can use to monetize.

[@Gil.857]

Great video, Jamie. Do you know if the nexus based on sales volume is retroactive to the first sale, or does it take effect after reaching the 200th sale?

[@JamieTrull]

You'll want to check the states specifically, but typically sales tax kicks in for the year after you hit the threshold.

[@aishawilson7649]

Thanks for the video! When determining the gross amount the that sales tax is based off, is this gross amount including the sales taxes collected from customers?

[@sirensatnight4463]

It seems to me that the gross amount the sales tax is based on, would not include the sales tax collected, because then you would be taxed on sales tax. That would make no sense.

[@JamieTrull]

You would base it off the purchase price without sales tax included...otherwise you'd end up in an endless loop!

[@eiigypocr5064]

(possible duplicate) Etsy collects sales tax from my customers. I am most likely under all state thresholds. What happens to the money???

[@JamieTrull]

So if they are collecting sales tax, they are also remitting it to the states on your behalf. Etsy itself doesn't know if you have nexus in any particular state, as the nexus threshold relates to ALL sales, not just through Etsy. So if you were also making sales through your own website, you'd have to add that in to see if you have nexus. You can typically go in and turn "off" sales tax in etsy for all states you don't have nexus (likely any state except the one you live in, which means you have automatic physical nexus there). Unfortunately there's probably no easy way to get that money back, and even if you did, you'd have to then find a way to refund it to your customers. This is one of the things that Etsy and other online sellers really DON'T talk about much, and it probably leads to the overcollection of sales taxes in these instances.

[@kevinbuxton1950]

Thank you for the video Jamie! So does this mean that essentially to out of state customers, until I've met nexus for their state, their purchases from me are effectively tax exempt?

[@JamieTrull]

That's correct, unless you have physical nexus in the state for some reason (i.e. a location or employees there).

[@call_me_bre]

Thanks great video. If I may ask a question..I am starting a small online business with Shopify selling handmade items would I have to charge sell taxes or need a reseller permit

[@JamieTrull]

If you are selling products, you would at a minimum need to register to collect sales tax for sales to people in your own state. You would only need to register and collect sales tax for sales to people in other states if you have nexus there (either economic or physical). A reseller permit is something you would want to have so that you don't have to pay sales tax on the goods that you plan to resell, though generally it won't be required (although you'd want to check your state's rules to verify).

[@call_me_bre]

@@JamieTrull Thanks 😊

[@allthingsrachelmarie]

So, for Indiana....I live in Indiana. I have a course I want to launch and even if it is delivered "LIVE" it has printables. So, I would need to sell $100K or 200 courses in order to owe sales tax...if it ended up being 200 at the end of the year, I would just pay it even if I didn't "collect it" so it'd come out of my profits. And if there was another state that was same as Indiana and I sold 200 units in those or made $100K by end of year, would need to do the same. So, I wouldn't need to worry on it if I have like $3K in sales or under 200 items. If I connect Stripe Tax to my payment processor for my course, then it could keep track of it for me and then I'd just have to figure out how to pay the different states where my customers have nexuses. I am completely lost at what I'd do if someone from UK or other countries purchases my course. I want easy.

[@JamieTrull]

Great question, I would love to answer that for you on my next live show! You can submit this question here for me to answer: www.JamieTrull.com/KZbin

[@rightkindofmusic]

@@JamieTrull Oh wow. That was 8 months ago.

[@eiigypocr5064]

Very helpful Jamie. I was about to abandon the idea of Shopify with the fear of paying to all of these different states. So, to clarify, I must meet the threshold for the economic states before worrying about paying sales tax. If I expect to make thousands of dollars, and be above the thresholds, plan on collecting/paying. QUESTION: Is there a "threshold chart" out there somewhere (up to date) to refer to rather than scrolling through the pages on Tax Jar?

[@JamieTrull]

Thusfar I've only found them in blogs for companies that specialize in sales tax like Avalara and Taxjar. There is no official repository anywhere as sales tax is a state by state issue and does tend to change.

[@eiigypocr5064]

I could not find one so I made one on Excel.

[@Ryno814]

@@JamieTrull So I understand the economic nexus and the thresholds but I guess I missed the simple point. If I start an online store and I live/operate out of PA (have physical nexus in PA), I only charge sales tax to other buyers that are from PA..correct? And there is no threshold for that right. In other words, you would have to collect sales tax on your very first sale correct?...Theres no certain limit you have to sell to in order to start collecting right?

[@JamieTrull]

@@Ryno814 correct, assuming what you are selling is taxable in PA. For example, if you are selling digital products, they may of may not be taxable depending on the state.

[@Ryno814]

@@JamieTrull Thank you. Ya I called the DOR just to verify if it was taxable but they wont answer. They tell you to ask a lawyer or a CPA. We have a physical/tangible plastic products with LED lights. How could that not be taxable? Ive read the states terms. Sounds like a no brainer but just strating out, a little reassurance would be nice lol Whats your opinion? Promise this is last question lol

[@llhannah9297]

Does that mean as a small business I may not likely have nexus in other states? I feel like most of my sales will be in my own state. So if I'm only occasionally selling to other states do I not need to worry about registering with them?

[@JamieTrull]

Likely that is correct. Unless you meet the requirements for nexus in that state, you wouldn't have to register to pay sales tax there.

[@llhannah9297]

@@JamieTrull Thank you!

[@MattBakerJazz]

Hey Jamie, I have a question about a grey area! - in regards to digital products, what about the case when the online course is just a series of videos, but they are not downloadable, so the customer doesn’t actually get anything, they just watch the videos online? Would you say in this circumstance that no sales tax is applicable, because they are not actually getting anything to keep?

[@sirensatnight4463]

Do you pay sales tax on your phone service? Just wondering, because that seems like a similar situation, where you are provided a service you don't get to keep, and have nothing to show for, sort of like electricity that flows through your home, gets used but leaves nothing behind that is yours.

[@JamieTrull]

Rules vary by state, but I haven't seen anything specifically talking about this difference at this point. Online courses are often considered digital products whether they are downloadable to the end user or not. That said, its still an area in development and I would specifically google "are digital products taxable in X state" for any state you believe you have nexus and it should give you the wording of the rules for that state.

[@MysticMandaLLC]

thank you!

[@JamieTrull]

You're welcome!