The following is a guest post by Shimon Sandler. Visit his blog at www.shimonsandler.com.

If you own an e-commerce website, do you need to charge sales tax?

The current law is this: If an online retailer has a physical location in a state, it must collect sales tax from customers in that state. If a business does not have a physical location in a state, it is not required to collect sales tax for sales from customers in that state. Simple. Right?

Hold on, here’s a caveat: Even if the consumer isn’t charged sales tax, it is the consumers responsibility to pay a “use” tax. Basically, the states want their cut. Although, that’s a tough one for the states to enforce.

So, will Internet purchases remain tax-free?

Before I answer, here’s a little bit of legal history. In 1998, Congress passed the Internet Tax Freedom Act (ITFA), which established a three-year moratorium on taxing Internet access services at the state or local level. And in December 2001, President Bush signed a two-year extension of the Internet sales tax ban. That extension expired in 2003, and as of December 2004, has not been renewed. Regardless of whether the ban is made permanent, as some in Congress are seeking, the basic rules regarding sales tax continue to apply — collection of sales tax for items sold over the Internet is only required if a business has a physical presence in the state.

But, like I said earlier, the individual states want their cut. So, in 2002, state governments organized to fight back. Under a state-led initiative known as the Streamlined Sales & Use Tax Agreement (SSUTA), 40 states and the District of Columbia banded together to simplify their sales tax codes in order to make sales tax collection easier. Under SSUTA, the collection of sales tax still remains voluntary . However, if ten states representing 20% of the U.S. population vote for the rules, the organization will pressure Washington D.C. for federal legislation. The SSUTA has gained traction recently. Several national retailers have negotiated with member states for amnesty deals in return for future collection of sales tax, and more are expected to follow. The SSUTA expects to implement a multi-state arrangement, and a number of states are preparing certificates of compliance with the SSUTA. In addition, several states have already amended their tax laws to conform to the SSUTA. The bill, which was previously voted down, is being reintroduced in Congress this fall and stands a good chance of getting passed this time around. With all of this pressure from states, many experts believe that within the next few years you’ll be throwing a few more dollars into your shopping cart for state sales taxes.

As it stands today, if you live in a state that has a reciprocal sales tax agreement with another state, you’re required to collect the other state’s sales tax, and pay it to your state’s Department of Revenue — with a special tax return form.

If the SSUTA passes Congress, then internet sellers of all kinds — including people putting stuff up for sale on eBay and other Internet auction sites–will have to charge state and local sales taxes at the rates in effect wherever their buyers are located. (I’m sure eBay will upgrade their technology to make this easy on their membership). With more than 7,500 sales tax jurisdictions in the United States, complying with the SSUTA will impose a crippling paperwork burden on many small e-businesses that can’t afford to hire teams of people or buy expensive software packages to help them comply.

So, a number of e-commerce companies and grassroots organizations are lining up to fight the SSTP. For example, eBay’s government relations department has set up special website where you can sign up for e-mailings notifying you of the bill’s progress.

It seems to me, that internet purchases will not remain tax-free. So, if you currently operate, or are thinking of starting an e-commerce site, it’s a good idea to start charging sales tax.

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