I'm building an online store. I keep reading about sales tax calculation.
Do my customers have to pay taxes? How does this work, since I live outside
the States?" -- Maher Moghrabi
Two types of taxes are commonly charged on Internet sales -- VAT (Value Added
Tax, in Canada, Europe, and some other areas) and sales tax (levied by some
states, counties, and cities in the US). However, some products (such as electronically
delivered goods) may be exempt from taxes in certain states and countries. A
merchant who has a business in only one state of the US is currently not required
to collect sales tax on sales made outside his state. Members of the European
Union (EU) are currently required to charge the VAT on sales. To find out what
tax laws govern sales of goods from your country, you'll need to contact
the appropriate taxing agencies.
But this picture threatens to become much more complex for online merchants,
due to two changes that are in the works:
US Sales. In the US, some large Internet retailers are now collecting
sales tax on sales to buyers in any state that has a sales tax, this in exchange
for amnesty for the retailer on any past uncollected taxes. At present, 34
states and the District of Columbia are agreeing to the Streamlined Sales
Tax Project (SSTP), designed to simplify tax collection for merchants. After
the states approve the SSTP, then the US Congress must also approve, but approval,
if it comes, may be a year or two away. Initially, I expect that only larger
online merchants will be required to collect sales taxes for other states,
though eventually, this may be required of smaller merchants, too.
European Sales. The EU recently passed a law requiring merchants
outside the EU to assess VAT on sales of digitally delivered goods to buyers
in the EU. This is supposed to minimize the tax disadvantage EU merchants
currently face, since they are currently required to assess the VAT, making
their total prices higher than non-EU merchants. This law raises a number
of legal questions by requiring VAT collection by foreign merchants, so it
may take a while to sort out all the issues.
If the non-resident tax collection trend continues, I expect that merchants
may eventually need to use a third-party service like Taxware.com
(http://www.taxware.com) to handle tax calculations and interface with state
and national governments. You can read more about these pending taxation issues
from article
links on the Taxware site (http://www.taxware.com/news/articles/) and in
the E-Commerce Tax Collection section of the E-Commerce
Research Room (http://www.wilsonweb.com/cat/).
