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If I start an online company that sells subscriptions online should we be charging sales tax in CA? Outside California, outside the United States? What are the rules for sales tax?

Sales & Use Tax Internet Tax
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Michael Jacobson
Unfortunately, the Supreme Court ruled that states can collect for sales taxes for items that are sold to people who reside in a state, even though the vendor is not located in the state (internet, phone, and mail sales). Some states consider that all sales made by local businesses are subject to its sales tax, even if the sale is made out of state. So you have to look to the laws of the states in which you do business (they can not collect for both if the other state is requiring a business to collect sales tax on their behalf - you have to look for the law of the resident state to see what to do in that case -- most states ill have an offset for sales taxes paid to the other states).
Leave a Comment 455 weeks ago

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Michael Fleming
Before a state can force you pay its taxes or to collect taxes on its behalf you must first have nexus with that state with nexus being defined as a connection or link. In fact, the US Supreme Court has stated almost the exact opposite of what Mr. Jacobsen explains. In National Bellas Hess v. Illinois (1967) and again in Quill Corp. v. North Dakota (1992) the US Supreme Court Found that for sales and use tax, you must have a substantial nexus that is more than the slightest physical presence with a state before the state can force you to collect taxes on its behalf. Physical presence does not just encompass a location in a state but activities also. Activities such as having employees in a state or having employees traveling into a state to perform certain activities can create a physical presence or nexus for you. Physical presence could also include hiring third parties or contractors to perform activities for you. So while the definition of physical presence is very diverse and can vary greatly from state to state you must still have a physical presence before the state can force you to collect its sales tax. So the answer to your question will depend on what your activities are outside of the state of CA. Drop shipping can be considered a physical presence in certain circumstances. Deliveries by a common carrier do not create a physical presence. So if all of your activities are performed in CA with the exception of the delivery than you need not worry about charging sales tax outside of CA. The key to your question is making sure you know what your activities consist of.
Leave a Comment 455 weeks ago

 

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