Products and services are purchased daily by U.S. customers through E-commerce companies via the Internet. You are required to accrue and transfer sales tax monies to the states in which it is generated, wherever each customer lives, if your company has an Internet link, or nexus, in that customer’s state.

Whether or not a product or service is taxable, depends upon the guidelines of individual states. Therefore, a company’s services or products may or may not be taxable from state to state. Some states require taxes on invoice items only if they are listed together, then they are subject to the sales tax which is collected from the consumer. Those items are not taxable if they are listed singularly.

The definition of “nexus” is somewhat complicated. First, each state has its own definition, although it is the word that is used to ascertain whether or not your company has an Internet “link” in that specific state. Two, should you have a link, or nexus, affixed to a state, then all sales tax legislation of that state is binding and you must calculate, collect and then pay that state the determined sales tax. Three, the matters are further complicated. You may not be required to file a franchise tax return or a state income tax return, although you may be required to pay the sales tax in that state. Thus, there are two different definitions of “nexus.” One pertains to sales tax and the other pertains to a franchise tax return or a state income tax return. Specific states may effect a nexus through situations such as these examples:

– having your business based in one state and an employee from another state
– even though your company is located in one state, your sales person, which is contract labor, commutes to another state
– being in that state to make sales, such as doing trade shows, or other sales-generating tactics
– advertising abundantly in a state
– having a company warehouse in that state

You may prefer to employ a person to read and stay abreast of the rules. That way, you will be current with all the rules for each state in which your company does business. And, to determine whether or not you even have a “nexus” in a state.

Use Tax Explained

Before the Internet became a popular avenue by which consumers purchased products, states were losing sales tax monies. Consumers shopped in states other than their own, did not pay sales tax, but used the products in their home state. “Use” tax became a definition of sales tax, or that part of the sales tax which is derived from using the products in their home state. To make it clear, if a person lives in a state in which sales tax has been imposed and purchases products from a state that does not impose sales tax, the person must pay “use” tax to his or her home state. The same rules apply when people purchase products Online.

LLC.NET is an online service that will help you take advantage of benefits due your company through the forming of a Limited Liability Company (LLC). An LLC is a most beneficial strategy for small or medium-sized businesses and is currently recognized in the District of Columbia and all 50 states.