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  • Home
  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Joseph Cole, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Lauren Suarez, ESQ., LL.M.
    • Daniel Huynh, Esq., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Leslie Miranda, Esq., LL.M.
    • Brian M. Malloy, Esq.
    • Steve S. Mattia, Esq.
    • Sam Imandoust, ESQ., LL.M
    • Kaveh Imandoust, JD, MBT, CPA
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Martin Schainbaum, ESQ., LL.M.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Remy Hogan
    • Judith Jeremie
    • Marley Smith-Peters
    • Melanie Chan
    • Tanner DeMera
    • Charles Ecker
    • Anna Gurr
    • Asia Smith
  • Practices
    • ERTC – Call Us Before It’s Too Late!
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
        • NOTICES
          • IRS Notices
          • IRS Letters
          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearing
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
        • IRS Wealth Squad
        • Offer in Compromise & Tax Settlements
          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing an Offer in Compromise
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
          • Why Choose RJS LAW?
          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
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        • California State Tax Matters – California Franchise Tax Board | FTB | EDD
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          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
      • CRIMINAL TAX ISSUES
        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
      • CORPORATE TAXES
      • TAX COURT LITIGATION
      • Innocent Spouse Relief
    • International Tax
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    • Trust Litigation
    • Trust, Estate & Probate Litigation
    • Trust & Estate Administration
    • Probate
    • Bankruptcy
    • Civil Litigation
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    • Corporate & Transactional
    • Private Wealth Services
    • Real Estate Law
      • Landlord Tenant Law
    • Employment Law
  • Tax Institute
    • 8th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 28th, 2023
    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
  • Testimonials
  • Giving
    • Giving
    • RJS Law Donates Billboard to the Girl Scouts
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    • SD50 Extraordinary Leadership
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E-Commerce Sales Tax

E-Commerce Sales Tax
An Online Sellers’ Survival Guide to E-Commerce & Sales Tax

E-Commerce Sales Tax

The rise of e-commerce has led many online retailers to seek guidance on calculating, documenting, and paying sales and use tax on their online sales. Questions about e-commerce sales tax like, “Do I charge the same sales tax rate for every customer?” or “Am I supposed to charge sales tax relative to where the customer is located?” have grown prevalent in recent years.

Market Trend

Over the last two decades, e-commerce retail has become one of the country’s fastest growing trade sectors, outpacing almost every other trade and manufacturing sector since 1999. In 2017, e-commerce sales accounted for 9% of all retail sales in the U.S. This figure is predicted to reach 12.4% in 2020. With the COVID-19 pandemic, online sales will certainly accelerate beyond these projections.

30,000 Foot View

Put simply, an e-commerce business must charge sales tax when the seller has, what is called, “nexus” in a given state. Retailers must have some form of presence in a given state before that state can require the retailer to collect sales tax from buyers in that state. Nexus can be achieved multiple ways.

First, “physical presence nexus” is fulfilled when a seller uses any office space, distribution center, sales room, warehouse, or storage space within a state to conduct business. Employing any sort of representative, agent, or salesman within the state will also satisfy nexus.

Second, sellers can also qualify for “economic nexus” if they complete a certain number of transactions or reach a certain amount of sales to buyers located in a specific state. For example, in California, if an out of state seller’s annual sales to California buyers exceeds $500,000, the online seller achieves economic nexus in California and must collect sales tax on any sales to California buyers.

The Online Aficionados – Remote Sellers

The next question is to determine exactly how much sales tax to assess each customer on a given transaction. Online sellers should begin by looking at their home state to determining whether they are in an origin-based sales tax state or a destination-based sales tax state. There are special guidelines for “remote sellers”, those online retailers who maintain economic or physical nexus in multiple states, where they are required to collect sales tax.

Most states treat in-state sellers and remote sellers differently. For example, an online seller based in Utah with buyers in California, will follow Utah’s origin-based sales tax laws and charge their California customers Utah sales tax on purchases. However, if the Utah seller does business (and has economic nexus) in multiple states, they will be considered a remote seller. In this case, Utah law will have the remote seller apply destination-based sales tax (that is, charge California sales tax on purchases by California residents).

The Rate And Its Components

Next, it is important to understand how the appropriate sales tax rate should be calculated. The total sales tax rate assessed on a given purchase is a combination of several rates. The total rate should combine the state, county, city, and/or district sales tax rates. In origin-based states, these rates are determined by the location of the seller. In destination-based states, the component rates are determined by the location of the buyer.

The Standout – California

When it comes to assessing e-commerce sales tax, California stands apart. California’s unique online sales tax scheme is aptly described as the “modified” origin-based sales tax. Remote sellers located in California must charge a cumulative rate which combines their local state, county, and city sales tax rates with the district sales tax rate of their customer’s location.

Thus, the appropriate California rate for its remote sellers is a blend of both origin and destination-based tax schemes. Of the rate’s four component parts, three are derived locally, while the last piece is determined by the buyer’s out-of-state district.  

Keep in mind, only three states require origin-based sales tax for remote sellers: California, Arizona, and New Mexico. Every other state either requires remote sellers to collect destination-based sales tax or requires no sales tax at all.

Paying Uncle Sam

Online sellers exceeding a given state’s remote seller threshold sales figure must register with that state, collect the appropriate taxes, submit the required sales data by filing a return, then remit the collected sales tax dollars to the appropriate state agency.

For example, out-of-state sellers who exceed the $500,000 gross sales threshold in California are required to register with the California Department of Tax and Fee Administration (“CDTFA”) and apply for a California seller’s permit before collecting state sales and use tax. Remittances are also collected by the CDTFA.

Published by Arin Nahapatian

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