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SMART ANSWERS
By Karen E. Klein
MARCH 28, 2000


No Net Taxes? Well, That Depends

A look at the guidelines for taxation of Web sales

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Nonbinding Nondecision on Web Taxes

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Q:  Can you please direct me to information about taxation for services and sales provided via the Internet? We are a distribution network for independent music, and we provide direct Internet sales for bands and labels through our business.
--J.S., Pa.

A:  Whether or not businesses should be required to collect sales tax for products and services they sell over the Internet is a highly political issue, under debate in various jurisdictions. The rules are in flux, and the subject complex. So you should discuss this issue with your accountant to make sure your company complies with federal and state tax guidelines.

For the time being, tax authorities view Internet businesses in much the same light as mail-order companies. That means you need only charge sales tax on orders from residents of states in which your company physically does business or has what is known as a "nexus." The definition of nexus varies with the exact circumstance. Still, if you have a warehouse in a particular state, a sales staff on the company payroll, or an office, you probably have a nexus there and should collect sales tax from buyers in that state.

"The rules are pretty straightforward with an Internet seller selling a tangible product," says David Flamer, a CPA with the Woodland Hills (Calif.) accounting firm of Lasher, Flamer & Associates. You could also visit the Web sites of the states in which your company has a presence and look at the state tax agency's rules and guidelines, Flamer suggests.



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