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How To Handle Sales Tax When Dealing With E-commerce Businesses 

What is E-commerce?

E-commerce simply refers to the buying and selling of goods and services on the internet and the data transactions that constitute payment. Brick and mortar stores are no longer the go-to for shopping as more people are going online for their retail needs.

How much money is in E-commerce?

Online shopping has been around for over 25 years and is expected to grow into a 4 trillion dollar industry. It is by far the fastest-growing retail market.

How Do I Know If I Need To Pay Sales Tax In A Given State?

To establish whether or not a state can impose a sales tax upon your business there first needs to be nexus. Nexus relating to state sales tax is established by a connection between the state and your business. How this connection is defined has been subject to fairly recent changes that reflect changes in the way business is conducted in modern times.

What Are The Different Methods In Which The States Establish Sales Tax Nexus?

The definition of sales nexus can vary greatly from state to state. Here is a list of the different ways in which states can determine sales tax nexus:

  • Click-Through Nexus legislation
  • Affiliate Nexus legislation
  • Marketplace Nexus legislation
  • Notice and Reporting Requirements
  • Economic Nexus 

Click-Through Nexus legislation- This usually requires a remote seller to meet a minimum sales requirement in the state resulting from an in-state referral agent who is a resident of the state. The agent must be making commission payments to the referral agent for any sales that are the result of the click-through referrals from the agent’s website. 

Affiliate Nexus legislation– A remote retailer holds a substantial interest or is owned by a retailer that is located within the state and sells a similar type of product under a similar business name. Instate retailers can also be used to promote or market the product to in-state customers. Affiliate nexus does not require common ownership and may not include services such as sales and delivery.

Marketplace Nexus legislation– This definition applies to marketplace facilitators who operate a business in the state and provides e-commerce infrastructure, customer service, payment processing, and marketing services to individual sellers. The facilitator is the one that is required to register with the state and collect the sales tax rather than the individual sellers.

Notice and Reporting Requirements– This legislation requires that a retailer does not collect the state sales tax themselves but notify their buyers that they must report state use tax on all their purchases. The retailer might be required to send the purchaser a statement of all their purchases.

Economic Nexus– An out-of-state retailer generally is required to collect and remit sales tax once the retailer meets a set level of sales transactions or gross receipts activity (a threshold) within the state. No physical presence is required.

To find out more about state sales tax please visit the sales tax institute.

Build your inventory and make sure you get barcodes for all of your products.

To legally sell products to consumers through an online store, you will need UPC bar codes for each item you are selling, with separate barcodes for different patterns, styles, and combinations of features. You can purchase barcodes easily online. 

Make sure you have a decent size inventory to handle the demand. The online customer expects their orders to come through quickly.

Set up your Domain and design a great website.

Your domain name is your internet address. You want your domain name to be memorable and interesting. Many companies offer domain name registration. Set up an account and then you identify the name of your domain.  There is usually an annual fee

You also want to design a pleasing website that offers customers a pleasing and simple-to-use interface. This includes setting up the theme, headers, and product lines. You will also need to organize your products into categories, and decide whether you want to include sections such as a FAQ page or blog. Do not forget important factors like a shopping cart and easy-to-play options. This should not be difficult if you are using a typical e-commerce platform. You also want to make sure to constantly update and check your website to make sure there is no technical issue that could interfere with your sales.

Always start with a business plan.

A business plan is a strategy that lays out all the important aspects of your company including goals, financing, and operations. Many online retailers mistake a lack of brick and mortar overhead as an excuse for not planning out the details of their business properly. In order for your online retail business to be taken seriously, you must treat it as a serious business.

Think of it this way, a good business plan should tell anyone who reads all the essential details of your company. 

A solid business plan should contain some elements of the following:

  • Executive Summary
  • Company (who we are)
  • Products and Services (what we sell)
  • Market Analysis (who we sell to)
  • Strategy (how we sell, who the competition is, what the roadmap is)
  • Operations (how it is made)
  • Financial Plan (what are the funding requirements, what is the expected return on investment)

A good business plan often makes a critical difference between failure and success. It provides a clear pathway on which your online retail business can navigate.

Launching and Marketing

Once you have worked out all the operational and technical bugs it is time to launch your new online retail business. Make sure that you market to your customers on multi-levels including taking advantage of many types of social media. You should also be aware of search engine optimization to make sure that your customers can find you easily. It is a good idea to maintain an ongoing flow of content on the site to both attract and engage your core market.

Do Not Get Frustrated.

We understand that this is a whirlwind of information that can be very frustrating. There are great differences between states and you do not have the time to sort this out and properly run your business. That is why TaxResaleCertificate should do all the hard work for you. We can make sure that you get all the advantages of a tax resale certificate without having to deal with the hassle of government red tape. Let us handle the hard stuff so you can proceed to run your business with confidence. Make sure you check out our second blog in this series so you can learn even more valuable information about tax resale certificates.