Tweet

The Internet Tax Man Cometh

Written by: Tim Knox

Article Overview: If your small business is like most, the majority of your large purchases are made locally from companies that already collect sales tax. Furniture and computer equipment are typically the largest ticket items a small business buys, so unless you bought your desks and computers off of Ebay (which is highly possible these days) you should be OK.

The Internet Tax Man Cometh

Q: I was contacted by the city tax collector to say that my business is scheduled to be audited to see if I owe sales tax on items purchased on the Internet. Can they really make me pay sales tax on internet purchase? I thought you could buy things online tax free? -- Charlie B.

A: Sorry, but your local municipality is well within its rights to audit your business to identify items purchased online. The city can also demand payment of sales tax on those items if sales tax was not previously paid. Don’t be surprised if the auditor asks for access to your books and to see purchase receipts and invoices for at least the past year.

One of my companies recently underwent such an audit and it really was not as painful as you might think. Being a software company, the majority of our online purchases were for computer equipment, technical manuals, and software development tools. Since we purchase computers from a large supplier who collects sales tax at the point of sale (ditto for the development tools), the only sales tax we ended up owing was for an inordinate number of technical manuals and books purchased at Amazon.com.

If your small business is like most, the majority of your large purchases are made locally from companies that already collect sales tax. Furniture and computer equipment are typically the largest ticket items a small business buys, so unless you bought your desks and computers off of Ebay (which is highly possible these days) you should be OK.

Internet sales taxation has been a topic of contention even before Amazon sold its first book and Priceline booked its first flight. One of the more controversial points is that no one, including our own government, seems to have a clue how to implement a fair and logical Internet taxation process. With over 7,500 different local, county and state taxation systems in the United States, you can understand the controversy.

In 1998, Congress did what it usually does when faced with a potentially explosive issue like Internet tax collection -- it decided to put off making a decision. Congress enacted a three-year moratorium on the collection of taxes to give an appointed advisory board time to come up with an acceptable solution. That moratorium ended in 2002 and opened the door for municipalities to begin collecting sales tax on their own.

Here in Alabama the state sales tax collection department has aired radio spots asking Alabamians to step up to - and toss dollars into - the proverbial collection plate. The commercial kindly suggests that if I have purchased anything from an online retailer, I am honor-bound to proclaim such purchases and submit the appropriate sales tax to the collection department right away. They thank me in advance for my cooperation.

So, Charlie, when the auditor shows up at your door the best thing you can do is smile politely and be totally forthcoming. The sales tax that you pay is a small price for the convenience of shopping online.

Or at least that’s what you should tell yourself as you write the auditor a check

Related Articles
  Situational Leadership Theory in Change Management - Different Strokes For Different Folks
  Happy New Year 2010!
  Where do I start if I want to make money on the internet ?
  Internet Marketing Tips for Travel Professionals
  Do You Want To Get Into Internet Marketing?

Article Tags: amazon, computer equipment, contention, controversial points, ditto, ebay, explosive issue, first flight, inordinate number, internet purchase, internet sales, internet taxation, local county, point of sale, purchase receipts, software development tools, state taxation, taxation systems, technical manuals, year one



Related Forum Posts
Re: 4 Home Based Opportunities For 2011 - Hi, Thanks, for sharing these value information with us. Internet make easy us to earn money even at home. Internet offers a lot of opportunities to earn money. Internet Marketing is the biggest example of money making.
Re: Who inspired you to start? - Hi Evan, I was inspired by Mr. Bill Gates ever since I was a student learning Computers. But I was motivated for Internet as my Business, when I read his book "The Road Ahead" in 1995. It was in this book that Gates laid out his vision of an interconnected world built around the Internet. Based on the premise that life will be transformed by the convergence of inexpensive computing and inexpensive communications, Gates drew from his experience at the center of the personal computer revolution to give insights on the growth, evolution and impact of technology. I had always looked up to Bill Gates as my idol. When I read this book, it made me more focussed on Microsoft and Internet, The Internet was one of the upcoming things in this time. So I took over to the Internet as my primary business. Regards,
Re: Poll: Which would you live without? TV or Internet? - Hi Evan, I have to admit that I do enjoy TV but mostly for sport or educational programs. However, I can honestly say that since I went on the Internet, it has changed my life forever like it has for everyone around the world. When I say it has changed my life, I don't mean it in a soppy way but just in everyday things like research, booking a holiday, shopping, renewing tax or driving license etc, all of which you can do online and that is before my Internet activities. Therefore I have to say in answer to the question, I would miss the TV but I would miss the Internet much more. regards, Mal.
Re: Has The Recession Hit Your Business? - Hi, Yes I think it is only natural that the recession affects all businesses and the Internet is not immune to this. Hopefully enough people will see that the Internet is a way to make money and to offset the problems they are having so we all have to remain positive, regards, Mal.
WSI Franchise - I considered looking at the WSI model before starting my business. I think anything Internet related is going to be hot - everyone needs to get their website ranked highly and most entrepreneurs don't know what to do to about it. WSI is the biggest Internet optimization franchise but I found them to be too expensive.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

The Digital Diet by Daniel Sieberg

Remind Me...

How To Become A Member of the Paparazzi

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.