Do I Need to Charge Taxes Online?



If you're running an Internet company, it's your responsibility to keep current on tax laws that affect you. As a retailer, you're obligated to know the laws regarding both the collection and payment of state sales taxes.

According to CPA Jim Reed, of Teton Tax (http://www.tetontax.com), ?The collection of sales tax for items sold over the Internet is only required if the business has a physical presence in that state.? In other words, if you run a home-based, online candle business in Oregon and you sell a box of votive candles to a customer in Portland, you'll need to charge them sales tax.

If, however, you sell a candelabrum to a customer in Texas, where your business has no physical presence, you don't need to charge sales tax, so you're able to provide your customer with a lower price. This can add up to substantial savings on high-end purchases, and give your E-Biz a competitive advantage over out-of-state brick-and-mortar stores.

In addition to charging sales tax, you're also responsible for passing that money on to the government. In most states, you'll need to fill out a tax return, usually once a month. Says Reed, ?You're required to fill that out, whether you have sales or not, once you obtain a sales tax license. Each state has its own sales tax form to be completed, signed, and filed, and the tax remitted, based on what taxes have been collected during that period.?

What's the Best Way to Structure My Business?

Another legal aspect of starting an E-Biz is deciding how you want to set it up. The legal entity you choose for your business can protect your assets, or leave them exposed:

? A Sole Proprietorship. This is your business' default structure. Many e-business owners choose this route to avoid the costs and paperwork that incorporating entails. However, this type of entity leaves your personal property vulnerable in a lawsuit. A plaintiff can go after everything ? your home, your personal bank accounts, your car, etc.

? A Corporation or an LLC. Incorporating your business is like getting an insurance policy for your personal assets. If your company is sued, only what belongs to the corporation is at risk. Setting up a corporation or an LLC is more expensive, but the protections it affords you make it a cost-effective option.

No matter how you decide to set up your business, it's always a good idea to consult a CPA and an attorney to make sure you're legally squared away, and set up in the manner that benefits you most.