In recent years, most states have stepped up their attempts to require out-of-state retailers like EBay store operators and telemarketers to register for the purpose of collecting their use taxes.

The good news about use tax

Unless you have a ‘physical presence' in a state, you can legally avoid registering for and paying its use tax. That should be great news for millions of people that take advantage of selling items over the internet.

A state's taxing power extends only as far as it borders. A state cannot force you to pay its taxes unless you do something in its borders. And for all you eBay sellers out there, simply selling merchandise to residents of a state does not qualify as having a ‘physical presence' in your customer's state.

Accounting lingo

The Supreme Court of the United States has ruled that you must engage in a minimal level of physical activity within a state in order to establish a connection. Making sales in a state, via internet or mail order is not enough activity to establish a connection.

What will make a connection?

You may be required to register for and pay use tax if you:

1. Maintain an office, store, or other business facility in the state. Sole proprieters running their business out of a spare bedroom need not worry about this one.

2. One of your employees (or you) enters the state to take orders, perform services, or otherwise do business on your behalf.

3. Real property that you own or lease is located in the state.

4. Personal property that you own or lease is stored or used in the state on a more than occasional basis.

Basically if you limit your contact to mail, email, and telephone you shouldn't be required to register for, collect or pay a states use tax.