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April 8th, 2011, 06:36 PM #1
How to Implement Collection of Sales Tax
- Join Date
- January 6th, 2011
This may be an elementary question but assuming, we as merchants, need to start paying state tax on sales from affiliates over $10K per year (seems to be the standard threshold) how do you only collect tax on affiliate sales? For many small-time merchants, it would be very tricky for their online cart to trigger tax only if it reads a cookie of some sort telling it that the sale is from an affiliate in the effected states.
I would guess that merchants might start collecting tax from all sales from a particular state, only sending the state the minimum they can get away with sending. Also, not sure states understand how to enforce the tax - commissioned sales might not be as easy to track as they think!
April 8th, 2011, 07:21 PM #2
It's my understanding that all your sales are now taxable in that state if you have affiliates in that state, not just affiliate sales. That is the reason merchants use to drop affiliates from taxable states, then they do not have to collect or pay taxes there.
April 8th, 2011, 07:27 PM #3
Thank you for asking that question - I am just starting to dig into all this to try and make sense of it as well. I thought too that I only had to collect taxes once we reached a threshold of sales in that state.....so I was wrong too!
How are smaller retailers handling this then? I hate not allowing affiliates from these states in......
April 8th, 2011, 07:31 PM #4
You have misinterpreted the laws.
Having affiliates in a state provides a basis for the allegation that an out-of-state merchant has a "nexus" with the state, sufficient to require the merchant to collect the state tax on ALL sales to residents of that state, once a certain minimum dollar value of sales is reached - the $10,000 trigger.
Having affiliates is only the condition precedent, it does NOT mean you only must collect the tax on affiliate-generated sales; the laws apply to ALL sales.
Last edited by Phil Kaufman aka AffiliateHound; April 8th, 2011 at 07:33 PM. Reason: Posted before seeing the two prior posts
April 8th, 2011, 07:55 PM #5
OK maybe I am being stupid here, so I do not have to collect sales in that state until I reach 10k in sales - then all sales after that I have to collect sales? Am I getting that right?
Sorry this affiliate tax thing is making my head spin and we are trying to figure things out to see if there is a way we can make our program open to everyone.....so it is important I "grasp" this.
This is by far the dumbest law I have every heard of though.....just my opinion of course....but they are really grasping!!!!!!
April 8th, 2011, 09:14 PM #6
every state has subtle differences in their sales tax laws. I think in one, once you hit the magic number you are liable for sales in the preceding 12 months. (read that somewhere but can't remember now. maybe it was NY)
April 8th, 2011, 09:40 PM #7
- Join Date
- January 18th, 2005
As others note, "nexus" means that you must compute, collect, report, and remit sales tax for ALL customers within the state -- not just those customers referred through performance-based advertising (affiliate programs).
This doesn't mean you'll collect sales tax from everyone -- depending on what products or services you sell, you might find that certain states exempt certain products or services from sales tax, and you might also need to deal with orders placed by sales-tax-exempt customers. (In some [most?] states, you'll need to report on sales of exempt items to the state's residents.)
Do NOT wait until you have $10,000 in sales to a state to deal with this issue. It's possible that your duty to compute, collect, report, and remit sales taxes won't begin until the day you reach $10,000 in sales to the state, but get advice from a tax professional (not a stranger on the internet, but someone with an appropriate license whom you've paid money).
If you reasonably expect to reach that level at ANY TIME this year or next (at least one law clearly identifies a "rolling" 12-month period, not a calendar year), then you should consider registering with the state and start collecting tax NOW.
Talk to your "tax professional" (CPA or tax attorney, probably not an "enrolled agent" or "bookkeeper" who's not a CPA), to help you navigate this decision process; and be aware that a professional in your state might not understand the tax laws of other states (remember, in the event of a mistake, you end up owing the sales tax to the state, even if you didn't collect it from your customers, and your tax professional isn't likely to volunteer to help you out if this happens).
It may take a considerable amount of time to navigate the entire process required to properly register with a state, determine the applicable tax rates, and integrate the tax computation, collection, reporting, and remittance into your system. For some advertisers/merchants, it may require substantial (expensive and time-consuming) work to program, configure, and test your sales-tax collection solution. Of course, it's also possible that you'll find a solution that's quick and easy (for example, a plug-in for your ecommerce software that interfaces to a reliable API).
For some states which are members of the Streamlined Sales Tax Project (SSTP), the process might actually be "streamlined," but for other states it may be cumbersome. There are some very bizarre differences, between states, about which products or services are subject to sales tax, at what rates. Many states also have multiple tax rates for different locations.
If you'll collect sales tax in more than one or two states, you'll probably choose to use a third-party service (API) to manage the process of computing the correct tax. I assume that the same folks who've implemented solutions for the SSTP probably also provide services for dealing with sales tax in other states, so that's probably a good place to start.
Last edited by markwelch; April 8th, 2011 at 09:52 PM.
April 9th, 2011, 07:29 AM #8
Mark thank you for spelling it out so clearly. OK now I can completely see why affiliates are being cut left and right - this is a lot of work and probably aggravation! The complexity of tracking all this is really way to much for any small to mid sized business....
April 13th, 2011, 12:23 PM #9
- Join Date
- April 9th, 2011
I noticed there is a sub forum for nearly every state on the forums home page, but i didn't see one for Pennsylvainia, which is where i live. I'm just starting to learn about this business and was curious if living in PA puts me at some kind of serious disadvantage? I've been reading a whole lot about how a recent (?) tax law is causing all sorts of problems for people based in which state they reside and was curious how it affects me living where i do...
April 13th, 2011, 01:32 PM #10
There is an astounding amount of work on this from the merchant's side, especially when states like North Carolina try to attach 5-6 years of back transactions. Many of the networks don't have great tools to help out in compliance reporting so there is a ton of manual report generation that needs to be done just to determine which transactions play into the pool. I think we figured out that we'd have to run 2000 + queries in CJ just to get transaction information that we'd then need to compare to our internal orders DB to see if the orders shipped to NC.
Definitely talk to your accountant and get some good advice on this - you should also start checking in with your ecommerce provider to see what they have available to help out - the established ones should have modules that can help you collect in the states that require it. There are also some 3rd party companies out there like Avalara that can help with collection and remittance - not sure how they are set up to work with smaller merchants.
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