Online business can become subject to several types of taxes including income, transaction, and property
International Revenue Service (IRS): U.S. government agency charged with administering country’s tax laws. Any verifiable increase in company’s wealth is subject to federal taxation. Any company whose U.S. based web site generates income is subject to federal income tax. Web site maintained by company in U.S. must pay federal income tax on income generated outside U.S.
Sales Tax: transaction tax on goods sold to consumers
Can determine sales tax with shopping cart vendor or other provder like Tax Data or Sales Tax Clearninghouse
Use Tax: tax levied by state on property used in that state that was not purchased in that state
Example: lease payments on vehicles subject to use taxes in most states
Nexus: connection between taxpaying entity and government
Activities that create nexus in U.S. vary from state to state and are determined by state law. A company doing business in more than one country face national nexus issues. Companies establish nexus with that country and become liable for filing tax returns in that country. If the business ships goods to customers in other states, they are not required to collect sales tax from customers unless the business established nexus with the customer’s state.
Determining if the business collects and pays sales tax based on physical presence in a customer’s state can be difficult since some have a warehouse or employees promoting business in that state cause nexus.
Example of nexus: Sue sells from eBay store in Massachusetts; if business expands and uses warehouse or fulfillment service in Ohio, Sue needs to pay taxes and collect from selling to customers in Ohio
Some states do not have nexus for certain things, such as California does not tax for downloadable software outside of the state
It is important to register in state before collecting tax. If you don’t, you could go to jail or lose assets.
Example: If company is not registered and gets audited, the state takes 8% of earnings, leading to loss of profit and possible loss of business
Specific Wisconsin Tax Laws: http://www.revenue.wi.gov