If you haven’t thought about getting your company involved in the Internet, you’re probably still living in the Dark Ages.
Retailers and consumers have embraced the advances in technology, using the Internet to buy and sell nearly everything imaginable. As you decide whether the Internet is a viable medium for your company, don’t forget to consider sales tax into the equation.
For small to medium sized businesses, the Internet is a way to reach a wider range of potential customers both geographically and demographically. The Internet allows local merchants to take products and services to an international market.
You can be open 24 hours a day, with little to no additional overhead. You don’t need additional sales staff or storefront space. Distribution costs are paid for directly by the customer. And you may be able to reduce the burden of tracking and remitting sales tax.
Elude Uncle Sam? Legally? It’s true. Here’s an example: An Ohio consumer reaches a Web site where he or she can order a CD player directly from a vendor. No Ohio sales tax is charged to the consumer because that vendor:
1. Is located outside the state of Ohio;
2. Does not have significant business activity within the state; and
3. Will ship the item into the state.
Steps must be taken to meet the criteria. In effect, a separate company must established outside of Ohio. Consider selecting a state that does not impose sales tax, such as Alaska, Delaware, Montana, New Hampshire or Oregon.
It is also important to determine if the company has “nexus,” or a significant level of business activity within Ohio. Companies that have nexus are required to charge and collect sales tax within the state. Affiliated groups, agency relationships, delivery options, physical office site and employee location also play significant roles in making this determination.
Even if your business isn’t responsible for collecting sales tax, there is still Ohio tax on Internet purchases that the consumer is responsible for paying. The Ohio Use Tax applies in situations where property is consumed within the state and sales tax has not been remitted.
Your customers may still save money by using the Internet. Instead of physically going to the store and paying the sales tax in the county where the business is located, there may be a tax percentage reduction by buying it over the Internet and paying the use tax of the customer’s home county.
There are also many consumers who save money by not paying the use tax at all — whether it is because they are unaware of the requirement, they don’t know how to file or they are willing to risk defying the law. We recommend that vendors place a disclaimer on their sites telling consumers that they may be responsible for paying use tax.
The subject of Internet commerce can provide myriad opportunities for small to medium sized businesses. However, it is important to explore all the business — and taxation — consequences of becoming involved.
Rich Warfield, CPA, is associate director, and Jill Crawford, CPA, senior associate of Saltz, Shamis & Goldfarb Inc.’s Tax Department. Saltz, Shamis & Goldfarb can be reached at (330) 668-9696.
