NEWSLETTER - SMALL BUSINESS

Internet Sales Tax Soon to be a Reality

by Ross Miller, eBusiness Specialist

Whether you buy or sell products over the web, Internet Sales Taxes will soon affect you. The moratorium period for Internet Sales Taxes is ending this November. With the efforts of the States involved in the Streamlined Sales Tax Project and the European Union's (EU) Value-Added Tax (VAT) coming into effect, eCommerce companies will have a new issue. Charging the correct amount of tax for individual buyers and getting the sales tax to the correct government entity will be difficult for eCommerce businesses. Customers of these sites will also have to adjust to seeing another line on their shopping cart invoice, "TAX".

This first tax that is currently in effect for eCommerce is the EU's VAT. On July 1, the European Union required that all electronic media purchases over the Internet to consumers will include the VAT. Electronic media purchases include downloadable software, images, media, or subscriptions. According to the regulations, any company with $100,000 in annual sales to EU citizens must register in one of the EU countries and remit Value Added Taxes (VAT) to them. Currently only the larger companies with European operations have been moving on this. The EU VAT rates range from 13% to as much as 25% depending on what country the business is registered. Companies marketing electronic media to European business will not have to worry about this tax. Those European business customers are responsible to pay that tax on their own.

Back in the U.S.A, this fall marks the end of the moratorium on Internet Sales Taxes. The Streamlined Sales Tax Project has reached its goal with 20 states, representing 20% of the population, passing Streamlined Sales Tax legislation. A majority of the approved bills will not be enacted until the summer of 2004. The Illinois legislature currently has 4 bills concerning this, but they are in the Senate Rules committee. The modified bills should be up for a vote this fall. With all the state deficit problems, it is unlikely that the State will pass up this opportunity to receive sales taxes on purchases from out-of-state businesses. The current law is that the purchaser is required to submit the Use Tax amount on these purchases to the state. The Streamlined Sales Tax Project laws will move that burden to the business selling the products, wherever they are located.

There is a much larger debate concerning what power a state has to force an out-of-state business to collect sales taxes for them. Congress will address this issue during their fall session.