I am frequently asked by small business owners what their responsibility is as to collecting sales tax from purchases generated by their websites. An online presence is different from a bricks and mortar storefront, and business owners may suddenly find themselves fulfilling orders for customers located across the country.
The short answer to this question is that if your business has a physical presence in a state, then you must collect local and state sales tax for that location. Examples of physical presences are an actual store, office, or warehouse. If your business does not have a physical presence in a state, then you do not have to collect sales tax for that state.
This rule is based on Quill v. North Dakota, a Supreme Court case that said mail-order businesses cannot be required to collect sales tax in a state unless the business has a physical presence there, as the burden on the sellers to comply with all state and local tax jurisdictions is too complex to manage and would strain interstate commerce. 504 US 298 (1992).
That being said, tax laws change all the time. If you are a small business owner looking to establish an online storefront, you should consult with your state's revenue agency to determine if you do have what is considered a physical presence. Additionally, the U.S. Small Business Administration is a great resource for answering questions about online payment services and sales.
Big City Know-How. Small Town Service.
