Sales Tax

A sales tax is a tax paid to a government (local, state or national) for the sales of certain goods and services. Usually this tax is collected from the consumer at the point of purchase and displayed as the separate item on sales receipt. The tax amount is usually calculated as a certain percentage of the taxable price of a sale.

In our brave new world of e-commerce, the most interesting issue is the tax on remote sales (online sales tax). While paying tax on ‘physical’ sales in a retail store is pretty straightforward, the situation in the online world is not that clear.

The U.S. tax law says that if your business has a physical presence (called ‘nexus’ in legal terms) in a state, such as a store, office or warehouse, you must collect applicable state and local sales tax from your customers. If you do not have a presence in a particular state, you are not required to collect sales taxes. If you do not have a physical presence in a state, you are not required to collect sales taxes from customers in that state.

Each state defines ‘nexus’ differently, but all agree that if you have a store or office of some sort, a nexus exists. Also, not every state and locality has a sales tax. For example, Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not have a sales tax. In addition, most states have tax exemptions on certain items, such as food or clothing.

Which makes the question of which sales tax to charge a challenge. And an opportunity to minimize your tax on online sales. Therefore, if you do business online, you will definitely need to develop and implement a highly efficient online sales tax minimization system.

Sales Net of VAT/Sales Tax is simply the amount of money you ‘take home’ from your sales of products and services after satisfying your ‘tax man’ by paying VAT and sales tax.