Internet Sales Tax & Shipping
By Nick Mann
If you’re a retailer who’s used to primarily operating a brick-and-mortar store, making the transition to online sales can be a little tricky and confusing. When it comes to handling Internet sales tax and shipping, you may have a lot of questions regarding the legalities and general best practices. Here are the basics of what you need to know to meet your sales tax obligations and streamline the shipping process.
Collecting internet sales tax
The first question you’re probably asking is whether or not collecting Internet sales tax works the same as collecting it while running a physical store. Is the process essentially the same, or are there any different rules?
How you approach online sales tax depends on whether or not you have a physical presence in a particular state. According to the Small Business Administration, “If your business has a physical presence 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 tax.”
If you’ve been running a brick-and-mortar store and have simply added online sales to your business model, then you would still be responsible for collecting sales tax. The only time you wouldn’t be responsible for collecting it is if you’re exclusively online and don’t have a physical store.
Sales tax by state
It’s important to note that each state is a little different in terms of how they handle sales tax. For instance, some states don’t even have sales tax. Others have exemptions on certain items, such as food and computer software.
To ensure that your business is compliant, it’s important to fully familiarize yourself with your state’s Internet sales tax laws. A helpful resource is Nolo’s 50-State Guide to State Laws, which can be accessed via the following URL:
This guide should answer any questions you may have about your particular state’s online sales tax laws and reduce the likelihood that you incur any penalties. You can then proceed with confidence and fulfill your sales tax obligations.
In order to simplify the often-arduous nature of calculating Internet sales tax, it’s recommended that you use some type of software. This takes the guesswork out of the process and will accurately calculate the sales tax for your specific state. Not only will this save you time, you’ll have the peace of mind knowing that online sales tax is calculated correctly, and any relevant state laws are taken into account. Some of the top products to check out include TaxCloud, AccurateTax and Avalara
Shipping: What are your options?
A huge part of effectively selling online is being able to efficiently get your product from point A to point B. For this to be successful, you’ll need to ensure that your customers are able to receive their orders in a timely manner and that your shipping costs aren’t so high that they cut into your profit margin.
If you’re just starting out and have a relatively low volume of orders, you can often get by with the USPS, UPS or FedEx. This is usually the most straightforward way to go and works well for many businesses. But to find the best deal, it’s recommended that you compare pricing options among these different couriers to see which makes the most sense logistically for your business. You can find a shipping cost calculator by visiting each of these couriers’ websites to give you a better idea of how much you can expect their costs to be.
Another option is to use drop shipping to fulfill orders. This is where you send your customers’ orders to your vendor and they ship the product directly from their warehouse to your customer. Going this route makes sense if you have a high volume of orders or have only limited space for inventory. It’s also much more convenient than handling orders yourself. Just make sure that your vendor is reliable, because their performance will affect your company’s success.
A final option is to use an online shipping service such as uShip. This is a “shipping marketplace” that helps business owners come up with viable shipping solutions that are both logical and cost-effective. If you want to simplify this process so that you can focus more fully on running your business, this is definitely something to check out.
What about shipping charges?
Another major area you’ll need to consider is who will pay for the shipping charges. There are three main options:
- Increase your product prices to cover shipping charges
- Cover the entire cost of shipping yourself
- Raise product prices slightly to partially cover costs
With the first option, your customers will basically end up paying for shipping charges. Although this will raise your prices, the prospect of free shipping is very enticing for many customers.
For the second option, you will be the one responsible for covering the costs, but won’t have to raise your product prices. With the third option, both you and your customers will pay.
Deciding which path to take is a very strategic move, and you’ll need to carefully consider all of the details before making a final decision. Ideally, you’ll be able to come up a system that allows you to maximize your profitability without having to increase product prices to the point that it hurts your overall sales volume.
Internet sales tax and shipping are two of the first areas to address when deciding to sell online. By doing your homework and experimenting with various options, you should be able to come up with a solution that keeps your customers happy and maximizes your profitability.
Nick Mann writes professionally for both digital and print publications in business, marketing and technology. He’s also an avid traveler and sports fans.