Utah businesses that maintain online stores or sales portals need to pay attention to state tax law. Just because you are selling out of digital storefront doesn’t mean that the normal taxation rules don’t apply. When dealing in e-commerce, there are some situations when you will need to collect taxes, and others where you do not. Becoming familiar with the rules will help you avoid problems with state and federal tax authorities.
The Physical Presence Test
Federal case law has made it clear that you must collect tax from clients who are located in the same state as your business. What constitutes a “physical presence” depends on a few factors. First, having an office, store or fulfillment center in state generally creates a physical presence. Also, the presence of one or more sales associates in the state is sufficient.
Utah’s Nexus Text
Many state laws have gone beyond the federal definition of physical presence. States, like Utah, look for a nexus to the jurisdiction rather than just a physical presence. According to the Utah Code, Section 59-12-107, there are several situations which give rise to the duty to collect state sales tax. These include having an ownership in a business, storing goods in state, regularly delivering goods or regularly leasing property. As a business law attorney will advise, the federal rules also still apply.
Conversely, if you are a Utah business selling out of state, you do not need to collect state sales tax. Yet, be aware that other states may have taxation rules that affect interstate transactions.
Goods That Don’t Require Tax
For certain sales, you don’t have to worry about paying taxes. Under the Utah Code, Section 59-12-104, certain items are exempted from sales tax collection. To find out if your business qualifies for a sales tax exemption, contact a business attorney in Utah.
Use Tax: The Customer’s Responsibility
Buyers must beware! When a seller does not collect taxes when they are due, state law puts the responsibility on the buyer. This tax, known as a use tax, will be applied to any transaction that would normally require sales tax. However, the amount of the tax is dependent on where you reside in the state. Use tax is due when you file your state tax return. It is your responsibility to keep track of the necessary documentation to complete your filing obligations. Consult an experienced attorney if you need further assistance.
Help With Tax Laws
The laws concerning internet sales are constantly evolving. To make sure your business is in compliance with the latest standards, contact a business attorney at Spencer and Collier, PLLC. Their law office can assist you with any business law matter.