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What was the outcome of the new Internet Sales Tax?

Rockville, MD |

I sale on eBay and have my own website too and use PayPal. At the end of the year Paypal will send a 1099 form to IRS showing total amount sold. As you know this is not the profit. This amount shows all money received. I am assuming IRS will know that more than half of this amount will be item cost and rest are shipping charges and eBay fees and maybe there is a little profit.

So I hear that a new online tax law came out. That is it exactly? I heard it applies to companies with over 1M$ transactions. Is that true?

So lets say company A has total amount received is over 1M in one year so they have to pay sales taxes or it applies to a company with PROFIT of 1M dollars OR its 1M in sales?

And if company B has 980k in sales, they don't have to pay sales tax?

Attorney Answers 3

  1. You have some very basic misunderstandings about the different taxes that apply to your venture, and where they are to be paid. Sales taxes owed to a state are paid separately than taxes on profits or capital gains that may fall due to Uncle Sam, or taxes on ordinary income that may pass through to the individual owners of your entity (is it a corporation, sole proprietorship, or LLC?). The best source of advice on this subject is a CPA.

  2. Here's a link to a recent CNN news report that may help clear up some of the misconception. Keep in mind that until the bill passes congress (both house and senate) and is signed by the president, it's not yet law.

    Good luck.

    Evan A. Nielsen is licensed to practice law in California and handles federal tax matters throughout the U.S. The information provided here is for educational purposes only and is not intended as legal advice for a particular matter. This response does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult an attorney.

  3. To directly answer your question, there are not any new federal laws affecting sales tax, at least not yet. There is a bill going through congress right now called the Marketplace Freedom Act that has passed the Senate but appears to be held up in the House of Representatives. Under this law, a company that sells more than $1,000,000 remotely (basically sales outside your home state), then you would have to collect sales tax on behalf of your customers states. You are already supposed to be collecting sales tax in your home state (presuming it has a sales tax and you are selling products that are subject to tax).

    The prior response is correct that you don't appear to have a good understanding of sales and use taxes. Generally, this is a tax on your business for the privilege of selling goods, but you are usually required to pass the tax on to your customer. So this is a tax added onto your selling price and usually paid for by your customer. You must collect the tax and remit the taxes to the state. There are an dizzying amount of rules and you have to keep very, very good paperwork.

    At the moment, the law is merely a proposed law. It has been proposed for 3 years running.

    I hope this answers your question.

    James Sutton, CPA, Esq.

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