The online book retailer Amazon.com had a fit this week over California requiring online retailers to collect sales tax on internet purchases by California residents. It doesn't want to do this, not paying sales tax usually compensates for the shipping cost on online purchases, and without this advantage, California residents are likely to frequent their local bookstores.
Actually, California's law is not unusual. I live in Oklahoma, and businesses here have been required to pay sales tax on out of state and interent purchases of merchandise (not services) for years. These laws are difficult to enforce, however, and it often costs the states more to prosecute violators of these types of tax laws than they collect when the laws are followed - except in the case of HUGE retailers like Amazon.
So, Amazon has decided to try to force California to change its law (that won't happen) by angering its affiliates (by terminating their contracts) who live in that state enough that they will complain to their legislators. The problem with that strategy is that most of the successful affiliates have connections in more than one state, and it will be too easy to simply set up in another state or country, and resume collecting click-through fees tax-free for now.
None of this helps the consumers, who will ultimately be paying the sales tax - somewhere, whether they purchase online or at their local retailers. Ah, well, you know what Benjamin Franklin said: "Nothing is certain but death and taxes."
So this brings us to the question of whether or not you need to collect sales tax on your online sales - that depends on where you and your customers live, but the answer is increasingly, yes (see Find Law). Also, remember that the IRS also requires online sales to be reported as income, and they have their methods of tracking these things (more information, HERE).
Jennifer Pointer (e-mail) is in Tulsa, OK. She promotes a simple, a low-tech approach to effective online profile management, search engine optimization and social networking.