The Internet Tax Man Cometh

Q: I was contacted by the city tax collector to say that my business is scheduled to be audited to see if I owe sales tax on items purchased on the Internet. Can they really make me pay sales tax on internet purchase? I thought you could buy things online tax free? -- Charlie B.

A: Sorry, but your local municipality is well within its rights to audit your business to identify items purchased online. The city can also demand payment of sales tax on those items if sales tax was not previously paid. Don't be surprised if the auditor asks for access to your books and to see purchase receipts and invoices for at least the past year.

One of my companies recently underwent such an audit and it really was not as painful as you might think. Being a software company, the majority of our online purchases were for computer equipment, technical manuals, and software development tools. Since we purchase computers from a large supplier who collects sales tax at the point of sale (ditto for the development tools), the only sales tax we ended up owing was for an inordinate number of technical manuals and books purchased at Amazon.com.

If your small business is like most, the majority of your large purchases are made locally from companies that already collect sales tax. Furniture and computer equipment are typically the largest ticket items a small business buys, so unless you bought your desks and computers off of Ebay (which is highly possible these days) you should be OK.

Internet sales taxation has been a topic of contention even before Amazon sold its first book and Priceline booked its first flight. One of the more controversial points is that no one, including our own government, seems to have a clue how to implement a fair and logical Internet taxation process. With over 7,500 different local, county and state taxation systems in the United States, you can understand the controversy.

In 1998, Congress did what it usually does when faced with a potentially explosive issue like Internet tax collection -- it decided to put off making a decision. Congress enacted a three-year moratorium on the collection of taxes to give an appointed advisory board time to come up with an acceptable solution. That moratorium ended in 2002 and opened the door for municipalities to begin collecting sales tax on their own.

Here in Alabama the state sales tax collection department has aired radio spots asking Alabamians to step up to - and toss dollars into - the proverbial collection plate. The commercial kindly suggests that if I have purchased anything from an online retailer, I am honor-bound to proclaim such purchases and submit the appropriate sales tax to the collection department right away. They thank me in advance for my cooperation.

So, Charlie, when the auditor shows up at your door the best thing you can do is smile politely and be totally forthcoming. The sales tax that you pay is a small price for the convenience of shopping online.

Or at least that's what you should tell yourself as you write the auditor a check.

Small Business Q&A is written by veteran entrepreneurand syndicated columnist, Tim Knox.Tim's latest books include "Small Business Success Secrets"and "The 30 Day Blueprint For Success!"Related Links:http://www.smallbusinessqa.com http://www.dropshipwholesale.net

MORE RESOURCES:

2009 CHICAGO BUDGET | Mayor wants to hike event, parking taxes to ... - Chicago Sun-Times

As the Economy Sinks, So Do Odds of a Tax Cut - U.S. News World Report

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Mayor: Homeowners#39; taxes to drop - Indianapolis Star

Meeting on Crisis, Executives Say High Taxes Hinder City’s Economy - New York Times

Economic decisions involve more than reducing taxes - Lexington Dispatch

Some real differences on carbon taxes . . . - Vancouver Sun

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Tax experts suggest ways to close $300 billion gap - The Associated Press

The Problem With Tax-Exempt Health Insurance - New York Times

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County doesn#39;t control school, municipal taxes - Vineland Daily Journal

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/8-0fd=Rurl=http://www.thedailyjournal.com/apps/pbcs.dll/article%3FAID%3D/20081011/OPINION03/810110333cid=1256184194ei=dIbwSJftDIu8yATRkdXPBwusg=AFQjCNEpXdN0UiN-ucBibr-9XyoTbrt0EQCounty doesn#39;t control school, municipal btaxes/b/abrfont size=-1font color=#6f6f6fVineland Daily Journal,nbsp;NJnbsp;-/font nobr2 hours ago/nobr/fontbrfont size=-1All to often, I come across people who have been misinformed about our property btaxes/b. People need to know that our property btax/b bills are made up of three b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/8-1fd=Rurl=http://www.thedailyjournal.com/apps/pbcs.dll/article%3FAID%3D/20081011/OPINION03/810110332cid=1256184194ei=dIbwSJftDIu8yATRkdXPBwusg=AFQjCNEPVrCsZ6Nu7Lh1NFumFdiD5OaO9ACounty board needs checks and balances/a font size=-1 color=#6f6f6fnobrVineland Daily Journal/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1256184194hl=ennobrall 5 news articles/nobr/a/font/div/font/td/tr/table

Don’t raise taxes - Buffalo News

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/9-0fd=Rurl=http://www.buffalonews.com/149/story/459635.htmlcid=1255823033ei=dIbwSJftDIu8yATRkdXPBwusg=AFQjCNEeZHK1EBCzbH-7cU08eS5ljgWpWADon’t raise btaxes/b/abrfont size=-1font color=#6f6f6fBuffalo News,nbsp; United Statesnbsp;-/font nobr22 hours ago/nobr/fontbrfont size=-1If the hint from the administration of Erie County Executive Chris Collins that a property btax/b hike may be in the offing for 2009 is just a trail balloon, b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/9-1fd=Rurl=http://money.cnn.com/2008/10/09/news/economy/states_feel_the_pain/%3Fpostversion%3D2008100909cid=1255823033ei=dIbwSJftDIu8yATRkdXPBwusg=AFQjCNGS9V2HNTbxf1RO_Vzj6tigrphWYQFor states, it#39;s a #39;worst-case scenario#39;/a font size=-1 color=#6f6f6fnobrCNNMoney.com/nobr/font/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/9-2fd=Rurl=http://ap.google.com/article/ALeqM5hIK6KCg908gehZTEDOQCbHnauzOwD93MSISO0cid=1255823033ei=dIbwSJftDIu8yATRkdXPBwusg=AFQjCNFm3ATSkfEPGZtovDs2LGn4DWEIZwStates to zero-in on btax/b cheats as economy sags/a font size=-1 color=#6f6f6fnobrThe Associated Press/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1255823033hl=ennobrall 229 news articles/nobr/a/font/div/font/td/tr/table

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