Free Tax Advice
How to get free tax advice on Internet and ecommerce matters.
Ecommerce and Tax
No one provides entirely free tax advice, not in detail, without
expecting something in return, but the Internet does feature many
useful sites.
Companies are affected by a multitude of tax issues, but those
online commonly need advice on two particular matters: corporation
tax and sales tax (or VAT in European companies). We provide a
handy short-list of Internet tax advice sites on our resources
page, and these should be explored for the details. You may
also need expert opinion from time to time, which, if not cheap,
avoids being stung later with fines and court fees.
Corporation Tax
Countries like the British Virgin Islands offer an offshore
status that provides a very advantageous tax situation. Should
you register your ecommerce business offshore?
That's perfectly possible, but you won't escape USA (or European)
tax liability unless your whole business is transferred abroad.
You will still fall under "US residence jurisdiction"
if your company retains an office, property, employee in the USA,
or even a traveling representative who is resident for extended
periods in the USA. You could even find yourself facing double
taxation, levied in the "tax haven" and in the USA.
Tax experts may give you varying advice, but for an unbiased opinion
it's essential to consult one in the USA, as it's a criminal offense
to help a company or individual evade US tax.
Needless to say, you are even less likely to win your court battle
with the revenue authorities if you simply rent an offshore server
to host your website. Or if you only act as middleman in goods
and services that are supplied between other countries. US companies
and individuals pay US tax on their earnings worldwide, subject
to certain allowances and reciprocal tax arrangements. Finally,
of course, whatever you do, you must keep proper records, or Uncle
Sam will estimate a tax liability for you.
Sales Tax
Sales tax applies in 45 US states, and is imposed on the buyer
and collected by the seller when "nexus" or sufficient
contact exists between the locations of buyer and seller. The
Internet has complicated matters enormously, as a seller in one
state may purchase through a website hosted in a second state
from a seller located in a third state an item of merchandise
that is warehoused in a fourth state. Who pays the sales tax,
and to which state?
It was to avoid multiple sales taxes, and prevent states levying
extra taxes to compensate for lost revenue, that Congress introduced
ITFA, or Internet Tax Freedom Act. Passed in 1988, the Act has
now been renewed. The key words are extra or multiple taxes. Existing
sales taxes still very much apply, but ecommerce can't be burdened
with new taxes. The situation is therefore as follows:
-
buyer and seller located in the same state: seller collects
the sale tax for the buyer and remits to the state.
-
buyer and seller in different states where the seller has
a presence (office, warehouse, employee, or representative)
in the buyer's state: seller again collects sales tax on behalf
of the buyer and remits to the buyer's state.
-
Buyer and seller in different states where the seller does
not have a presence in the buyer's state: buyer has the responsibility
of paying sales tax to his state.
Value Added Tax
European countries have their own nuisance tax: VAT or value
added tax. Rates and terms of application are still not "harmonized"
across the EU countries (i.e. made the same), but companies do
not need to register for VAT unless their turnover exceeds a certain
figure. Nonetheless, to receive reimbursement for the VAT paid
on behalf of customers, companies submit their VAT claims at the
end of the month, paying the VAT collected in the current month
less the VAT collected and paid the previous month.
Matters become much more complicated when selling into and out
of the European Union, and the Internet adds difficulties of its
own. The situation is commonly represented as:
-
Sale to non-EU country and goods are zero-rated: import tax
but not VAT is payable.
-
Sale to non-EU country and goods are not zero-rated: customers
are responsible for paying import tax and the VAT of their
own country.
-
Sale to EU-country and goods are not zero-rated: no VAT or
import is payable if certain requirements are met. Otherwise
seller should impose VAT.
Unfortunately, this is much too simple, and it's thought that
many UK ecommerce companies will be inadvertently breaking the
law and running up bills on unpaid VAT. For specific answers you
will need to work diligently through the sites listed on our resources
page, and not be too misled by the simplified instructions
on storefront programs.
The e-book provides further listings
on 'free tax advice'.
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