Tax Nexus for Ecommerce

No, it's not a marketing topic, but it's a vital one, especially if you're new to ecommerce.

Sales tax is for sales occurring within a given jurisdiction. State & local governments can only enforce taxes within their jurisdictions. This is why if you have facilities (a tax nexus) within a jurisdiction, you must pay local taxes on sales that happen there. Conversely, you needn't collect sales taxes on behalf of states where you don't have nexus.

In this context, nexus is interpreted as the connection that links the vendor to the state’s sales tax rules. Underlying Constitutional provisions of the nexus requirement include the Due Process Clause, to treat taxpayers fairly, and the Commerce Clause, to reduce impediments to interstate commerce.

So far, the Supreme Court has ruled that keeping track of over 6,000 state & local tax jurisdictions is an unreasonable impediment to ecommerce businesses, and thus placed the (largely unenforceable) burden on the consumer to pay a use tax to their home state on internet purchases.

Some states are forming agreements to collect each others' sales taxes, so merchants may have to collect for neighboring states in the future. Also, the Streamlined Sales Tax Project (SSTP) is an initiative by over 35 states to create a common framework for collecting sales taxes, so that the "unreasonable impediment" argument will no longer be a valid protection for ecommerce businesses.

This is a good, easy-to-understand summary of the relevant issues by Neal Sessions and Matthew Williamson from the Georgia State University law school, and it includes links and references: Sales and Use Taxation of Internet Transactions

DISCLAIMER: I am neither a qualified accountant nor any kind of expert on state & federal tax laws. This is simply what I've learned through hands-on experience and research. Before you make any decisions regarding tax laws and whether they apply to your business, you should consult with a tax attorney well-versed in current rulings on taxation of ecommerce transactions.