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The Business of Knife Making A forum dedicated to all aspects of running, managing and legal operational issues relating to the custom knife making and custom knife selling industry.

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  #1  
Old 01-02-2003, 06:50 AM
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caveman caveman is offline
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Sales Tax Explanation

I've often wondered why online purchasers are not charged sales tax unless they buy from a site within their home state.....can someone explain the "why" of this, is it a federal regulation or governed by each home state?

thanks....

great forum Alex, this should definitely prove valuable...


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Old 01-02-2003, 11:47 AM
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By dealing with companies outside your state, which state should the tax be charged? Should the tax be paid by you the buyer in your state or by the seller in his state?

Your local state only has the authority to demand sales tax from transactions that happened in the state.


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Old 01-03-2003, 09:45 AM
george tichbour george tichbour is offline
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I can't speak for all jurisdictions but where I live and do business the law covers all sales within that jurisdiction exempting product shipped outside that jurisdiction.

The downside is that product crossing the border into Ontario and Canada becomes subject to sales taxes as if it had been sold to me within Ontario.

Another exemption exists for low volume sales by arts and crafts people, probably because enforcing it would be impossible anyway.


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Old 01-03-2003, 03:32 PM
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Chuck Burrows Chuck Burrows is offline
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If the states, cities, counties, etc. have their way then we as small businessman who do mail-order or online sales will wind up collecting all applicable taxes and then send them each a check (that is 1000's of jurisdictions guys - a real nightmare). Now I don't know about you, but I bet I would spend more time doing that than making my product.

A few big online/mail-order companies do collect and dispense taxes to certain states in which they are not located such as California and Washington, but look around the internet and you will find that almost no small businesses do.

To use my business as an example:
My shop is in Colorado in the county of LaPlata and although my address is the city of Durango I live outside the city limits.
Therefore when I make a sale the only time i charge sales tax is when the customer is a resident of Colorado I collect 2.9%, if they live in LaPlata county (my home county) I collect another 2% for a total of 4.9%. On any sales out of my jurisdiction (ie other states I collect no taxes at all). If I do a show in the city limits of Durango then I have to purchase a city tax ####### and collect an additional 3% sales tax which is then turned over to the city.(State and county tax are collected by the state and then divied up). Fairly simple and not a real thorn in my side. The taxes are sent to the state every fiscal quarter.

So who should you collect sales tax for?
Until the federal government forces the issue I will never collect any taxes other than those required by my local jurisdiction as described above. Hopefully the federal courts will adjudge that such a nightmare of having to collect thousands of various jurisdictions taxes would be unconstitutional under the 11th amendment (YAH SHOOR!!! remember the government has deep pockets that need to be constantly filled). I can't help but feeling some what negative in this respect, because after being in business for 15 years I've found that the government and especially the tax laws are not particularly friendly to the real small business. In fact many agencies consider a small business to be an entity that hires at least 5-10 employees and has a yearly gross income of at least $250-500,000.00.

If you're thinking of instituting online sales note that the leased shopping cart programs such as ""www.coolcart.com"" or ""www.mivamerchant.com"" both of which I have experience with are by default set up to collect only your local taxes.

Hope this helps clarify things


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Last edited by Chuck Burrows; 01-03-2003 at 03:36 PM.
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Old 01-03-2003, 07:58 PM
whv whv is offline
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Now I don't know about you, but I bet I would spend more time doing that than making my product.
hear, hear!


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