Amazon now collecting online sales taxes in three more states

online sales taxes

online sales taxes

Amazon collects online sales tax from 3 more statesMore states across the country have passed laws requiring Amazon to collect its online sales taxes. As of January 1st, 2014 shoppers in Indiana, Nevada, and Tennessee will now need to pay online sales taxes when they shop with the online retailer.

At this point, 19 states now have laws that require Amazon to collect sales taxes. North Carolina is set to join this group as well starting February 1st. South Carolina legislators have also passed a law that will require Amazon to start collecting sales taxes starting in 2016.

Amazon continues to battle against these laws. Company representatives stand by their reasoning that as an online retailer, Amazon shouldn’t be held to the same tax laws as a company with a physical presence in a state.

Which states are the most business friendly?

America is a competitive place and states battle to be the best at whatever they can. Who has the best schools, the best food, the friendliest people, etc.? As a business owner, you definitely need to know which are the most business friendly.

Like any ranking, this is a matter of opinion and you can spend all day arguing over which state is truly number one. When you dig into the data though, some states have clear advantages over others in terms of taxes and economic strength.Tax Foundation

State corporate tax

A good place to start comparing states is the corporate income tax rate. The less your business owes in state corporate taxes, the better your bottom line so of course we want to keep this low.

South Dakota, Nevada and Wyoming don’t charge a corporate tax, so you can’t do any better than that. Colorado, Georgia, Kentucky, Michigan, North Dakota, Oklahoma, South Carolina, Utah and Virginia also are decent as they cap corporate taxes at 6% or less.

State income tax

State income taxes are another cost of doing business and in a perfect world would be as low as possible. The good news is several states waive this tax altogether to create a more business friendly environment.

If you’re operating out of Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming, you won’t have to pay any state taxes when you draw income out of your business. In terms of taxes, South Dakota, Nevada, and Wyoming start to look pretty appealing because business owners in these states avoid both corporate and individual income taxes.

Sales tax

Sales taxes are a difficult challenge business owners have to deal with. But wait, don’t your customers pay this? That would be mostly right. Your business won’t pay sales taxes out of its profits if you are collecting them correctly at the point of sale. However, your business is responsible for determining the following:

  • IF you are required to collect tax (your business has nexus, or a physical presence, within that jurisdiction);
  • WHICH items are taxable and at WHAT rate (some items and services are tax exempt, others are taxed at a rate different than general rates);
  • HOW MUCH to collect (does the state use origin or destination sourcing, what is the current rate for each jurisdiction);
  • WHERE to send the money (some states have you send it to a single office, others have you make payment to individual municipalities); and
  • and HOW OFTEN you have to do this (this could be annual, quarterly, or monthly depending on the state and the size of your business)?

Collecting sales taxes adds to your item’s total price, so it is in your best interest to keep that amount as low as possible to give you a competitive advantage.  (At least for now. The Marketplace Fairness Act could soon make this a thing of the past.)

Delaware, Montana, New Hampshire and Oregon don’t charge sales taxes. Alaska, Hawaii*, Maine, and Virginia are also competitive by keeping state and local sales taxes to 5% or less.

Use tax

Use tax is a little different than sales tax. This is your responsibility. You owe your state use tax anytime your business makes a taxable purchase but your supplier didn’t charge you sales tax, or the difference between the two amounts if your state’s use tax rate is higher than what your supplier charged you.) Technically, you could be due a tax refund if your supplier charged you a higher sales tax rate inappropriately, but the burden of proof would fall upon you.

In AlabamaArizonaColoradoMissouri and Oklahoma the use tax differs from the general sales tax rate (normally, it is lower). MontanaNew Hampshire and Oregon have no use tax. IllinoisIowaNew MexicoVermont and Wisconsin have a statewide use tax, but no local use tax.

Unemployment

While avoiding taxes is nice, for your business to succeed you also need a thriving economy with buyers looking for your product. The American economy is still struggling as a whole which makes it tough to open a business. However, some states are definitely doing better than others.

North Dakota, South Dakota, Nebraska, Vermont, Iowa, Utah and Wyoming all have an unemployment rate of 4.6% or less. If you’re in one of these states, you’d never know the country’s in an economic downturn.

Of course, these states have relatively small economic volume and may be better suited to specific industries. As far as high volume economies go, Virginia, Texas and Massachusetts are outperforming others as these states have unemployment below 6.6%. Not great, but definitely better than other parts of the country.

States with high unemployment rates may offer temporary tax benefits designed to bring in new businesses. It’s always worth a phone call to the economic development office to see what they have to offer.

The bottom line

So how does this all add up?

Based just on these factors, Wyoming, South Dakota and Alaska take the lead as they are strong in all four categories; they combine low taxes with sound economies. The remoteness of these states might be a strike against them however.

For the bigger players; Texas, hands down, looks very business friendly, even with its exceptionally complicated tax jurisdictions. Nevada, Florida and Washington have encouraging tax laws but high unemployment, whereas Virginia and Massachusetts have better economies but higher taxes.

If you are searching for a home for your business be sure to keep these states in mind as they are the leaders in accommodating businesses.

*Technically, Hawaii has an excise tax rather than sales tax.

Some filers benefit from using sales tax deductions instead of federal income tax deductions

sales tax deductions

sales tax deductions

If legislation passes congress again this year, a select group of federal income tax filers may benefit from calculating deductions using the state and local sales taxes they paid instead of state income taxes.

state sales tax deductions

According to the Tax Policy Center, residents of New York and California benefited the most from using the state and local sales tax deduction in 2005 on their federal income tax.

This option is only available to filers who itemize deductions using Schedule A on Form 1040, and generally only beats the income tax deduction in a few cases:

  • For residents in states with no, or limited, income taxes: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.
  • Individuals who live in states with higher-than-average state and local sales taxes.
  • Individuals who made unusually expensive purchases such as paying for a wedding, home improvements or vehicle purchases.

The IRS provides special sales tax tables that average consumption by taxpayers, taking into account filing status, number of dependents, adjusted gross income and state and local general sales rates by ZIP code. Filers using the standard sales tax deduction can also add in sales taxes paid on the purchase or lease of a vehicle, boats or aircraft, and home renovations.

Filers could optionally use the actual expense method by collecting receipts for all purchases made and keeping a running tally of all sales tax expenses. This method may be beneficial if sales taxes paid were well above the standard deduction or if the filer lived in multiple tax jurisdictions.

Filers whose sales tax deductions come out about the same as their income tax deduction may benefit from taking former since they won’t have to claim their state income tax refund the following year.

The problem with the sales tax deductions is that it never has been made permanent since it was authorized in 2004. Every two years, the issue comes up in front of legislators once again. It expired at the end of 2011, and if it isn’t renewed this year, it won’t be available to taxpayers filling out their forms in 2013.

Sales and Use tax rate changes for July 2012

There were 22 states with sales and/or use tax changes and all 50 states had ZIP code additions and deletions since June.

Angel Sauer

Angel Sauer, sales tax research team leader

Sales and/or use tax rates in the states of Alaska, Arkansas, California, Colorado, Georgia, Illinois, Kansas, Louisiana, Minnesota, Missouri, North Dakota, Nebraska, New Mexico, Nevada, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Vermont, Washington, and West Virginia have changed in Zip2Tax products since June 2012.

In Alaska, the sales and use tax rate changed for the cities of Akutan, Diomede, Gustavus, Hydaburg, Kiana, Klawock, Nenana, and Saxman.

In Arkansas, the sales and use tax rates changed for the county of Pike and the cities of Batesville, Blytheville, Crossett, Lincoln, Plumerville, and Salesville.

In California, tax rates changed for the cities of Fort Bragg and Campbell and for the county of Santa Clara.

In Colorado, tax rates changed for Larimer County and use tax rates changed for several cities.

In Georgia, tax rates changed for Dade County.

In Illinois, tax rates changed for 18 cities and 2 counties.

In Kansas, tax rates changed for the cities of Cimarron, Frontenac and Wellington.

In Louisiana, tax rates changed in Claiborne, Acadia, Ascension, Caddo, Lincoln, St. Tammany and West Feliciana Parishes and in the cities of Morgan City and Athens.

In Minnesota, tax rates changed for Fergus Falls, Hutchinson and Lanesboro.

In Missouri, tax rates changed in Barry and Greene counties and the cities of Willard, Butler, Nevada and Noel.

In North Dakota, tax rates changed for Fargo and Surrey.

In Nebraska, tax rates changed for Clearwater and Shelton.

In New Mexico, tax rates changed for the city of Artesia, and Otero and Taos counties.

In Nevada, tax rates changed in White Pine County.

In Ohio, tax rates changed in Richland County.

In Oklahoma, tax rates changed in the counties of Garvin, Delaware, Cherokee and Carter and in the city of Morris.

In South Carolina, tax rates changed for Greenwood County.

In South Dakota, tax rates changed in Peever.

In Texas, tax rates changed for Deer Park.

In Vermont, tax rates changed for Wilmington.

In Washington, tax rates changed in Ferndale, Tacoma, Walla Walla and Wenatchee.

In West Virginia, tax rates changed in Williamstown and Huntington.

There were 50 states with ZIP code changes effective after June 2012 including Alaska, Alabama, Arkansas, Arizona, California, Colorado, Connecticut, DC, Florida, Georgia, Hawaii, Iowa, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Massachusetts, Maryland, Maine, Michigan, Minnesota, Missouri, Mississippi, Montana, North Carolina, North Dakota, Nebraska, New Hampshire, New Jersey, New Mexico, Nevada, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Vermont, Washington, Wisconsin, West Virginia and Wyoming.

Download a complete listing of all ZIP code changes since June 2012.

For June’s changes click here.

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