There are a number of issues to think about when becoming an online retailer. You must decide which products to sell, research a target demographic, and work out a marketing plan. In addition, you'll need to choose a platform to sell your products on, whether it's your own ecommerce website or through an existing online marketplace such as eBay.
As you consider these issues, one that is important not to forget is the tax implications of online sales. Web retailers are responsible for collecting sales tax when applicable, and must report profit as income on tax returns. The growing complexity of international online sales has made sales tax a growing concern for many.
Tax Rules for Online Marketplaces
Small-scale online retailers can already skip out on paying high listings fees when using localized marketplaces like Quicksales in Australia, which has just gone up against eBay by eliminating selling fees altogether. Yet in this instance, Australian retailers would still need to plan ahead to pay for a Goods and Services Tax of 10%. This could be added onto the selling price of the product, to accommodate the tax in advance without taking a bite out of the profit. For example, an item normally costing $20 could be bumped up to $22. All online retailers, even those just getting rid of a few old books and clothes on eBay, are technically required to keep track of profits and register with the local tax office to make payments. American
Taxing International Customers
The sales tax situation gets increasingly complicated when you're selling to customers all over the world. Each country has different customs regulations and tax rules, and this can even vary by state or region within a country. For example, in the USA all but five states impose sales taxes on purchases, whether or not they were made online. Many states have passed legislation recently in an attempt to force online retailers to start collecting sales tax from customers, no matter where the online retailer may be based. The issue has made it all the way to the Supreme Court, which has decided not to rule on it at this time. Yet this example illustrates just how confusing navigating the world of sales tax can be for online retailers, with fuzzy rules and shifting regulations. In most cases, taxes are paid at the time of the sale and the customs will be paid by the buyer within their home country.
Planning Ahead for Sales Tax
It's important for any online retailer who trades internationally to stay on top of these regulations, particularly those who do a high volume of business abroad. No matter what size the operation, businesses must keep track of all online sales for tax payment purposes, and follow the international sales tax changes each year. For larger businesses, hiring a tax professional who is well-versed in international finance may become a necessity. Sales tax software is also useful. Some programs remit tax revenue to individual states within the USA, and keep a record of remittance for auditing purposes. Although tax regulations may be hazy, planning ahead for sales tax is important for all online vendors.