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Too Taxing

Online sales taxes: How much and who gets it?

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This story appears in the April 2001 issue of Entrepreneur. Subscribe »

Q: My business sells health products on the Net. I've heard I don't have to pay sales tax if a customer is outside my state or in another country. However, I've also heard sales tax may be due for sales made in the state where my Web site hosting company is located. Is that true? My office is located in California, and my host server is in Utah.

Kelly Suzukawa

Via e-mail

A: You're asking the right questions, because one thing you don't want to do is get behind in collecting and reporting sales tax. The 1998 federal moratorium now in effect only prohibits new taxes on e-commerce; businesses must still comply with existing sales tax requirements. That means you're required to report and pay sales tax on sales to customers in your own state-in your case, California. You must also report sales to out-of-state customers to California's Board of Equalization, but you're not required to pay any tax to California on those sales.

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