Ask the Director: Do I have to collect sales tax?

Dear Director:

When a publication sells a subscription through a website, does sales tax need to be collected? If so, how are publications handling this?

--Taxed

Dear Taxed:

Let me start with the most important part of my answer: I am neither an attorney nor a CPA. I’ll do my best to answer your question, but you really should consult with a qualified professional before taking any action. It's also advisable to consult with the tax board in your state.

The Internet as we know it is only about 20 years old, so figuring out how sales tax applies to online transactions is a relatively new concept. Both statutory law and case law are still developing, both federally and in each state. As online sales grow and states are increasingly hungry for revenue, efforts to tax online sales are becoming more and more aggressive.

In the U.S., sales tax is a state-by-state affair. You might think that only the laws of the state where you are based apply, but many states are taking the position that any online purchase made by their residents is subject to state sales tax.

Some states exempt publications from sales tax on First Amendment grounds. Others exempt newspapers but not magazines. Most tax only tangible items, so a print subscription would be taxable but not a digital subscription. But other states tax services, and deem access to a digital resource to be a service. Tax rates vary from state to state. Beyond that, some counties and cities have additional sales taxes of their own, which theoretically subjects you to the oversight of an estimated 11,000 sales tax jurisdictions in the U.S. alone.

In states where you have a physical presence (employees, independent contractors, property),  you should assume that you have a duty to collect and remit sales tax if publications are taxable in that state. In states where you have no physical presence, the dominant argument today seems to be that while the customer may be responsible for paying sales tax on their own, the state has no authority to require you to collect it. (But sadly, that doesn’t preclude the possibility that years from now a state will decide you should have been collecting sales taxes all along, and try to bully you into paying, regardless of whether they have a legal right to do so.)

--Former Director, Doug Trouten