E Commerce Question Memo

On: July 26, 2019

Client engages in e commerce through Amazon. Wants to do it right, take care of the past, and have us ready to do future audits if necessary. Client does $10M a year in gross revenues/receipts from all jurisdictions. Price point per sale is $30 to $300 per transaction.

The following assumes the transaction is US domestic only.

Base questions on this type of profile.

• What is the product/service the e biz is engaged in selling on line (legal? illegal? Porn? Guns? Art? Media? Digital?  Tobacco? Alcohol? Drug related? Not subject to State X sales tax?)
• Where is the individual located?
• Where is the business incorporated?
• Where is the bank account located where the revenues are received?
• Where are the products/services sold?

This is a very interesting, cutting edge area of state tax law. There are 50 states in the USA, each of which has their own set of laws regarding state sales tax. California, of course, assumes it is best and most important. So do the other 49 states. They fight about this a lot. The key to transparent reporting and payment of state sales tax will be to set up a state sales tax credit reporting system do, if you pay tax in CA, it is reported as a credit against any sales tax another state might try to impose. There is no law on the books at this point, so I would set it up, disclose to all 50 state and then implement it.

Core issues:

1. The location of the buyer
2. The location of the seller
3. The state sales tax treatment of the product/service in each state
4. The e commerce nature of the transaction
5. The reporting of the income
6. The payment of the tax
7. The reporting to all parties of 6 and credits reporting
8. The transparency of the entire process to all state tax agencies and the IRS (as backup clearinghouse reporting facility)