If I sell software online in the US, do I need to collect sales tax? Does it matter whether my location is in the US or not? If so, who do I collect from (everybody)? And how do I pay it?
Also, what is Use Tax?
p.s. I appreciate the advice to "talk to a lawyer" or an accountant as that is the only way you'll be sure you are inside the law, however, there is one correct answer and I'm trying to compile it here.
Normally you would need to charge tax to items shipped to your home state. Anyone else would be required to pay USE tax themselves (you're not involved in that).
I don't know if these rules are any different with software or other non-shipped items.
Oh yeah: I'm not a lawyer, CPA, tax guru, etc.!
Edit: use tax is a tax that people are supposed to pay for otherwise untaxed items they purchased through the mail. I think it's supposed to make up for the fact that no tax was collected by the state but the product still used state resources to reach you (roads, etc.). I don't know of any individuals who have ever paid this--but I have heard of companies watching out for it.
Answer hopefully will become community editable and anything wrong here will be corrected
If you sell software online, and you are located in the US in a state that has sales tax, you do need to collect sales tax, but only from the users who buy software and ship it to the state your business is in. If your business is in multiple states, you need to collect it for those multiple states. If you are in a no-tax state, you don't have to worry about this.
If you are selling software as a service, you do not need to collect sales tax.
Technically, US companies are supposed to collect VAT, although most do not. Big software merchants that resell software have this in place, like Kagi.
Use Tax is the tax you pay to your own state for products shipped to you when the person you bought them from did not charge you sales tax. Both businesses and individuals are supposed to pay this tax. For example, when you order from Amazon and live in NY state, they will not collect sales tax because they do not have a physical presence here. However, you are supposed to pay the NY State and city sales tax on your personal returns.
For NY State, when a business pays the sales tax they've collected from their customers, they also pay the Use Tax.
Most ecommerce providers will handle this for you. If however, you have to do it yourself, here's how one might do it for NY State.
Create a table called TaxRate which has the city, the jurisdiction (usually the county) and the actual tax rate. When a user places an order, you look up the city in this table to find the tax rate and you charge them that additional rate as a sales tax line item. When you have to fill out the sales tax form at the end of the quarter, you can group all the payments by jurisdiction to enter the amounts on the form.
I think you'll want to talk to a tax professional NOT programmers.. ;o)
they can tell you how to code it but I wouldn't trust their advice to keep you out of Federal-Pound-You-In-The....Prison. ;o))))
It's an interesting game right now.
Legally, states can only collect sales tax from their citizens. In theory when you do you state taxes you're supposed to declare the items you purchased out of state for which sales tax was not charged.
States force in-state retailers to charge sales tax, but they can't force out of state companies to do anything along those lines (outside their jurisdiction).
So right now you might only have to charge sales tax for purchases made inside your own state.
However, states repeatedly keep bringing this issue up, they really want that revenue since no one really claims it on their tax form. There's a few reasons why it hasn't happened yet:
I am not a lawyer, tax attorney, accountant, etc, etc, so take these comments as opinion. But most retailers are currently following the model of "No sales tax unless we have a place of business inside a given state."
This is why Dell and Apple charge sales tax in most(all?) states - they run retail counters in nearly every state and so they are subject to taxes for purchases made going to that state.
Talk to a lawyer. The law varies from state to state, country to country, and at times varies on the local/municipal level as well. It'll be worth the expense - the IRS (and their international equivalents) is not a pleasant entity to wrangle with.
This is how sales tax and shipping taxes are calculated in WCS the ecommerce soln from IBM. Pretty complicated though.