Internet Business Tax Laws: Everything You Need To Know
Internet business tax laws govern how sales and other types of taxes are calculated and collected for goods and services purchased online.3 min read
2. Income Tax
3. Shipping Restrictions
4. Payment Gateways
5. Intellectual Property
7. Age Restrictions
Companies that sell taxable goods at a physical business location collect and remit sales tax to the state where they are located. This must usually be done for both in-person and online sales, although some states do not require sales tax for the latter. Some states require internet companies without a brick and mortar location to collect and remit sales tax, but most do not require the collection and payment of sales tax for solely online sales.
Recent legislation in some states requires sales tax to be paid by online companies only for sales made to customers in the same state. This is an extension of the guidelines that have been followed by mail order businesses for decades.
You must remain up-to-date with the sales tax laws in your state to ensure compliance. If you're not sure, check with the department of revenue for guidance about the laws in the state where your business is located.
Every business must pay income tax, even one-person companies that operate only online. This type of business is usually taxed as a sole proprietorship. If you do not pay income taxes on your earnings, the IRS will order an audit that can result in fines as well as criminal penalties.
Internet businesses must be aware of restrictions on shipping established either by state law or by the guidelines of their distribution company. You may have to do some research if you have a product that is restricted by many shipping firms. Restrictions may affect items including, but not limited to:
- Aerosol containers.
- Air bags.
- Alcoholic beverages and cigarettes.
- Live animals.
- Weapons, ammunition, and explosives.
- Dry ice.
- Fresh produce and perishable items.
- Cosmetics, perfume, and nail polish.
- Poisonous or hazardous materials.
In some cases, you can ship restricted items for an additional fee. The Federal Trade Commission maintains a guide to custom, duty, and tax laws for companies that ship their products internationally.
When establishing an e-commerce business, you'll need to set up a payment gateway through which your customers can purchase your products and services. When choosing a payment gateway, factors to consider include:
- Limitations on the types of products and services you can sell
- Start-up fees.
- Monthly fees.
- Transaction fees.
- Termination fees.
- Available security and anti-fraud features.
- Whether the platform is hosted or non-hosted.
Your payment gateway must be PCI compliant so that the personal information of site visitors is protected. It's important to educate yourself on measures to protect your business and your customers from data theft. This affects both your checkout process and the way that information is stored and disposed of.
This area of internet business law governs trademarks, copyrights, and patents. A trademark is a design, symbol, word, or phrase that distinguishes your company from others in the market. Copyrights protect artworks, literature, music, and other original items of authorship. A patent protects an invention for a period of 20 years. These rights are conferred by the United States Patent and Trademark Office. Depending on the type of product or service you sell, you may want to obtain one or more of these protections. You should always make sure that your business is not infringing on the intellectual property of others.
If you are running an online business from your home, you must be aware of local ordinances that prevent you from storing inventory at your home or require a specific license or permit to do so. Failure to comply with local zoning laws will result in fines and penalties.
If the market for your product or service includes children younger than age 13, your website must comply with the Children's Online Privacy Protection Act. This includes many regulations, but the most relevant to your business is the restriction on collecting personal information from children in this age group.
If you sell age-restricted products such as alcohol or vaporizers, your website must have age verification tools as part of the checkout process.
If you need help with internet business tax laws, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.