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NY’s tax on online services

Posted by Michael Bloch in ecommerce (Friday April 9, 2010 )

Selling information products such as online courses or offering other online services? Are you based in New York or even selling to customers in New York? There’s some bad news for you – and for online merchants in states considering following New York’s lead.

It appears the New York State Department of Taxation and Finance has determined the sales of online services are subject to the same sales tax as for physical software and other goods. “Online services” also include e-learning courses and information technology courses. The Department says as the “software” is being used at the customer’s location in New York; tax is due and must be collected by sellers.

According to an article on E-commerce Times, New York is trying to tax electronic commerce based on its own “highly aggressive and questionable interpretations of existing law”.

If a seller doesn’t collect and remit any the tax, the seller becomes liable for it, with interest and possibly penalties. What’s even more unsettling is the Department is reportedly trying to apply this retroactively. According to E-commerce Times here have been instances of the Department auditing online service providers and assessing sales tax as far back as 2005.

The sales tax issue in the USA can get rather confusing. For example, it appears even if your customer is in the same state as your merchant account provider, and that state has a sales tax, then the customer will owe taxes on any purchases your merchant provider processes.

It would probably be prudent to have a chat to your bean counter about the situation, rather than be faced with some state’s taxation department hammering on your door down the track.


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