Do you need to pay tax for online stores?

Payment of federal and state income tax is a requirement for every business whether it’s being operated online or locally. However, a massive debate has sprung up on the payment of sales tax. In most states, internet businesses are exempted from this unless they operate physically as well. Nonetheless, a few states have adopted sales tax policies that cover internet-only companies as well. Before you set-up your online it’s imperative to understand all the legalities associated with online stores to prevent issues down the line.

Income Tax

No business is excluded from income tax despite its magnitude or employee count. Generally smaller companies operate on the principle of sole-proprietorship where the employee is considered a self-employed individual. Online businesses can sometimes hide their actual income however, it is a criminal offence and is punishable by the law. Therefore it’s important to keep the record of the online transactions to avoid any fines or criminal penalties.


 Sales Tax

In most states, sales tax is applicable to stores that operate physically and have an online front to aid their sales and marketing. The sales tax on the taxable goods is reported and is correspondingly paid to the state. For businesses that operate solely online, most states consider them mail-order business and exclude them from submissions of any tax payments. However, it’s important to be safe as new laws are currently being developed in few state that include online stores as well. Therefore phone your state’s department of revenue to inquire about your particular state’s law.


Affiliate marketing is a popular technique that involves referring of customers to a particular online store and charging a commission on every sale. This is a complicated business model and has been studied by legislators closely to propose laws accordingly. Some states have adopted laws that ensure that affiliates in states charge sales tax on their products regardless of the actual location of the selling company. Therefore it’s important to always be up to date with the current tax laws within your own particular state.

As an online store, adhering to the constitutional laws and policies should be of utmost priority to the business owner. States laws regulate on daily basis and as the online market is currently increasing in magnitude, more legislations are being passed to regulate the businesses. Therefore keep track of the internet trends related to taxation in your particular state.

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