We have a ecommerce business for skin care cosmetic products
(www.kosmedix.com) and are selling all over the U.S. Our headquarter
is located in Houston, TX. However, the distribution of products is
done from our warehouse in New Jersey. The question is now for which
sales do we have to pay taxes? For sales to customers in Texas or New
Jersey?

Hi there,

This is a hot topic for many people who sell over the Internet. As you
know, in a physical sale, both people are located in the same state,
so the tax to be charged is obvious.

The key point that you need to heed is made by the Internet Tax
Freedom Act:
"No multiple or discriminatory taxes on electronic commerce. Protects,
for three years, new      Internet-specific tax liability for
consumers and vendors. Web search taxes, e-mail surcharges, and other
levies that target the Net are outlawed. Tax collection requirements
that discriminate against out-of-state web sites are banned."
http://www.rpifs.com/offshoretax/internetax.htm

This essentially means that you are liable to collect tax from people
who are in the same state as where your company is BASED (where the
distribution occurs is irrelevant). So in your case you would not be
charging taxes to people who are living outside of Texas but within
the US. Residents of Texas will be charged the tax rate of Texas.

Hope that clears everything up for you :)

Cheers!

answerguru-ga

That was exactly what I was looking for. Great answer! Thanks very much.

hagen

Actually...contrary to popular belief, the ITFA has NOTHING to do with
sales taxes charged on goods sold over the Internet. Internet sales
are treated just like other "mail-order" or catalog sales. What the
ITFA does is ensure that if you have no nexus ("physical presence")
with a given state, that state cannot force you to collect it's sales
tax. But if you already have nexus, then you will need to comply with
that state's sales tax laws.

Because you are based in Houston, you definitely have nexus in Texas
(rhyming fun - har har). The NJ distribution center may be relevant
depending on whether or not your company owns it. If your company owns
it, then you are deemed to have nexus in New Jersey. If your company
does not own the building per se but you have employees on your
payroll that work there, you still have nexus. The rules regarding
what constitutes nexus are different for every state. Not knowing the
organization and structure of your business with regards to the
distribution center, I am not qualified to say whether or not you have
nexus with NJ. Your best bet would be to contact the state's Division
of Taxation:

http://www.state.nj.us/treasury/taxation/

Additionally, they also have a publication geared towards mail order
business that you may find helpful (Acrobat document):

http://www.state.nj.us/treasury/taxation/pdf/pubs/sales/su5.pdf

Good luck!