Best of the ISP-Lists

ISPs are Everywhere

Where is an ISP located for sales tax purposes? If it has a single server in every state, is it liable for every state? Members of the ISP-ECommerce list discuss the issue.

[August 30, 2000]

On the ISP-ECommerce list in August, CB offered the following dilemma:

"As a foreign seller (except for a server colocated in New York), am I liable for US taxes if I sell software and services online to a New York company?"

A number of respondents noted that the situation is complex:

[NA noted] "It is truly confusing. Many states impose a use tax on anything imported, but are in most cases unable to collect it except from larger corporations."

[BLG suggested] "Based on the business model of interstate commerce, I would think that the foreign seller would not be responsible for any taxes, but the US firm that purchases the goods will likely have to pay tax. New York's right to levy taxes on a sale requires that the seller have 'nexus' within the state, and a colocated server has not yet been found to constitute nexus. You should, however, check with the US Department of Commerce regarding any import tariffs that may be due on the software, whether packaged or not."

[FA offered] "Services are taxed depending on the location of the delivery, not the provider. Here are some web sites which mostly determine the sales tax based on zip codes:

• Online Tax Calc
• Sales Tax Clearinghouse
• Sales Tax Compliance Software

"Sooner or later, though, the states are going to get smarter. I suspect this is only going to get worse."

[IG concluded] "A good parallel is airline liquor sales. Once the plane leaves the ground on an interstate flight, 'it isn't in Kansas anymore'. However, the law is not consistent. In the case of buses, it was held that a rest-room/water fountain was in interstate commerce if the bus station had any buses that went interstate, even if the bus in question was intrastate only. Right now the Internet is skating free on lots of tax issues. It's hard to predict the future, but sooner or later some government will decide it deserves tribute from the Netizens."

—End