If you are selling goods or products over the Internet and have customers located in Georgia, you should be aware of Georgia’s Internet sales tax rules. Those rules have been a subject of debate in Georgia, as in many other states, and at the federal level. Georgia recently enacted a law that applies to large out-of-state Internet retailers.
The federal government is currently considering legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The proposed federal law, called the Marketplace Fairness Act of 2013, would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state. Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement. States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.
Below is an article on the current rules on Internet sales tax in Georgia. A new federal law would affect all state Internet sales tax laws so be sure to check for updates in this area.
The General Rule: Physical Presence in the State
The current default rule throughout the United States is that you must collect sales tax on Internet sales to customers in those states where your business has a “physical presence.” The physical-presence rule is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail-order businesses to collect sales tax on out-of-state sales; the decision has been extended to include online retailers. Generally speaking, a physical presence means such things as:
- having a warehouse in the state
- having a store in the state
- having an office in the state, or
- having a sales representative in the state.
A more specific statement of what counts as physical presence under Georgia law can be found among the various statutory definitions of “dealer” (meaning a person or entity required to pay sales tax) in Section 48-8-2(8) of Georgia’s sales and use tax law. More specifically, one definition of a dealer under the statute is a person who has an “office, distribution center, salesroom or sales office, warehouse, service enterprise, or any other place of business” in the state. (Note: Georgia’s statutes are available online through a web portal maintained by a private company, LexisNexis; it is not possible to provide direct links to individual sections of the Code in this website.)
As you might expect, the corollary to the physical-presence rule is that, if you do not have a physical presence in the state, you generally are not required to collect sales tax for an Internet-based sale to someone in that state.
Be aware that Georgia has a relatively new state law applicable to out-of-state Internet retailers that presents an exception to these general rules.
The following examples generally would be valid in situations where special rules, such as those enacted in 2012, do not apply.
Example 1: You are operating solely out of a store in Augusta, Maine and make a sale to a customer in Savannah, Georgia—a state where your business has no physical presence: You are not required to collect sales tax from the Savannah customer.
Example 2: You are operating solely out of an office in Atlanta, Georgia and make a sale to a customer in Macon, Georgia: You are required to collect sales tax from the Macon customer.
Example 3: After several years of operating solely out of a store in Augusta, Maine, you open a one-room satellite office just outside of Athens, Georgia—a state where previously you had no physical presence. A day later, you make a sale to a customer in Columbus, Georgia: You are required to collect sales tax from the Columbus customer.
Some items sold via the Internet to Georgia customers may be exempt from sales tax under Georgia law. For example, under Section 48-8-3(91) of the sales tax statute, prewritten software delivered electronically is exempt from sales tax. More generally, Section 48-8-3 lays out in detail many sales tax exemptions. Also, the Georgia Department of Revenue (DOR) has a helpful online document listing many of the most important items exempt from state sales tax. Be aware that the document is from 2011 and probably will be updated soon for 2012.
Georgia also has a sales tax holiday in August. For more information about the 2012 sales tax holiday, check out this DOR document.
The Customer’s Responsibility
In cases where the online retailer does not have to collect sales tax, it is the customer’s responsibility to pay the tax—in which case it is known not as a sales tax but, rather, a “use tax.” As online guidance from the DOR states, “Georgia Use Tax is due on all purchases made through the internet . . . when Georgia Sales Tax is not collected by the selling company.”
Georgia’s “Amazon Law”
In March 2012, the Georgia legislature amended the definition of “dealer” in Section 48-8-2 of the state’s sales tax statute, adding a definition applicable to larger Internet retailers with no physical presence in Georgia. The new definition means that out-of-state Internet retailers meeting certain conditions are required to collect and pay Georgia’s sales tax. Similar laws have been at least considered, and sometimes enacted, in various states around the country. These laws are commonly known as “Amazon laws.” (As you might guess, the name refers to Amazon.com, which is a large, Internet-based retailer that does not have a physical presence in many states, and therefore, under the default sales tax rule, need not collect sales tax from customers in those states. As customers in those states often do not pay the corresponding use tax, Amazon’s sales, and those of other large online retailers, such as Overstock.com, are frequently understood to constitute significant lost tax revenue for those states.)
Under the new law, an out-of-state “dealer” who has what is commonly known as a “click-through” arrangement with one or more persons located in Georgia, and meets a few other conditions, must collect sales tax. More specifically, an out-of-state Internet retailer needs to collect sales tax from Georgia customers if that retailer:
- has an agreement with one or more residents of Georgia to refer potential customers to the retailer via a website link or otherwise
- compensates the Georgia resident or residents for directing potential buyers to the retailer, and
- the retailer’s “cumulative gross receipts” from such directed sales to Georgia customers exceeds $50,000 during the preceding 12 months.
For most small online businesses, it is the long-established “physical presence” rule that provides primary guidance on collecting tax on sales to customers in Georgia. However, the issue is contentious, as demonstrated by the Amazon law enacted in Georgia earlier this year.
It is a good idea to keep abreast of Georgia Internet sales tax laws, and one good place to look is the Department of Revenue website. For more general information on taxes on Internet sales, see Nolo's article Sales Tax on the Internet. And, for information on the rules about collecting sales tax for Internet sales in any other state, see Nolo’s article, 50-State Guide to Internet Sales Tax Laws.