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. Collection of sales tax on Internet sales has been a matter of ongoing debate both within individual states and at the federal level.
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 a1992 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:
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.
Examples of Physical Presence
Example 1: You are on online dealer located in Augusta, Maine and make a sale through your website 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 (with the exception of dealer who fall under Georgia’s Amazon law).
Example 2 You are an online retailer with an office in Atlanta, Georgia and make a sale through your website 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 through your website to a customer in Columbus, Georgia: You are required to collect sales tax from the Columbus customer.
In 2012, the Georgia legislature amended the definition of dealer in Section 48-8-2 of the state’s sales tax statute. The new definition has the effect of requiring out-of-state Internet retailers with no physical presence in Georgia to collect and pay Georgia’s sales tax. More specifically, an out-of-state Internet retailer needs to collect sales tax from Georgia customers if that retailer:
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.
While the physical presence rule may seem clear, this is not necessarily the case. In Quill, the Supreme Court discusses not only physical presence, but also several types of potential nexus (connections) between a business and a state. Many states have used the term nexus rather than physical presence in their sales tax laws, regulations, or other official documents. Georgia, however, generally does not use the term nexus.
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.
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 Economic Development has a webpage listing some of the items exempt from state sales tax.
Georgia also has a sales tax holiday in August. Each year, the DOR updates its website with information about that year’s tax holiday. Check the DOR website for more information.
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. A DOR FAQ page on sales and use tax states, “Purchases made over the Internet and out-of-state are the most common type of transactions subject to a use tax.”
At the federal level, Congress has repeatedly considered legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The most recent form of a proposed federal law is the Marketplace Fairness Act of 2015. As in previous versions, the 2015 Act 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.
For most small online businesses, it is the long established physical presence rule that will apply. However, because Internet sales tax is a subject of ongoing debate, you should consider checking in periodically with the Georgia Department of Revenue to see if the rules have changed.
Updated: April 27, 2016