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Davis Brown Tax Law Blog

Online Sales: Should You Be Collecting Sales Tax? - January 17, 2012

You have likely heard about the recent debate regarding collecting state sales tax for online sales. What's the big deal? Typically, online retailers collect sales tax only from sales in a state where they have a physical presence. As a result, many online sales do not get taxed. The argument is this makes it hard for small businesses (who have to charge sales tax) to compete with the out-of-state online retailers.


If this bill passes, what happens? The idea is that states would require the online retailers to charge sales tax based on your address, meaning, if the retailer sells to an Iowa address, it would charge Iowa sales tax.  At least one tax attorney sees constitutional issues here and does not expect the bill to move quickly.


Speaking of online sales, weren't you meaning to sell that old furniture and all of those toys the kids have outgrown? Selling things online seems easier than a garage sale, but should you be charging sales tax on those old "treasures"?  Most likely not, regardless of the outcome of this bill, thanks to the casual sales exception. 


Iowa has a 6% tax on retail sales (and any additional local option taxes) unless the sale fits a stated exception. Looking deep enough into the statute, there is an exception for "casual sales."  So, just what is a casual sale?   In Iowa, it is a sale which is (1) "nonrecurring" and (2) by someone who is not in the business of selling that property for profit.  So, selling the items collecting dust in your basement is likely a casual sale.  But, if you are selling a certain type of product consistently, that seems recurring and starts to look like a business, and you should look into the sales tax issue a little further.