Are Online Businesses Subject to Income Tax, Employment Tax, and Sales Tax Obligations?
Yes, your business may be subject to all three of these obligations. That is, simply because your business is conducted on the Internet does not mean that your company is exempt from paying taxes on income and business activities. The extent of the obligation your company must satisfy is determined by the type and scope of your business activities.
Employment and Self-Employment Taxes for Online Businesses
If your business has employees who help with customer support, packing and shipping orders, running your website, or other business activities it is highly likely that your company has an employment tax obligation. Employment tax obligations must be satisfied at the state and federal levels.
Even if your company in a solo operation or employs independent contractors you are likely to have some employment tax related obligations. In the case that you are your company’s sole worker, it is likely that you will need to account for self-employment taxes. If you employ independent contractors, you will need to report their wages and compensation on a 1099.
Income Tax Payment Obligations for Online Businesses
Your online business income is subject to tax. However, the exact method of taxation your business will face is based on its form of organization. That is, certain forms of organization will pass-through the tax to the individual owner or owners. By contrast, corporate forms allow for direct taxation of the online business. Assessing the type of income tax your company is subject to and ensuring that your company is not paying more income tax than required is a necessary inquiry for all internet business owners.
Online Sales and Use Tax Obligations
Online businesses may be obligated to collect and turn over sales and use tax. In California and many states, this often turns on whether you have facilities and operations in the state. However, the California Board of Equalization has stated that even out of state companies are required to register for use tax administration.
