Where Do Online Businesses Source Their Income? Part Two: Income Tax

Just as e-commerce has presented challenges for sourcing sales tax, e-commerce also presents issues for sourcing income taxes. This blog will discuss the income tax implications for online businesses.

Just as e-commerce has presented challenges for sourcing sales tax, e-commerce also presents issues for sourcing income taxes. This blog will discuss the income tax implications for online businesses.

What is Income tax?

Income tax is based on the revenue of your business, unlike sales tax that is imposed on the customer at the point of purchase. Just like sales tax, income tax regulations differ by state.

How Does Income Tax Nexus Compare to Sales Tax Nexus?

Income tax nexus and sales tax nexus is essentially the same as sales tax nexus, looking at amount of sales, payroll, and property in the state when determining a business’ connection to that state. Many states have a state income tax, while other states including Florida do not. If a company meets a state’s threshold requirements for income tax nexus in that state, the company must pay income tax on income generated within that state.

State Bright-Line Economic Nexus Rules

Some examples of activities that constitute income tax nexus include:

  • Providing services within the state
  • Storing inventory within the state
  • Accepting payment within the state

Federal law specifically outlines certain activities that do not constitute income tax nexus such as:

  • Solicit sales of goods
  • Offer services that are subsidiary to the sale of goods
  • Display samples of a product
  • Accept orders that are fulfilled out of state

If you need advice regarding economic nexus and income tax, please do not hesitate to contact one of our experienced lawyers at EPGD Business Law. EPGD Business Law is located in beautiful Coral Gables, West Palm Beach and historic Washington D.C. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

Categories: Tax Law

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