I have a number of websites selling products and services and so, I’m on the outlook for the best solutions. For me, that means speed and service so that the websites stay up, but it also means I’m careful about not getting myself into a tax issue by mistake.
We recently needed to change our hosting company because we needed more horsepower. Since I’m a CPA who talks to a lot of people about the issue of nexus, that was something that I knew I needed to watch.
In fact, there are two things to consider when you’re looking at a hosting company for your website(s):
- What are the state’s rules regarding income and sales tax nexus, and
- What is subject to sales tax? (And, especially, are digital downloads subject to sales tax?)
My website guy, Jorge, dropped me a note this past week and gave me the short list of states that he was considering for the hosting.
I surprised him when I chose California. First, I looked at what their history had been for trying to pull online businesses into the state. Surprisingly, especially considering CA is so aggressive on so many other fronts, they are very hands off when it comes to online business. There are a lot of tech companies in CA such as eBay and apparently CA is sensitive to not encroaching on that industry.
Hosting your site in CA does not trigger sales tax and it does not trigger income tax. And, even better, there haven’t been any rumors that it would. The second thing I watch is what is subject to sales tax. CA again has been very favorable toward online businesses. There is no sales tax on digital downloads. Having an affiliate in CA does not pull a company into CA tax.
Surprisingly, CA has a good environment in which to host your website. But when you look at other states that normally are considered good tax environments, they aren’t always so favorable to online businesses.
For example, Texas is not a good choice. They have sales tax on digital downloads. And they have attempted to pull companies into their taxing system due to hosting. They quickly reversed their last move, but anytime a state attempt to overreach just based on a definition of the law, look out. They might try it again at any time.
As much as I love to bash California, I didn’t this time. In fact, we just moved our websites to a hosting company there.
The lesson here is to not assume that you know how state income tax and state sales tax nexus is going to affect your business. Got a question? We can help! Give Richard a call at 888-592-4769 or drop him a note at Richard@USTaxAid.com.