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What are current rules for tax reporting for online sales?

The Internet has created the possibility for nearly anyone to become an online seller of wares. And it should come as no surprise that tax collectors at state and federal levels have an interest in tracking and recovering all the tax revenue such sales may be generating.

The problem is that while tax law has tried to keep pace with the move into the virtual world, a gap has developed. The reality, as many experts admit, is that a lot of the transactions taking place through online channels are generating revenue, but not all of that revenue is being reported on tax returns. There are also sales taxes going uncollected.

Where such conditions exist, serious tax problems have a way of cropping up. This might be an issue of particular concern at this time of the year when holiday shopping demands are at their peak. Lacking an understanding about who is obliged to file reports and what needs to be reported, can lead many in Minnesota to wind up in disputes with the government. To be sure individual rights are properly protected, an experienced attorney should be consulted.

In a potential bid to stave off any major headaches, here are some nuggets of information that might be useful. At the federal level, there is still no law governing collection of sales taxes for online purchases. A proposal called the Marketplace Fairness Act had reportedly been on the docket for congressional action yet this year, but leaders in the House put a lid on it. The issue is expected to be back in the next Congress.

In the absence of national regulations, many states, including Minnesota, have instituted their own laws. But they typically speak specifically to major retailers doing business in the online world.

What about private individuals? It depends on their particular situation. Generally speaking, though, if you conduct a one-time sale of a personal item on or Craigslist, you probably don't need to report it. The same may apply if sales are related to a hobby. But if you conduct recurring sales intending to make a profit, you might have an obligation to pay taxes on income.

But if your activity sparks a notice from the government, don't ignore it. Speak with an attorney to know your rights.

Source: FindLaw, "Do You Need to Report Your Online Sales to the IRS?" accessed Dec. 19, 2014 

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