Online sellers consider how to comply with new sales tax ruling

Judy Cobb
June 24, 2018

The court ruled Thursday that states can require online retailers to collect sales taxes even if the retailers do not have a physical presence in the state.

The court overturned a 1992 decision that had laid out stricter rules for collecting retail sales tax from out-of-state merchants.

In theory, customers who shopped on those sites were supposed to pay taxes themselves, through the state's use tax, but few did.

Beginning in 2014, as part of a compromise, Tennessee started collecting sales tax from online Amazon purchases because the behemoth online retailer had a physical presence in state with warehouses and distribution centers in Chattanooga, Lebanon and Murfreesboro.

The decision allows states to require out-of-state businesses to collect sales tax from customers in other states - for example, a retailer in Utah who sells goods to a customer in NY would have to calculate and collect the NY sales tax. South Dakota's governor has said his state loses out on an estimated $50 million a year in sales tax that doesn't get collected by out-of-state sellers.

Crowe & Dunlevy attorney Hayley R. Scott, said many people don't report online sales on their state income taxes and making businesses responsible will likely mean a difference of billions of dollars nationwide.

She says prices may go up on her website, but it's important states see tax dollars for online purchases.

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In addition to being a win for states, the ruling is a win for large retailers, who argued the physical presence rule was unfair. Get ready to pay a little more. To be compliant with the Streamlined Sales Tax Agreement, a state must administer one tax rate.

Furthermore, Kennedy said, the previous decisions effectively functioned as a "judicially-created tax shelter" for out-of-state retailers, and put local businesses at a "competitive disadvantage". "We're not interested in applying more taxes", said Blair.

The conservative chief justice, John Roberts, dissented along with liberal Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan. The ruling upheld a South Dakota law that exempts sellers with $100,000 or less in sales in the state. The ruling should also eliminate the need for the kind of workarounds that MA regulators have recently devised to snare more online vendors, such as arguing that Internet "cookies" constituted a physical presence, a policy Kennedy cited as he dispensed with the physical-presence test.

The decisions had resulted in some companies not collecting sales tax on every online purchase. In 2015, 72.5 percent of Tennessee's total tax revenues came from sales tax.

"You are now going to have to invest in software that is going to help you, hopefully, to be able to navigate those state's laws".

TrumpStore.com now collects sales taxes in just four states.

Other internet companies opposed the law, saying the thousands of variances in local and state tax laws create an accounting nightmare for business owners. "It automatically made the playing field unlevel for those entities that are here in the state doing business and participating in our community". In that case, Quill v. Back then, "I was a junior in high school", she said, adding that her youngest son just finished his junior year in high school. "And it's about time".

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