A new ruling on collecting sales tax for online purchases has recently been put into effect.
According to the MSN website:
U.S. states could reap billions in online sales tax revenue and buttress their budgets after the nation’s top court ruled Thursday (June 21) that e-commerce companies could be required to collect the money, even if they have no physical presence in a state.
This decision overturns a 1992 “Quill” Court decision stating that sales taxes were collected on a purchase only if a company had a physical presence in the state where the purchase was made.
The new Supreme Court ruling may affect your online business, but each state must pass a similar law first. Nolo website explains:
If you are selling on the Internet to states around the country, you now will need to be aware of which states have enacted laws requiring the collection of sales tax by online sellers. In order for a given state to require you to collect sales tax, that state must pass a law allowing it to do so.
How is this going to affect online retailers? According to Forbes, each state will need time to implement the policy:
At the event, a panel of tax experts predicted that states likely would act within the next year or 18 months to expand their collections requirements. Some states may be able to set a collection regime by the end of this year.
It is my understanding — although not all the information is in for all 50 states — that not all online retailers will be affected by the new ruling. The New York Times revealed the following example from South Dakota:
South Dakota responded by enacting a law that required all merchants to collect a 4.5 percent sales tax if they had more than $100,000 in annual sales or more than 200 transactions in the state. State officials sued three large online retailers — Wayfair, Overstock.com and Newegg — for violating the law. Lower courts ruled for the online retailers, citing the Quill decision.
The ruling is still muddy as lawmakers are looking at standardizing the tax collecting process. Otherwise, the ruling would cause a nightmare for online retailers trying to figure out how much to collect from what states and what is required for reporting to each state.
Forbes explains further:
While this is a great first step, it could create a patchwork quilt of state laws that could become convoluted for smaller sellers to navigate. While technology has advanced significantly since the 1992 ruling, and there will be ample solutions available to sellers to clarify the process, it will still be a situation that is in constant flux and will need close monitoring as individual states change their laws. I believe a federal solution is still the most desirable outcome for the industry as a whole – but this ruling is still certainly a step in the right direction.
Guess we will need to wait and see how this enfolded in the next months or year.