Published: Sun, June 24, 2018
Money | By Hannah Jacobs

Supreme Court Let States Tax Online Shopping

Supreme Court Let States Tax Online Shopping

Over on NBC News, they are reporting that the US Supreme Court has ruled 5-4 that states can now force retailers to collect sales tax on online sales regardless of where the business is located. This overturns a decision from 1992 that mandated that states could levy taxes on businesses only if they had a brick-and-mortar presence within that state's borders. The situation varies, depending on the state, but in Illinois, Amazon and other internet-based sellers collect the sales tax while firms without a presence are not required to do so. So it passed a law requiring all but the smallest retailers, including Internet companies, to collect taxes on the sales they make in the state, even if they had no physical presence there.

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. NY and California's rules are more complex, and those states have sought to increase sales tax collection by using broader definitions of what it means to do business within their borders. Part of the draw to buying things online, aside from the convenience, was avoiding sales tax (assuming you bought from a smaller merchant), which on more expensive products could cost more than shipping - that's not to mention the possibility of free shipping in some cases, too.

States that rely more heavily on sales tax - as opposed to personal income tax, for instance - "are the big winners here and could see real budget gains if they follow South Dakota's example", said Fitch Ratings analyst Stephen Walsh. Small and medium size businesses are most negatively impacted These business are faced with a huge problem because compliance is complicated. "We do have a mechanism in place in Tennessee that we can begin collecting sales tax", Hawk said.

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

Local attorneys also suggest that small online business retailers consult with a CPA or tax lawyer because laws change and software might not keep up. In 2015, 72.5 percent of Tennessee's total tax revenues came from sales tax.

"With our state's growing economy, I don't want to reach into West Virginians' pockets when we don't need to", Justice said. "While we don't know how much this will specifically mean for our sales tax revenue, we are certain it will have a positive impact on our sales tax revenue".

A new CT law goes into effect at the end of this year to collect taxes from some online retailers. They are linked to databases that track tax rates in the 45 states that charge sales tax, and in the thousands of counties and municipalities that have their own taxes.

We asked some vendors of sales-tax services for their advice. Online retail has grown at the expense of physical stores. Republican state lawmaker Jeff Partridge, who sponsored the provision in the teacher pay measure, said he's looking forward to the "prospect of a tax cut for the citizens of South Dakota". But the promise of additional revenue from online sales taxes may push more states to join.

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