Online Retailers: Be Ready to Collect Sales Tax
In a recent U.S. Supreme Court decision, States will now be able to collect sales tax from internet retailers who sell their products online. This change appears to be a big victory for the States, and is expected to increase revenue that individual States argued they have been missing out on for decades.
Prior to this ruling, the law did not require businesses to collect sales tax on customer’s purchases if the business was shipping the purchase to a State where the business did not have a physical presence. In these situations, customers who resided in a State with sales tax were required to report and pay ‘use tax’ for their online purchase directly to their home State. This tax reporting requirement was not widely known, and the home States seldom received the use tax. This is all about to change as a result of this recent U.S. Supreme Court decision.
What Does This Means for Businesses?
Under the U.S. Supreme Court’s decision, States can now pass laws requiring sellers – without a physical presence in the State to which they are shipping – to collect that State’s sales tax from customers and send the collected sales taxes to that State. What is not yet clear is whether Federal legislation will provide details on how sales tax collection will take place, or if each State will be responsible for carrying out their own specific sales tax collection program.
JDSA is also following the question of whether the ruling requires all Internet companies to collect sales tax.
Could this only apply to larger companies?
For example, what about the smaller retailer who sells on eBay or Etsy? Will they also face the same sales tax collection requirement? This ruling, though favorable to State revenue, could create an undue burden on small, online retailers. Tax planning and a full understanding of the collection process will be key to compliance.