ibusinesslines.com July 23, 2018

Paying Sales Tax on Out of State Purchases

17 April 2018, 01:23 | Justin Tyler

Supreme Court Weighs Internet Sales-Tax Case

Transactional Sales Tax

E-commerce sites aren't obligated to collect sales taxes in states where they don't have a physical presence, such as a warehouse or brick-and-mortar shop, so while Amazon pays up for goods it sells from its own inventory in all 45 states that require them, on its third-party marketplace, which accounted for $32 billion in sales a year ago, merchants often don't.

It does seem fair, because as it now stands, certain retailers have an unfair advantage over others.

Many smaller retailers don't; unless they have a physical presence in the state where the buyer lives.

The debate about paying sales tax on online purchases is heading to the U.S. Supreme Court.

States would capture more of that tax if out-of-state sellers had to collect it, and states say software has made sales tax collection simple.

Software does exist that would allow online retailers to easily automate the state and local sales tax collections process.

According to the Government Accountability Office, online marketplaces could have collected between $3.9 billion and $6.2 billion in state sales tax.

"The entire nature of interstate commerce has changed", says Stephanie Martz, general counsel of the National Retail Federation, which has members such as Walmart Inc., Target Corp., and Amazon. That leaves out only Alaska, Delaware, Montana, New Hampshire and Oregon.

The justices will decide whether to overturn 50 years' worth of rulings that forbid states from imposing sales taxes on whatever their residents buy from out-of-state retailers.

However, in 2016, South Dakota passed a law requiring retailers with at least 200 transactions or $100,000 in sales per year in the state to collect state taxes. The company now charges consumers in every state that imposes a sales tax, but only when selling products that come from its own inventory. The court first adopted its physical presence rule on sales tax collection in a 1967 case dealing with a catalog retailer.

The Quill ruling, involving a mail-order company, centered on the Constitution's so-called dormant commerce clause, a judge-created legal doctrine that says states can't unduly burden interstate commerce unless authorized by Congress.

It's unclear how the justices might align on the question this time.

Out-of-state sellers disagree, calling it costly and extraordinarily complex, with tax rates and rules that vary not only by state but also by city and county.

Initially meant to regulate catalog-based sellers, the ruling has been challenged again and again by states seeking to claim their fair shake of online sales.

South Dakota says the high court's previous decisions don't reflect today's world. "A court ruling in South Dakota's favor would improve local government prospects for collecting internet sales taxes, but new state legislation may be required to fully address these issues in some cases".

Those opposed to a re-write of the law warn that the cost to small businesses could be too much to bear. The court reaffirmed that ruling in 1992.

Arguments for the case begin on Tuesday, and a decision is expected in June. Three current justices - Clarence Thomas, Anthony Kennedy and Neil Gorsuch - have already expressed doubts about the precedent. "The "physical presence" rule of those eras was enunciated by the Court long before virtual presence was even imaginable", added White.

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