Global Tax Insights
Do I Have to Collect Sales Tax on Online Sales?November 03, 2016
If you run a business with a physical storefront, you’re familiar with collecting sales tax. Do the same rules apply for online selling? Read on to find out more.
Some states have been passing their own web sales tax laws as of late, though historically the Supreme Court has spared out-of-state sellers with no physical presence in the buyer’s home state from collecting sales tax. Why the sudden change you might ask? Well....the absence of sales tax on online purchases has caused many states to lose millions of dollars in annual sales tax revenue.
Sales/use tax refresher
Check out our blog, “Sales and Use Tax Nexus Battle: The Final Frontier”. Online sales are still subject to sales tax collection requirements that other “brick-and-mortar” store sales are. If a company has physical presence or “nexus” in a state, the company is required to collect and remit sales tax. Even if a company does not charge sales tax, consumers are still expected to pay it.
Many states have a “use tax” policy which is essentially in place for consumers who are not charged a sales tax at the time of sale. If the consumer is using the product or service in that state, he/she owes a “use tax” which is equivalent to the amount he/she would’ve paid had the retailer charged a sales tax.
Collecting sales tax online (web tax laws)
Given the confusion this tax brings about, many consumers inadvertently ignore their use tax responsibilities, sparking states to reconsider their approach to collecting this tax.
Many more states have been adopting “web sales tax laws” which assess sales tax on an increased amount of online purchases. These laws are enacted by the states themselves, in an attempt to recapture lost tax revenue. In addition to this, many brick-and-mortar store owners have complained that online retailers should have the same tax collection duties that they do.
What states have enacted web tax laws?
South Dakota- In 2011 South Dakota enacted a new law in an attempt to increase the amount of taxes collected on items purchased by residents of SD from large internet retailers located out-of-state. Similar “amazon laws” as they are commonly referred to, have been enacted in various other states.
Alabama- New laws in Alabama (took effect January 1st, 2016) require out-of-state sellers lacking a physical presence in the state to collect and remit Alabama sales tax.
California & New York - Online sellers in CA & NY are required to collect state sales tax if they pay websites in that state to refer business to them.
In the works: Among others, Massachusetts, Utah and Vermont might soon follow suit with South Dakota and Alabama.
How have the laws been received by retailers and consumers?
Since “Amazon laws” impose taxes on remote sellers without nexus to the state in question, a lot of retailers have questioned how “just” these laws are, with respect to nexus laws.
Questions about your sales and use tax obligations? Contact us today.