Paying Sales Tax on Out of State Purchases

Supreme Court Weighs Internet Sales-Tax Case

On Tuesday the Supreme Court is hearing arguments whether to overturn its 1992 decision when it hears a new case focused on online purchases, South Dakota vs. Wayfair. "The "economic presence' test set forth in this case is a far better yardstick for State authority over absentee retailers and will ensure that large online retailers are playing by the same rules as their brick and mortar counterparts".

New outlets last week reported that the Trump Organization's online store, TrumpStore.com, collects sales tax in only three states.

Texas Comptroller Glenn Hegar announced he would send cities, counties, transit systems and special goal taxing districts $651 million in local sales tax allocations for sales in February, 5 percent more than the previous year.

It passed a law requiring retailers with more than $100,000 in annual sales or more than 200 transactions in the state to pay a 4.5 percent tax on purchases.

It's not only about the money, says Stephanie Harvey, owner of exit343design in Conshohocken, Pennsylvania.

Retailers like Amazon, Walmart, Target, Apple and other major companies do now collect sales tax via their ecommerce channels, so that's not what this case is after. "If a company can figure out how to send a product around the world, to large cities and remote areas alike, they can also find out what the accurate tax is at the local level". She couldn't even guess how much of that was out-of-state.

Based on a prevailing Supreme Court law, retailers can be forced to collect taxes only in states where the company has physical presence.

Traditional retailers say they still are at a disadvantage to their online competitors. "It's so convenient and there are places in Georgia that the only way you can buy from them is online". Software does exist that would allow online retailers to easily automate the state and local sales tax collections process.

Although Internet giant Amazon.com is not a party to the case - the company now collects sales tax in all 45 states that have one, as well as the District of Columbia - President Donald Trump's recent criticism of the company's founder, Jeff Bezos, has cast a political sheen on the issue.

"South Dakota's choice to forego its remedy for back taxes in the event that the Court were to overrule [existing law] will not limit the retroactive application of such a ruling with respect to other state and local jurisdictions", said Wayfair's attorneys.

But many other smaller retailers don't collect sales tax unless they have a physical presence in the state where the buyer lives, relying on a 26-year old Supreme Court decision that was related to catalog retailers.

In 2017, an audit of the Federal Government Accountability Office indicated that states missed the opportunity to collect some $13.7 billion due to the Supreme Court law on state tax for online purchases.

Represented at the court by Bethesda, Maryland, lawyer Eric Citron, the state said the modern economy requires a recognition that the court's 1992 ruling is obsolete. But as Amazon has grown, dotting the country with warehouses, it has had to charge sales tax in more and more places.

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