Physical Presence is Dead: New Internet Sales Tax Rules
If you’re an online shopper, you may have realized that if you are purchasing goods from another state, you don’t always pay sales tax, like you would if you were buying at your local retail store down the street. If you’re a business which incorporates an e-commerce platform on your website, you’ve probably become accustomed to only collecting and remitting sales tax for goods that are shipped within the state where you are located. While every state has different rules and regulations regarding the collection of sales tax, most states implemented a “physical presence test”
On June 21, 2018, the Supreme Court declared physical presence dead in a 5-4 ruling. The case, South Dakota v. Wayfair, overturns the 1992 Quill decision that allowed states to avoid collecting sales tax from online retailers who did not have a physical presence in that state. The original Quill decision gave online sellers a perceived price advantage over their counterparts.
Since the Quill decision excused online retailers from having to collect and remit sales tax back to the state in which the buyer lived, the burden of tax reporting was placed on the buyer. Over the years, most of these taxes went unreported and uncollected – costing the government as much as $13.4 billion last year alone (according to the Government Accountability Office).
Wayfair levels the playing field between brick-and-mortar stores and online retailers. When delivering the Court’s opinion, Justice Kennedy pointed out that this decision could result in more local shopping as the inclusion of sales tax in price is likely to close the gap between online merchants and local shops.
Before you head off to cancel your Amazon Prime subscription, it’s important to note that some online retailers, like Amazon and Wal-Mart, already collect sales tax because they have a large enough physical presence in each state to qualify.
This regulation will have wide and vast consequences for businesses who fail to register to collect and remit sales tax in each state where they sell goods. State regulators have been known to be harsher and swifter to act that the IRS. Given this new Supreme Court Decision, you must register to collect sales tax in each state where you sell.
DiSchino & Schamy is a boutique, Miami-based law firm which specializes in corporate, business and intellectual property law. Contact us today for a free consultation on your sales tax collection and remission practices.
By: Christopher DiSchino (July 10, 2018)