Shopping online? Now you will have to pay taxes

Supreme Court closes online sales tax loophole

The U.S. Supreme Court ruled in a 5-4 decision Thursday that online retailers can now collect sales taxes on out-of-state purchases.

The court upheld a 2016 South Dakota law that requires online merchants with more than $100,000 in annual sales to state residents or 200 transactions with state residents to collect sales tax.

In addition to being a win for states, the ruling is a win for large retailers, who argued the physical presence rule was unfair.

"If you are a local business that also has an online presence and you have a sale in California or Georgia, you are going to have to invest in a software program or do a lot of bookkeeping because you are going to have to pay sales tax in every state that you ship too". Some estimates claim that sales tax avoidance was a great benefit to shopping online - possibly worth $8 billion to $33 billion in uncollected taxes per year.

Honestly, this shouldn't be surprising to anyone, but it's a bummer nonetheless.

"It's great to have an even playing field for business and not only that, but sales tax is really important to our communities and important to our state". "The challenge for smaller players will be significant, and the concern here is that complexity could stymie innovation and entrepreneurialism", he said. That's a question on many minds after Thursday's Supreme Court ruling in South Dakota v Wayfair (see EcommerceBytes' article, "Supreme Court Throws Out Longstanding Sales Tax Rule-Book", published on Saturday). Sellers who use eBay and Etsy, which provide platforms for smaller sellers, also aren't required to collect sales tax nationwide.

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"New Hampshire's lack of a sales tax is a competitive advantage for our state, and this decision will unfairly punish small businesses that are the backbone of our economy", U.S. Senator Maggie Hassan said in a statement. North Dakota, a 1992 case, had held that physical presence was necessary.

Online retailers will have to deal with a hodgepodge system until Congress enacts a federal standard, which is unlikely this year given the midterm elections in November. South Dakota's governor has said his state loses out on an estimated $50 million a year in sales tax that doesn't get collected by out-of-state sellers.

Carl Davis, research director for the Institute on Taxation and Economic Policy, a non-partisan think tank, told Business Insider the Trump Store's sales tax collection policy is "a textbook example of the problem that this ruling is meant to address". "I suspect that we will be hearing from SD shortly on this point". Those retailers understandably have had concerns over the years when they faced increasingly intense competition from online sellers who, in some cases, boasted that purchases from their sites were not subject to the same taxes that would need to be added to the price of the same goods from a local store.

"We've been trying to phase out the sales tax on food so this gives us an opportunity to work on different parts of Tennessee's overall tax structure".

A sales tax is supposed to be a broad tax on consumption: You buy and use things, you pay tax.

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