Expertise Beyond the Numbers

States Can Now Require Sales Tax on Online Purchases

On June 21, 2018, the U.S. Supreme Court ruled that states can force businesses to collect sales tax on internet purchases regardless of whether the business has a physical presence within the state. It is estimated that this ruling could bolster nationwide state revenue as much as $13 billion per year. The Court’s decision reflects the economic shift towards a more widespread use of e-commerce. Previously, out-of-state online businesses have been sheltered by the 1992 Quill Corp. v. North Dakota case which ruled that at least some physical presence or connection with a state was necessary for a state to require a business to collect and remit sales tax.

Online retailers can now be subject to the same sales tax remittance and reporting as brick and mortar businesses. These brick and mortar businesses have argued that the prior law provided an unfair advantage to online retailers, which can now be leveled.

While larger chains already charge their customers sales tax and will not be significantly affected by the new ruling, smaller online retailers will now face the burden and additional cost of compliance with each jurisdiction. Not only do 45 of the 50 states charge sales tax, but there are numerous sales tax jurisdictions within the states – over 9,000 in total.

There are software options to assist with compliance, though the software itself will be an added cost and, according to the dissent of Chief Justice John Roberts, “…the software said to facilitate compliance is still in its infancy, and its capabilities and expense are subject to debate.”

The new ruling gives rise to a couple onerous questions and the need for additional guidance:

  • Can/will states impose sales tax retroactively on e-commerce transactions?
  • Will states impose sales tax on all online purchases, regardless of the retailer’s number and size of transactions within the state?
  • How quickly will businesses need to become compliant, registering for sales tax and implementing collection/remittance?

If you have any questions about the new ruling contact our Tax Services Team.