Rules Regarding the Collection of Internet Sales Tax Face a Potential Reversal by Karen A. Lake, CPA
Posted on January 22, 2018 by Karen Lake
The U.S. Supreme Court has agreed to hear a case challenging a 26-year-old law regarding how businesses collect and pay sales tax for online transactions.
E-commerce has surged since the court’s 1992 decision in Quill Corp. v. North Dakota, which prohibited states from collecting sales tax on online purchases in which a business does not have a physical presence. During this same period, state and local governments have been struggling to fill significant budget gaps. In fact, according to the Government Accountability Office, states are losing more than $13 billion each year in tax revenue because they are not permitted to collect sales tax from out-of-state, online sellers. For those states that do not impose individual income taxes on its residents, such as Florida, Texas and South Dakota, the potential revenue they could generate from online sales tax is significant.
The case currently before the Supreme Court centers on a 2016 South Dakota law that would have allowed the state to collect sales tax from online retailers conducting sales with consumers located within its boundaries. In South Dakota v. Wayfair, the state claims that under the Quill decision, its “inability to effectively collect sales tax from Internet sellers imposes crushing harm on state treasuries and brick-and-mortar retailers alike.”
The Supreme Court is expected to hear the case beginning in the spring of 2018. A ruling in favor of South Dakota could overturn Quill and open the doors for states to collect sales tax on all remote sales. Such a decision would require Congressional action and new legislation.
In the meantime, it behooves online retailers to spend some time analyzing the states in which they are making sales and paying sales tax. If Quill is indeed overturned, these businesses could be in for a big change in their sales tax compliance.
About the Author: Karen A. Lake, CPA, is SALT (state and local tax) specialist and an associate director of Tax Services with Berkowitz Pollack Brant, where she helps individuals and businesses navigate complex federal, state and local tax laws, and credits and incentives. She can be reached at the firm’s Miami office at (305) 379-7000 or via email at firstname.lastname@example.org.