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01/17/2018

Online Sales Tax Debate Advances to Supreme Court

Interent Sales TaxThe U.S. Supreme Court has agreed to hear a case that may change the standard for how sales taxes are applied to online purchases.  In the case of South Dakota v. Wayfair Inc., the state will argue that all online sellers should be required to collect state sales taxes from South Dakota customers. It is one of only a few states that imposes taxes on all finished goods and services.  The case could set a precedent affecting all states and the District of Columbia.

Since 1992, a Supreme Court ruling (Quill v. North Dakota) has prevented states from collecting any sales tax from internet-related retail purchases unless the seller had a physical presence in the state where the sale transaction was conducted.  The case finding was based upon the idea that states should not interfere with interstate commerce.

The Tax Foundation’s Joe Bishop-Henchman writes that local businesses and states argue that they are unfairly losing revenues to retailers outside their jurisdiction.  He explains, “Traditional brick-and-mortar retailers that have to collect sales taxes feel they’re at a competitive disadvantage, and states are potentially losing out on billions of dollars in revenue annually.” 

On the other side of the issue, online retailers argue that each state may have different sales tax collection mandates that are often confusing, inefficiency in tracking collections, and expensive to comply with.

In this case, South Dakota is one of nearly two dozen states who are working together under the Streamlined Sales and Use Tax Agreement.  It is a voluntary governing board working to simplify and standardize sales tax rules.  At McRuer CPAs we have been helping clients navigate these issues since the advent of internet sales.  Unfortunately, their resolutions often reflect the one size fits all sales and use tax law requirements adopted years ago for a different time.

Arguments in the South Dakota v. Wayfair Inc. case are now set to be heard in April and may provide clarity on the constitutional limits of state taxing authorities and the scope and reach of the physical presence rule. 

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