States Attempt to Force Retailers’ Hands

As internet sales continue to increase each year, jurisdictions realize they are losing out on a major source of revenue in the form of sales tax. With the push from state and local governments increasing, the United States Senate has agreed to hold a vote in late 2016 on whether jurisdictions will be allowed to require retailers to collect sales tax from customers on internet sales.

Imposing tax on internet sales has been a hot topic since internet sales began. Several tax bills addressing internet sales tax have been introduced to the US Congress since 1998. Each bill has addressed allowing states and local jurisdictions to collect sales and use taxes from retailers, giving internet retailers virtual nexus. One of the main problems with why internet sales tax bills have not been successful is that there are nearly 10,000 taxing jurisdictions in the US. For most retailers it would be almost impossible to charge the correct sales tax rate for every jurisdiction. Tax rates are ever changing.  It would take expensive, sophisticated software to ensure accurate tax rates are charged for every jurisdiction. The software would also have to update tax rates timely. For many small retailers the cost of this software would put them out of business.

Recently multiple states have come together to require retailers to start imposing local sales tax on internet sales. The goal is to force retailers to fight back and to be unable to keep up with the different local tax rates. The failure to comply will lead to federal litigation. States want their motives questioned so they can ask the US Supreme Court to overturn the 1992 Ruling Quill Corp. vs North Dakota. The ruling prohibited taxing sales shipped to a state when the retailer does not have a physical presence in the state. The ruling applied to mail order sales and multiple states claim internet sales are categorized differently and should therefore be taxed.  If the Supreme Court doesn’t hear their arguments, they hope Congress will be forced to act.

Tips for the Taxpayer

It is important that internet retailers are up to date on the most recent rulings on internet sales both in their states and at the federal level. Not doing so could be costly in an audit.

For More Information

If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Events at www.allynintl.com.

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