Paying Sales Tax on Out of State Purchases

Packages from Internet retailers are delivered on Friday

Packages from Internet retailers are delivered on Friday

An already-diminished perk of online shopping - avoiding the payment of sales tax - is in danger of extinction at the Supreme Court this week. Large retailers such as Apple, Macy's, Target and Walmart, which have a physical presence nationwide, generally collect sales tax from customers who buy from them online. The court first adopted its physical presence rule on sales tax collection in a 1967 case dealing with a catalog retailer.

The case now before the Supreme Court could affect those third-party Amazon sellers and many other sellers that don't collect taxes in all states - sellers such as jewelry website Blue Nile, pet products site Chewy.com, clothing retailer L.L. Bean, electronics retailer Newegg and internet retailer Overstock.com.

On Tuesday, the Supreme Court is scheduled to hear South Dakota vs. Wayfair to determine whether to overturn that 26-year-old ruling.

In fact, he said, as the percentage of large retailers collecting sales tax continues to grow, "the numbers are only going to get better from the states' perspective", without disturbing the protections Quill provides for smaller retailers.

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Additionally, independent businesses on websites like Etsy and Ebay would be included in a rewritten sales tax law, as well as third party merchants that operate in Amazon's global marketplace, which totaled almost two-thirds of the company's gross merchandise volume at $313.4 billion.

Small retailers are not collecting state taxes from online shoppers unless the store has a physical presence in the state where the buyer lives. The court will also rule whether states have the authority to tax all online purchases.

States would capture more of that tax if out-of-state sellers had to collect it, and states say software has made sales tax collection simple.

The professor said the growth of online sales is enough of a worry to the large retailers that majority are developing hybrid systems where customers can make a purchase online and either ship it directly to the customer or to the local store where the customer can come in and pick it up. There are more than 10,000 sales tax jurisdictions in the United States: 45 states, the District of Columbia, counties and municipalities. But it's practically impossible for the state to get the tax revenue unless the company collects the money at the time of sale.

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The case now before the Supreme Court involves South Dakota, which has no income tax and relies heavily on sales tax for revenue.

Represented at the court by Bethesda, Maryland, lawyer Eric Citron, the state said the modern economy requires a recognition that the court's 1992 ruling is obsolete. "These online companies have taken advantage of a bygone decision in order to evade the tax collection duties that their brick and mortar competitors perform every day".

He says it is often easier to sell higher-end products - $11,900 Viking refrigerators, say, or a $10,400 General Electric oven range - in other states because the lack of sales tax often offsets freight charges, which can add several hundred dollars to each order. "If we had to start charging sales tax, it would put us out of the market". Kennedy has written that the 1992 case was "questionable even when decided" and "now harms states to a degree far greater than could have been anticipated earlier".

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