Online shopping definitely has its perks. Consumers have the benefit of being able to shop from the comfort and convenience of their own homes. Moreover, given that web-based merchants have larger inventories and lower overhead costs, there are always plenty of ways to save. Best of all, sales tax is a non-issue in most instances. This, however, could be poised to change.
Why Online Sales Tax Hasn't Been A Reality So Far
Most e-commerce isn't currently subject to tax. According to a 1992 decision form the high court, out-of-state sellers that don't have a brick-and-mortar presence in the shopper's home state don't have to collect sales tax at the time of payment. States have the ability to impose a use tax on residents when a sales tax isn't collected, however, both compliance and buyer awareness are low. States have long been pleasing with Congress to act on their behalves, but things have remained the same for years. Anti-tax lawmakers and legislators from states that do not have sale tax have kept federal proposals on hold for years.
State Laws Conflict With The 1992 Supreme Court Ruling
The latest effort to institute an online sales tax failed when it was excluded from the federal spending agreement that was recently passed by Congress. This bill was backed by Representative Kristi Noem (R-SD). One thing that's definitely adding fuel to this fire is the fact that online sales are fast-increasing. A number of states that have grown tired of waiting for federal action have begun enacting their own tax laws for Internet sales. At the very heart of the current Supreme Court Case is the tax law that's been passed by South Dakota. It applies to sellers that earn in excess of $100k annually or that conduct 200 or more transactions within the state. These companies are required by law to collect sales tax from buyers within South Dakota. This motion is in obvious conflict with the 1992 ruling of the Supreme Courts. There are other states that have enacted similar legislation as well as states that have found alternative ways to hold e-commerce companies accountable for this revenue.
What To Expect Next
You can expect to see a Supreme Court decision by June 2018. If the South Dakota law is upheld by the Supreme Court, the all 45 states that collect sales tax on in-state sales will be able to reap the rewards. South Dakota alone asserts that it might bring in as much as $50 million each year if this law is upheld. It's also been estimated by the non-partisan US Government Accountability Office that states could see as much as $13 billion more each year with an increased tax base. This is probably why 41 of the 45 states that impose this tax have filed briefs with the Supreme Court in support of South Dakota. Not surprisingly, even many brick-and-mortar stores are siding with South Dakota as well. After all, this change in online taxation could actually level the playing field and give them a significantly increased ability to compete with online merchants
Who Stands To Lose
Obviously, consumers will have to pay a bit more if the South Dakota law is upheld. Also, online merchants who reside in Montana, New Hampshire, Oregon, Delaware, or Alaska (the five states that do not collect sales tax) will see a noticeable change in their revenues. Supreme Court support of the South Dakota law will also have a negative impact on web-based businesses that do not currently collect sales tax, and anti-tax lobbying groups.
Congress Could Get Involved Again
No matter what the ruling of the Supreme Court turns out to be, Congress may jump into the fray once more. There are currently two proposals that offer a uniform structure for addressing the different tax rates and rules for individual states. With one of these proposals, companies with over $1 million in online sales within the US would be required to collect sales tax from consumers living in states that levy this tax. Noem's bill is much the same but has different thresholds for exemption. There's also a third proposal that would outline the standard for physical presence in the even of out-of-state merchants. It's important to note that President Trump supports the increased application of sales tax for online purchases.
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