Since the dawn of ecommerce, the issue of sales tax has been cloudy for many retailers. Today, a total of 45 states have a sales tax. Within these states, there are 9,600 separate taxing jurisdictions (each with different definitions, holidays and rates) making sales taxes even more confusing.
Here’s what you should know about sales taxes:
With many companies managing regionalized inventory across multiple distribution centers, the nexus/sales tax challenges are even more unclear.
See Resources below for more information about sales taxes. For policies at the individual state level, click here.
Tax legislation: Previous cases and what’s proposed
There a number of crucial pieces of legislation that have set the precedent for eCommerce sales tax. The two most notable are below:
A number of bills have been introduced in the House and Senate, however none have been agreed upon.
Resources for this post:“Feds Launch Internet Sales Tax Again, So Better Click While You Can”
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United States Congress
Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992)
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“Destination and Origin Based Sales Tax
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Here’s what you should know about sales taxes:
- Most legal precedents around sales taxes center around an issue of the nexus. A nexus is a physical presence to the state in the form of a warehouse, store, office or sales representative.
- Federal legislation around sales tax has been mandated for all states. Many bills have been proposed, however none have passed the House or Senate. Previous cases are used as the rule of thumb to govern sales taxes. There are a number of outstanding bills that would mandate a federal rule on ecommerce sales tax.
- Be aware of origin- versus destination-based sales tax. Lack of federal rule has motivated some states to develop their own rules around sales taxes. Many states have adopted origin-based sales taxes or destination-based sales taxes. To see a complete list click here.
- Small sellers may get some leniency. Retailers earning less than $1 million in remote sales may receive small-seller exceptions.
- Some states are joining forces. A total of 24 states have adopted SSUTA (the Streamlined Sales and Use Tax Agreement), in an effort to simplify sales and use tax collection in response to efforts by Congress to prohibit states from collecting sales tax on online purchases.
- Take advantage of software to help comply with SSUTA. SSUTA has identified certified providers to help retailers achieve tax compliance: Enterprise TaxTools, AvaTax, SpeedTax, Exactor, TaxCloud and Taxware.
A total of 24 states have adopted the Streamlined Sales and Use Tax Agreement (SSUTA).
Without an overarching mandate from the federal government, ecommerce companies may have to work with a level of uncertainty around state taxes at this point.
See Resources below for more information about sales taxes. For policies at the individual state level, click here.
Tax legislation: Previous cases and what’s proposed
Previous Cases
- National Bellas Hess v. Illinois Department of Revenue (1967) – This case set the stage for out-of-state retailers being shielded from the obligation to collect sales tax, based purely on the notion that it would place too much of a burden on their businesses.
- Quill Corp. v. North Dakota (1993) – This is one of the most cited use cases for Sales Tax Nexus and sales tax issues.
Outstanding legislation
- 2013: Marketplace Fairness Act Introduced in 2013, this would grant states the authority to compel remote sellers (no matter where they are located) to collect sales tax at the time of a transaction, exactly like local retailers are already required to do. However, there is a caveat. States are only granted this authority after they have simplified their sales tax laws.
- 2015: Marketplace Fairness Act Reintroduced in 2015, this authorizes each member state under the Streamlined Sales and Use Tax* Agreement (the multistate agreement for the administration and collection of sales and use taxes adopted on in November 2002) to require all sellers not qualifying for a small-seller exception (U.S. remote sales not exceeding $1 million) to collect and remit sales and use taxes with respect to remote sales under provisions of the agreement.
- 2015: Remote Transaction Parity Act This bill authorizes member states under the Streamlined Sales and Use Tax Agreement as well as states that have not adopted it to require remote sellers to collect and remit sales and use taxes with respect to remote sales sourced to such states.
Resources for this post: