Online Shopping Sales Tax, Business Owners and the IRS

Online shopping sales tax will now be paid by just about all shoppers. Before June 21, 2018, the payment of e-commerce and online sales tax, in some instances was left up to the conscience of the shopper. The Supreme Court decision in South Dakota v. Wayfair Inc. changed that. The 4-page Syllabus to the Decision begins with this statement:

South Dakota, like many States, taxes the retail sales of goods and services in the State. Sellers are required to collect and remit the tax to the State, but if they do not, then in-state consumers are responsible for paying a use tax at the same rate.

This decision ruled that internet retailers must collect sales taxes in states where they have no physical presence. Many of these changes will go into effect July 1, 2018. There will be adjustments to existing and pending state legislation and requests for more guidance to retailers before they are ready and able to begin sales tax collections from out-of-state sellers.

SALT and online shopping sales tax before June 21, 2018.

The definition of taxable goods and/or services in other states caused confusion. Defining SALT (State and Local Taxes) owed on the sale could also be hard to figure out depending on where and how the purchases were delivered to or received by the buyer. Many companies, such as Amazon (which also operates under some very specific sales tax laws) collected state sales tax on products it sold directly, but not for third-party sellers (except in Washington and Pennsylvania).

For years, residents living close to a state line could physically shop in a nearby border state city and have items such as furniture and appliances delivered. This was often an instance where the consumer paid no sales tax. To add to their home state’s sales tax loss of revenue, very few consumers advised their state of non-taxed purchases and didn’t pay taxes.

Why the change now with online shopping sales tax?

As a result of online shopping, The Government Accountability Office estimates that state and local governments could have collected up to $13 billion more in 2017 had they been allowed to require sales tax payments from online sellers. All but five states, Alaska, Delaware, Montana, New Hampshire, and Oregon, impose sales taxes.

The Tax Cuts and Jobs Act of 2017 and the shifting of some expenses from the federal budget to individual state’s budgets put the burden on states to increase their revenue and trim their own budgets. Each state, county, and city will intensify efforts to identify, have collected, and receive all allowable taxes, including online shopping sales tax.

How does this affect small brick and mortar businesses?

Prior to June 21, 2018, when your business made an online sale and shipped the otherwise taxable purchase to a state in which you didn’t have nexus, you didn’t charge sales tax. No problem. Easy for the business owner. Less expensive for the customer.

But the buyer’s state lost potential sales tax revenue.

It won’t be quite that easy now. Each state makes their own tax laws and options can be as simple a single amount for the entire state, or the amount might be “destination-based” or “origin-based.” States are scrambling to get things in order and in many cases are requesting clarification before changes can be made.

Every small business offering online out-of-state sales will need to ramp up to the task. This could be more difficult and more expensive for the business owner and could logically drive up the cost of all merchandise and services.

But now the buyer’s state will receive their sales tax revenue.

What’s the bottom line?

If you’ve never consulted a CPA tax, financial and business management specialist or considered setting a course based on strategic tax planning, now is the time to do it. Tax laws and opportunities have changed dramatically and will continue to do so. Stay prepared, flexible and in control.

Our goal is to become part of your overall life and business goal planning team so that you’ll be able to establish your own goals and know that you have a trusted professional on your team. We establish and maintain a personal and business relationship with our clients. Your LIFE is your business and your BUSINESS is your life. We’re here for YOU.

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