Online sellers consider how to comply with sales tax ruling

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This overturns a decision from 1992 that mandated that states could levy taxes on businesses only if they had a brick-and-mortar presence within that state's borders. Local tax attorneys are now weighing in to break down how this effects small businesses that sell products online, across the world. That's a question on many minds after Thursday's Supreme Court ruling in South Dakota v Wayfair (see EcommerceBytes' article, "Supreme Court Throws Out Longstanding Sales Tax Rule-Book", published on Saturday).

The decision allows states to require out-of-state businesses to collect sales tax from customers in other states - for example, a retailer in Utah who sells goods to a customer in NY would have to calculate and collect the NY sales tax. "The expansion of e-commerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes, leading the South Dakota Legislature to declare an emergency". That precedent dates to 1967, when the court said mail-order retailers were obligated to collect sales taxes only in states in which a company had a physical presence, such as a retail store or distribution center.

The General Accountability Office estimates that states could have taken in $13.4 billion more in revenues past year with an online sales tax.

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For a better understanding of how the ruling could impact consumers and businesses in the Chicago area, reach out to local legal experts. Small and medium size businesses are most negatively impacted These business are faced with a huge problem because compliance is complicated. That earlier ruling placed the responsibility of paying the online sales tax on customers who generally did not realize they owed it. Small businesses may have to figure out how to comply with various state sales tax laws, though there are software options to help.

But taxpayers could raise challenges, including the argument that collecting sales tax for previous sales could subject the seller to double taxation if the customer had already paid sales tax.

"I've been seeing a lot of Chicken Little 'the sky is falling, the sky is falling, '" says Sueanne Shirzay, who operates a shop on Etsy and her personal website selling handmade jewelry. "This is a big win for states that now they are able to tax more broadly. We're not interested in applying more taxes", said Blair.

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"As to who will have to collect, once that case is decided, it seems their economic nexus definition, or what we are now referring to as a de minimus threshold for interstate commerce, which is any retailer with more than 200 transactions or $100,000 of sales into South Dakota over the trailing 12 months". The newspaper reports that retailers say the ruling is long overdue. He believes the new ruling will "level the playing field" for brick and mortar stores in West Virginia.

"They've been getting an unfair advantage for 20 years". But the promise of additional revenue from online sales taxes may push more states to join.

"As a regional destination for working, eating, entertainment, and shopping, sales tax revenue is a major part of how we operate our government and improve our community", said Chris Floore, assistant to the county manager for public affairs for Macon-Bibb County.

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