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Changes coming to online sales tax for merchants

The number of people shopping online is growing daily. According to U.S. News, half of all Americans do regular shopping online, with nearly 20 percent of holiday gifts coming from online retailers in 2016. As a business owner, you know that accounting for sales tax is a regular part of brick-and-mortar sales. However, the rules for collecting sales tax from online transactions aren’t as clear.

In 1992, the U.S. Supreme Court ruled that states could not force online retailers to pay sales tax in each state to which they sell and ship products. For example, an online retailer in New York is not required to collect sales tax from a customer in Maine who receives products, even though the State of Maine would see it as a taxable transaction if done in a brick-and-mortar store.

Potential changes coming

As online businesses replace brick-and-mortar retailers in the marketplace, states and cities around the country are losing a combined $5 billion in sales tax revenue, according to Bloomberg. In light of the tax shortfalls, states are finding significant incentive to challenge the 1992 ruling with legislation and litigation.

Additionally, businesses have the opportunity to file for amnesty from back taxes in 24 states until Oct. 17. Merchants who don’t register for amnesty could be compelled to collect sales tax or pay back taxes beginning Dec. 1. The ending of the amnesty period just in time for the holiday season is likely a signal that changes are coming nationwide to the way interstate goods are taxed online, according to Bloomberg.

Shifting marketplace means changes to tax law

It’s no secret that the online and retail marketplaces have changed since 1992, and what happens in one state could soon affect everyone if a case is brought to the U.S. Supreme Court. South Dakota could be the first state to challenge the 25-year-old ruling in federal court after the state court upheld it earlier this year.

If the Supreme Court takes the side of South Dakota in its ruling, online retailers across the country could be required to pay sales tax to states in which they do more than $100,000 worth of business annually.

No one can say for sure how the Supreme Court might rule if it takes the case, but a reversal in opinion from the lower court could have a significant impact on the tax and accounting practices of all online retailers in the United States. For more information on how this could affect your online business, seek guidance from the experienced attorneys at Goldburd McCone LLP.

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