States Can Require Online Shoppers to Pay Sales Tax

Questions have been swirling about eCommerce sales tax for months. Yesterday, the Supreme Court ruled 5-4 that states can require online shoppers to pay sales tax.

“The Internet’s prevalence and power have changed the dynamics of the national economy,” the Court stated in the decision for theSouth Dakota v. Wayfaircase. States, who rely on sales tax to fund things like education and road maintenance, felt that they were losing important funds due to a Supreme Court decision from 1992 (Quill Corp v. North Dakota) which ruled that only companies with physical presence in a state could be required to collect sales tax for that state.

In other words, a business needed to have sales tax nexus in a state in order to pay sales tax in that state. It sounds fairly simple, until you remember that there are fifty states in the United States and that state tax laws are not uniform. Over the years Quill received criticism for providing a competitive advantage to out-of-state merchants over brick-and-mortar locations. eCommerce has rapidly become a major part of the US economy, but tax laws haven’t kept up.

Last year, the Multistate Tax Commission (MTC) offered sales tax amnesty to online marketplace sellers. The amnesty was specifically for those sellers who had sales tax nexus because they were storing inventory in a warehouse as a third-party seller. Jennifer Dunn of TaxJar explained the program in this blog post. Sales tax and sales tax nexus became hot topics in the online seller community.

Amazon began collecting sales tax on behalf of third-party sellers in Washington and Pennsylvania earlier this year. Amazon currently collects sales tax on items sold directly, but third-party sellers are still responsible for collecting sales tax on items purchased from them in the other 48 states.

What does this decision mean for online sellers, and specifically for Amazon merchants? Will Amazon eventually begin collecting sales tax on behalf of third-party sellers in all states, or will merchants be responsible for collecting and remitting sales tax to each state on their own? So far, there seem to be more questions than answers, but we hope to get clarity in the coming weeks and will be sharing updates on our Facebook page. In the meantime, if you want to learn more about the ruling, our friends at TaxJar are hosting an“Ask the Experts” webinar on Wednesday, June 27th, 2018.