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Online Retailers and Sales Tax: Supreme Court Addresses the Issues


Posted in on September 28, 2018

It is imperative for both individuals and businesses to understand the rules associated with their tax liability. A Maryland tax attorney can provide representation and advice on complying with changing tax laws and can provide assistance to those who are concerned that they may not have fulfilled all of the IRS requirements.

Individuals and businesses should get this type of legal help because changes to tax laws can occur periodically that impact their obligations to the IRS and to state taxing authorities. In fact, just recently, the New York Times wrote about a major potential change that is being ushered in by a recent Supreme Court decision. The change related to the way that online stores collect sales tax.

Supreme Court Widens the Reach of Sales Tax for Online Retailers

According to the New York Times, the case that recently came before the Supreme Court was called South Dakota v. Wayfair Inc. The question raised in the case was whether state and local governments could try to collect sales tax from online retailers.

This has become a major issue because consumers are increasingly doing their shopping over the Internet. And, many of the sales made over the Internet are free of state tax because of a 1992 Supreme Court ruling in a case called Quill Corporation v. North Dakota.

The 1992 decision held that a state could not require a business to collect sales tax for the state unless the business had substantial connections to the state trying to collect the tax. In other words, if the online retailer had its headquarters in the state, it could try to collect sales tax – but if the retailer just shipped goods to people sold there, it could not.

Individual buyers were supposed to keep track of their online purchases and pay the sales tax to the state that would have been due, but this essentially never happened at all. And, states began missing out on substantial revenue as ever-more shopping transitioned to being done online. Amazon, for example, had $119 billion in revenue from the sales of products last year, which is more revenue than all but the largest traditional brick-and-mortar retailers.

States wanted to try to be able to collect from these online retailers even in circumstances where they have no strong connections to the state, and the case that came before the Court addressed this issue. The court ruled that the past precedent put local businesses with physical presence at a comparative disadvantage and said that states could now be allowed to collect sales tax even from online retailers that do not have a local location.

This is likely to create significant compliance issues for many online retailers, including small sellers. It is one of many examples of how tax law changes can profoundly impact individuals and companies. If you or your business needs help understanding changes to tax laws or needs assistance complying with tax obligations, a Maryland tax attorney can provide the assistance you require. Contact attorney Kevin Thorn for help today. We are available online or via phone by calling (240) 235-5096.

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