New online state sales tax collection laws are set to go into effect today in 10 states, according to a report from Internet Retailer. The statutes, which vary by state, allow states to require the collection of state sales tax from ecommerce sellers whether or not those businesses physically operate within a state’s borders.
The states with new online sales tax rules going into effect include Alabama, Illinois, Indiana, Kentucky, Massachusetts, Minnesota, Michigan, North Dakota, Washington, and Wisconsin. Similar laws are expected to go into effect in Connecticut and Iowa in the coming months. For now, the list of states that have passed statutes or regulations to require online sales tax collection has reached 32, according to Internet Retailer.
The new laws follow the decision by the U.S. Supreme Court in June to overturn a decades-old precedent that limited state sales tax collection to retailers who maintained a physical presence within a state. In the case South Dakota v. Wayfair the court was asked to review a 1992 ruling that outlined how states and other localities could tax goods sold outside of their borders. Initially intended to regulate the catalog-based retail industry, the ruling has been challenged again and again over the years as states sought to get their fair shake with e-commerce sales—and as brick and mortar stores sought to fight back against the growing threat of online-only shops.
“The internet’s prevalence and power have changed the dynamics of the national economy,” Justice Kennedy wrote in the Court’s ruling. “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.”
Kennedy went on to cite roughly $33 billion in sales tax revenue each year that states have missed out on. Additionally, the ruling cited how drastically internet access has changed since that 1992 ruling: just 2 percent of the U.S. adult population had access to the web back then, compared to nearly 90 percent today. Further, ecommerce sales totaled roughly $453 billion last year, or about 10 percent of the total U.S. retail sales, which is up from 0.2 percent of total sales it accounted for in 1998.
“Businesses need to closely examine and retrofit their ecommerce operations to determine in which states they must collect tax, whether their goods are taxable, and how they are going to handle the new tax computations, filing and remittance obligations,” James Gagliardi, an ecommerce and payments executive, wrote for Dealerscope recently. “Companies need to be familiar with tax laws in every state in which they sell – and quickly. Nearly half of all states already have processes in place to finalize their new tax laws and start collecting, with many expecting to be up and running later this year.”
With nearly every state cash strapped and looking for fresh streams of revenue, it wouldn’t be a major stretch to guess that all 50 states will have some sort of ecommerce sales tax law on their books within the next year or so. Whether you’re in favor of or opposed to the new lay of the ecommerce land, the fact remains that the way products are sold online has been fundamentally altered, and businesses need to get themselves familiar with and protected from these new tax burdens.