States now have the ability to apply sales tax to online purchases even if the online retailer doesn’t have a physical presence in the state.
The U.S. Supreme Court case of South Dakota v. Wayfair changes a previous court decision which established a physical retail presence was necessary to collect sales tax.
With this 5 to 4 decision in June 2018, the U.S. Supreme Court allows states to level the playing field between online purchases and local retailers. The burden of collecting sales tax may now be shared across all retailers if a state decides to take advantage of the decision.
How Online Sales Tax Works Today
If an online retailer has a physical presence in the state, they must collect sales tax from purchases made by residents of that state.
Amazon has distribution centers in Florida and collects sales taxes from state resident purchases. Other online retailers, like Wayfair, do not have a physical state presence and are not obligated to collect sales tax.
Floridians, like residents in most states, were technically supposed to voluntarily pay sales tax for their online purchases. However, in many cases, consumers don’t.
Research from the Federal Government Accountability Office estimated that states lost between $8.5 billion and $13.4 billion in sales taxes in 2017.
Sales tax funds government functions ranging from infrastructure maintenance to public education.
Basically, state residents who made local retail purchases were carrying more of a tax burden to fund government services than residents who made online purchases even though those government services are shared by all residents.
What Changes with this Court Decision?
States now have the ability to collect sales tax from online purchases. However, it’s up to the states’ Legislature and Department of Revenue to implement the sales tax.
For local retailers with only a brick & mortar presence, they will continue to collect sales tax as before. Retailers with an online presence are currently under no obligation to collect sale tax from out of state purchases.
Once a state implements an online sales tax policy, all retailers will be obligated to collect sales tax.
Staying Current with Business Changes
The sales tax decision demonstrates that the environment that small businesses operate in can change quickly and dramatically. How do busy business owners and managers keep up? Delegate.
A virtual assistance firm like Business Solutions Unlimited could help you stay one step ahead of changes that could impact your business. Feel free to give us a call at (904) 429-4588 and let’s see how we can help your business.