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States Rule on Online Sales Tax

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Collection of online sales tax becoming clearer as states rule on South Dakota v. Wayfair.

Earlier this summer, the U.S. Supreme Court in a 5-4 decision reversed a 1992 ruling that effectively barred states from collecting sales taxes through businesses that did not have a physical location in the state. The ruling in South Dakota v. Wayfair said that states can compel businesses to collect sales taxes on goods and services purchased online. Previous law, many argued, put brick-and-mortar stores at a disadvantage because they had to pay the tax.

Since the June Supreme Court ruling, it’s been unclear whether Congress or the states would take the next steps to begin collecting the taxes. That’s all becoming more certain. The majority of states have now either passed or proposed a rule similar or even more aggressive than South Dakota’s economic nexus law — and that list is growing daily. You can visit the Sales Tax Institute Remote Seller Nexus Chart for up-to-date information on all states, or give us a call for assistance.

As for North Carolina, the NC Department of Revenue recently announced that it will begin enforcing a law to collect taxes on out-of-state sales conducted online. Beginning November 1, 2018, or 60 days after they meet the threshold — defined as sales exceeding $100,000 sourced to NC or 200 or more separate transactions sourced to North Carolina in the previous or current calendar year — sellers must conform to the new law and begin collecting sales tax.  Companies will not be required to retroactively pay the tax.

In South Carolina, the SC Department of Revenue is in the process of drafting guidance for remote retailers with no physical presence in the state which will detail their obligations to register with the state and to collect and remit sales and use tax. The announcement expressly states that the change will be prospective, and we anticipate it will occur in a matter of weeks. According to the announcement, the SCDOR guidance will adopt the same substantial nexus factors at issue in Wayfair – that is, annual delivery of more than $100,000 in goods or services or 200 or more separate transactions into the state in a year. While the SCDOR announcement provides some clarity on how South Carolina intends to address several of the more important issues arising post-Wayfair, significant details remain to be specified. We’ll be sure to send out another alert once SCDOR issues its guidance.

Note that consumers who bought goods from out-of-state companies that did not collect sales tax were always required to declare the purchase on their income tax forms. However, in practice, that didn’t always happen.

Will we see a higher price for goods? Possibly. With large merchants now required to collect those taxes and pay them to the state, companies could very well pass that expense onto consumers. Only time will tell.

If you’re in the business of online sales, even a third-party seller on Amazon, and you meet the threshold, give us a call. We can help you navigate the laws of each state and, perhaps, revise your strategy to maximize your profits.

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