New Tax Issues for Online Retailers
If you sell any products (but not services) via your website, you may now have additional tax issues concerning sales taxes. Considering the recent US Supreme Court ruling, online retailers are now required to collect sales tax just like their Main Street competitors. Prior to this case, the business would need to have an actual “physical presence” in any given state before it could be subjected to collecting and paying over the sales taxes. This change will mainly hit the small business Internet retail sites, as many of the large online retail stores (think Amazon, along with retail giants Walmart and Target- both of which has a physical presence in all states) already pays sales taxes on any online sales.
While the online retailers can pass on the taxes to the customer, it will have an enormous amount of tax compliance issues that it did not have in the past. There are more than 10,000 tax jurisdictions in the U.S. (State and/or local jurisdictions), as 45 of the 50 states impose sales taxes on purchases that range between 4.5 percent to 10 percent.
Compliance issues would include having to examine current tax compliance operations and make changes to determine where they must collect tax (i.e. which of the 10,000 potential taxing districts), whether their sale of goods is taxable at all, and how they will handle tax computation, filing returns (including frequency), and payment of any taxes collected (or should have been collected). Many states have different filing thresholds. For instance, South Dakota (the state involved in the Supreme Court decision) requires out-of-state Internet retailers to collect sales tax if they amass $100,000 in sales or 200 separate transactions in any given year.
Good luck with these new tax issues for online retailers and the new compliance burdens for small online businesses!