If you’ve been following the Wayfair case, you know the Supreme Court upheld South Dakota’s online sales tax legislation (related to economic nexus), creating precedent for other states to create and implement similar measures. But, as we explained in our last blog post, this doesn’t automatically mean all 50 states are charging taxes on internet purchases.
Which states are now collecting online sales tax, and how does this new ruling affect residents in states without sales tax? Keep reading to find out how some states are reacting to the Supreme Court’s ruling.
More States Begin Collecting Online Sales Tax
It’s not surprising that states are scrambling to create internet sales tax legislation to increase revenue as quickly as possible. As of October 1st, ten states joined the ranks of those requiring collection of sales tax if certain economic nexus thresholds are met:
- Alabama
- Illinois
- Indiana
- Kentucky
- Michigan
- Minnesota
- New Jersey
- North Dakota
- Washington
- Wisconsin
North Carolina, Connecticut, Georgia, Iola, Louisiana, Nebraska and Utah have legislation in place to require sellers to begin collecting taxes in the coming months, too.
As Digital Commerce 360 reports, “32 states currently have statutes or regulations in place to require sales tax collection by remote sellers and as more states’ standards take effect, online retailers have little choice but to find ways to navigate the hodgepodge of laws.”
Online sales tax has become tricky given the complicated requirements from more than 30 states. Most legislatures are attempting to protect small businesses by requiring a certain number of sales transactions (often 200 or so transactions) or a minimum dollar amount of sales (often $100,000 or more) before collection becomes mandatory, but there’s another group of companies that are finding these new laws especially complicated: enterprises located in states that don’t charge sales tax.
How Online Sales Tax Affects Companies in 5 Specific States
There are currently five states that don’t require sellers to collect sales taxes:
- Alaska
- Delaware
- Montana
- New Hampshire
- Oregon
Retailers in these states are now facing a situation completely foreign to them, and a complicated one at that. Many need to restructure their businesses in a way to collect the taxes, but they also need to be aware of how to potentially register in multiple jurisdictions, calculate the correct amount of tax, determine the taxability of myriad products and services and then keep track of where to send the taxes collected.
Pew shares a helpful example of just how complicated this can get:
Colorado’s Revenue Department announced last week that it will start requiring out-of-state online sellers with at least 200 transactions in Colorado, or $100,000 worth of sales annually, to collect and remit Colorado sales taxes. But Joseph Bishop-Henchman, executive vice president at the Tax Foundation, wrote that Colorado has a “big problem” because it relies on its 349 county, city and district local sales tax jurisdictions to oversee the collection of sales taxes. That fact makes it difficult for out-of-state online retailers to calculate and send in the correct tax to the correct jurisdiction.
With an estimated 10,000 sales tax jurisdictions across the country, entrepreneurs that aren’t accustomed to collecting sales tax are now faced with trying to figure out how much online sales tax to collect as well as where to send it.
How has your business been affected by the Wayfair ruling? If you’re doing business across the U.S., it probably has! Do you need help figuring out which online sales tax laws you need to know about? Contact us today for help! We’d love to talk to you about your company and ways we can help you navigate any multi-state tax issues you may be facing.
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects. To learn more, contact us today at www.MilesConsultingGroup.com.
