How the Supreme Court Decision on Online Retailers Affects you

On June 21, 2018, the Supreme Court held that internet retailers may be required to collect sales taxes in states where they have no physical presence and empowered states to establish a level playing field for the taxation of goods sold by in-state and out-of-state sellers.

The decision, South Dakota v. Wayfair, No. 17-494 (June 21, 2018), overturned a 1992 Supreme Court precedent that imposed an artificial physical presence rule on state sales tax systems. Under this precedent, a state was prohibited from requiring sellers without a physical presence in the state to collect tax on sales to the state’s residents.

However, every state that imposes a sales tax also imposes a use tax, which is an equivalent of the sales tax. It is imposed on goods that would otherwise be taxable inside a state for “use, storage, or consumption” when sales tax has not been paid. This means that even though the online retailers did not collect the sales tax, customers were still required to pay the tax. Therefore, if a customer did not pay sales tax at the time of purchase, the buyer was required to report, compute the tax amount and then pay the tax directly via their state income tax return.

The Supreme Court has now ruled that states can make it mandatory for online retailers to collect and remit sales tax. The ruling may not affect customers, since most online retailers are already collecting sales tax, but those purchasing from online retailers who do not withhold sales tax can expect a bump in their purchase costs. Moreover, this may release taxpayers from the obligation to keep track of their purchases and pay the sales tax themselves through their income tax returns.

If you would like additional information or further clarification regarding this matter, please do not hesitate to contact us.