Executive Briefings

States Ramp Up Efforts to Tax Online Sales

The explosive growth of online retailing over the last 20 years has increased the pressure on states to seek to enforce sales and use taxes on online purchases.

States Ramp Up Efforts to Tax Online Sales

This year, many states have taken significant steps to enhance their ability to enforce payment of the taxes, and to expand their taxing and enforcement jurisdictions. The outcome of the resulting disputes between online retailers and state taxing authorities will have significant ramifications for online retailers and consumers, as well as for brick-and-mortar stores who compete with online retailers.

Generally, states impose sales and use taxes on retail sales of taxable goods and services to end users. Sales tax applies to such in-state sales as a purchase of goods in a store, and state tax authorities typically do not have significant difficulty enforcing the sales tax collection obligation against in-state sellers.

Besides sales taxes on in-state sales, states impose use taxes on purchasers of goods from out of state that the purchaser will use within the state. While the use tax obligation is typically the purchaser’s responsibility, if the seller has enough connection with the state, called “nexus,” then the state has the authority to assert its jurisdiction to require the out-of-state seller to collect and remit the use tax to the state on behalf of the individual.

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This year, many states have taken significant steps to enhance their ability to enforce payment of the taxes, and to expand their taxing and enforcement jurisdictions. The outcome of the resulting disputes between online retailers and state taxing authorities will have significant ramifications for online retailers and consumers, as well as for brick-and-mortar stores who compete with online retailers.

Generally, states impose sales and use taxes on retail sales of taxable goods and services to end users. Sales tax applies to such in-state sales as a purchase of goods in a store, and state tax authorities typically do not have significant difficulty enforcing the sales tax collection obligation against in-state sellers.

Besides sales taxes on in-state sales, states impose use taxes on purchasers of goods from out of state that the purchaser will use within the state. While the use tax obligation is typically the purchaser’s responsibility, if the seller has enough connection with the state, called “nexus,” then the state has the authority to assert its jurisdiction to require the out-of-state seller to collect and remit the use tax to the state on behalf of the individual.

Read Full Article

States Ramp Up Efforts to Tax Online Sales