Tax on Internet Sales

Tax on Internet Sales

Today I would like to talk to you about internet sales and how this affects you as a business owner. The first question I want to ask the audience is, does your business sell any goods online? Do you have internet sales? Do you have a website where people can buy your products? If you do, you need to pay particular attention to a recent Supreme Court case that is likely to shake up the world of online retail.

Nexus, as we know it today, was established in the 1992 Supreme Court case North Dakota versus Coyle. Some of you may have heard of it because it was a very famous case in which the Supreme Court ruled that a state could not collect sales tax on someone who was selling products in that state unless that seller had a substantial presence. Which generally means a brick-and-mortar location, a warehouse, a workforce, something that is physically connected to that state. But in June the Supreme Court ruled in a case that overturned that concept and this could create a major liability for all the online retailers out there. In the South Dakota v. Wayfair case in which the Supreme Court ruled five to four that the state of South Dakota could assess sales tax on online retailers who had more than either $100,000 in annual sales in their state or had more than 200 transactions in their state. 

Therefore under this new law, if you are selling a small item and you have thousands of transactions with online customers, that would allow the states that you are selling in to be able to collect sales tax. When I say collect sales tax, I mean it is your responsibility to collect it and then it is your responsibility as the business, as the seller, to then file sales tax returns and remit the proper amount of tax to the state. Every state different sales tax rates. Different rules. Different jurisdictions. It is a mess and if you are an online retailer you need to be very aware of this and you need to be consulting with a CPA who understands the concepts of Nexus and the concepts of how to collect and remit sales tax.

I expect there to be a lot of interpretation on this Supreme Court ruling and I expect there to be some challenges, but at the end of the day, you can see the direction that we are going. For years and years your traditional brick-and-mortar retailers have complained and lobbied and been upset over the fact that they have to charge sales tax to their customers but online retailers may not. However, now it seems that the Supreme Court is attempting to level the playing field. Again if you are an online retailer, if you are selling goods online, you need to be very aware of this and you need to be talking to a CPA to see how this is going to affect you.

If you have any questions, comments, or ideas for future videos, please let us know.