Paying Sales Tax on Out of State Purchases

Andrew Cummings
April 17, 2018

The Supreme Court will hear a case Tuesday on whether to tax online orders delivered to states where the business has no brick and mortar shop or warehouse.

Big retailers like Amazon and Walmart collect sales tax on all online sales in the 45 states with a statewide sales tax.

A reversal could mean that all online retailers must collect sales tax everywhere.


That practice stems from a 1992 Supreme Court decision.

South Dakota says it is looking to start collecting taxes only for future online sales, but But Wayfair's attorneys argue in court filings that many other states and local governments could demand years of back sales taxes, forcing retailers to go through costly audits of past sales and make back payments that could bankrupt some companies.

The said ruling was imposed in response to the case of North Dakota vs. Quill, an online office supply firm.


New Hampshire is one of the states that has no sales tax. Numerous sales on Amazon's and Walmart's sites are actually done by smaller retailers using those sites as their platform. Even retail companies without a physical store in South Dakota were required to follow the state law.

Additionally, independent businesses on websites like Etsy and Ebay would be included in a rewritten sales tax law, as well as third party merchants that operate in Amazon's global marketplace, which totaled almost two-thirds of the company's gross merchandise volume at $313.4 billion. But online-only merchants-especially the large number of independently-owned businesses on sites like Etsy and Ebay-worry that this is more of a cash grab by state and local governments.

Online retailers said reversing the 1992 precedent is a negative move in terms of e-commerce. The court will also rule whether states have the authority to tax all online purchases. Something brick-and-mortar have argued will level the playing field. State and local sales tax is already collected by between 87 and 96 percent of the top 100 online retailers, according to the agency.


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