Are You Aware of Changes to Your Online Sales Tax?
*The following article was updated in July 2022*
There’s been a change in how states are collecting sales tax from online purchases. If you’re a taxpayer and have ordered anything online – which is pretty much all of us – then you need to be aware of this sales tax law and how it affects you.
In 2018, the United States Supreme Court ruled on a case called South Dakota vs. Wayfair regarding the collection of state-based sales tax. The Court ruled in favor of South Dakota in determining that states can charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state. The state also has the right to request sales information from entities such as eBay, Etsy, Amazon, and other online retailers in order to assess sales tax.
This means that Internet retailers – those who may have no other tie to a state but for Internet sales made by people in the state – may be subject to pay sales tax to that state. This was not the case previously.
Each state will decide what the threshold for filing and reporting sales tax is in their state. For example, many states already had economic thresholds established for those retailers who had no physical presence in their state. But now states can be more aggressive in how they get their information. An example of this going in to practice in the state of Wisconsin is forcing Amazon to turn over all seller information.
What does this mean for business owners?
One of the biggest ways business owners will feel the impact of South Dakota vs. Wayfair is through the sale of goods on Amazon.com. The California Department of Tax and Fee Administration (CDFTA) has been sending letters to users of the “fulfillment by Amazon” warehouse centers in California. The letter informs the sellers they may be required to pay sales tax.
A taxpayer may be required to pay California sales tax when they engaged in any business or sales within the state. This may include having a physical office or a person working for the seller living in the state. It may also include storing products and inventory at an Amazon Fulfillment Center. Those specifics aside, it may be that you do not owe taxes because of California’s statutory exemptions from sales tax.
If you are a business owner and you received a letter from CDFTA, it’s critical you talk with an experienced attorney to determine whether you need to comply with the CDFTA and pay taxes. Do not try to make this determination on your own, as it could cost you money in taxes and penalties.
Allison Soares is a partner and tax attorney at Vanst Law. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving audits.