Online Retailers and New Tax Laws

Pretty much everybody shops online nowadays. But if you make a living through digital retail, there’s a recent Supreme Court decision you should know about: Direct Marketing Association v. Brohl. The suit revolved around whether or not Colorado purchasers must pay a 2.9% “use tax,” if they purchase an item online from a business outside the state of Colorado. The Court ruled, with a unanimous decision, in favor of the tax.

That’s a very distilled version of the case, but there are larger implications for online retailers throughout the nation: multiple states are beginning to follow Colorado’s lead, and are already proposing new legislation to “capture revenue lost to e-commerce”. It’s a complicated situation, and the implications are still unclear. But we here at Polston Tax are tax experts, so today we’re going to take a look at the whole picture, and see how it affects our clients.

Will this affect me?

If you’ve ever purchased something from out-of-state, and you’ve not had to pay tax on it, then yes, it does affect you. The initial statue that was challenged (and upheld) in Court “required remote retailers not collecting sales tax to report in-state sales to the Department of Revenue and notify customers of their use tax obligations.”

In short, states have lost a ton of revenue due to e-commerce sellers and buyers not reporting or collecting sales tax. So if you own an online business, the new decision will also affect you.

What happens next?

Now that Colorado’s statute has been upheld by the Supreme Court, other states are likely to follow suit. Alabama, Kansas, Nebraska, and Utah are already announcing plans to push new laws, though little legislation has been officially proposed.

A few states have jumped on the bandwagon, however, including Oklahoma. In May 2016, Oklahoma enacted HB 2531, which is modeled after the Colorado law. You can read HB 2531’s official statute here. 

All states will likely adopt similar laws, but with different strategies for online retailers. Some retailers may not have to incorporate reporting mandates, or collect sales tax before meeting a specific threshold. Customers might even find themselves in the position to determine whether or not a certain transaction is taxable.

In addition, small businesses are beginning to voice concerns about an economic disadvantage. Pricey software is often used for companies to collect taxes on online purchases, and small businesses might not be able to carry the financial burden.

What do I have to do?

There’s no uniform strategy in place right now, but the good news is that this is a state-based issue. You don’t necessarily need to worry about what’s happening in Colorado, unless your state adopts the same policies. The best thing to do is to keep an eye on your state’s congress, and follow what laws they adapt.

Or you can consult with us here at the Polston Tax. If you’re a small business owner, or even if you just want clarification on where your sales taxes go, we’re happy to help. Be sure to browse our services page and fill out the form for a free consultation. Or give us a call at 844-841-9857. We’re open 8am-5pm Central!