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.
Table of Contents
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!
Additional Readings
Getting a notice that you’re facing an IRS audit can be unnerving, to say the least. Last year, 3.8 of every thousand tax returns were audited. An IRS audit is something no one wants to face, but it’s always a possibility. Even if you’ve followed every rule for filing your taxes and think you have accurate returns,...
We have compiled this comprehensive guide to help businesses understand their obligations related to sales tax in the state of Kansas. The guide covers various topics, including what items are subject to sales tax, how to register and file sales tax, and how to collect and remit sales tax. In addition to providing information on...
We’re in an era in which more small businesses are launching like wildfire. Recent studies showed that 17 million new small businesses were expected to launch in a single year. Small businesses are the backbone of the economy. But they’re often more tumultuous, have fewer resources, and are run by less experienced professionals. If you...
April 18 is fast approaching. That’s the official deadline for filing your 2022 federal tax return. As you gather your documents and assemble your information, it’s important to know about recent changes that have occurred. This year, the Internal Revenue Service (IRS) adjusted many of its 2023 tax rules. While you’ll still follow 2022 rules to...
Sales tax is paid to a local or state governing body for the sale of certain services and goods. In Oklahoma, the state sales tax is 4.5%, which is charged on sales of certain services and tangible personal property. Along with the state sales tax, local sales taxes and special district taxes may apply. Business owners...
If you have been struggling to pay the bills or your taxes, you may receive a notice that a garnishment or levy has been placed on your wages or bank account. Even if you make every effort to pay your back taxes, your circumstances may make paying your taxes difficult, such as a job loss...