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How Will New Tax Laws Impact Cyber Monday?

By Lisa M. Schaffer, Esq. on November 20, 2018 | Last updated on March 21, 2019

In June 2018, the United States Supreme Court ruled that states should impose some sort of remote tax laws on local retailers that sell their wares online to people out of state, tossing out the old legal threshold of "physical presence" designed for the pre-internet era. However, the Court purposefully left the ruling vague, leaving states with a degree of freedom to move forward with what suited them. Laws vary greatly by state, and so it is very important to be familiar with your state's laws prior to Cyber Monday, or you could find yourself in some hot water and red tape.

Why the Change?

E-Commerce sales have steadily climbed since 1992, when the Supreme Court last visited the topic. According to Adobe Analytics, in 2016, nearly $6.6 billion was spent on Cyber Monday alone, a 16.8% increase from the year prior. Add on to that trend, Pure Play, which is when a company operates solely online, has become a major shift in the retail industry. Therefore, the "physical presence" threshold really needed to change, in order for states and the federal government to garner their anticipated sales tax revenues. Also, brick-and-mortar stores couldn't compete with PurePlay companies that were basically always offering a "We Pay The Sales Tax" event. A change in tax law was needed to fit the new retail paradigm.

How Have States Responded?

Twenty three states have already begun enforcing remote sales tax laws. Meanwhile, some retailers that aren't in states that have such rules have chosen to voluntarily collect the taxes anyway, given this Supreme Court decision. In addition, about ten other states have begun enforcing "marketplace-facilitator" laws, which would require larger resellers to collect sales tax if the reseller has crossed certain sales thresholds. As you can see, it can be very confusing for a retailer to determine what it must be doing in light of this ruling.

Is This Really a Change to Consumers?

Though this may be seen as a price increase, the truth is that all consumers should have been paying sales tax all along for goods purchased online, based on changes in the tax law called "use tax." So in essence, this should just be a shift of paying it to the retailer instead of to the government directly. However, it is likely most consumers weren't paying this tax unless they thought they would be audited for the omission.

If you have any questions about whether your company should be charging sales tax for online sales, contact a local tax attorney. State laws vary greatly, and will continue to evolve in light of this recent Supreme Court decision. Make sure your website is up to date by contacting an attorney before Cyber Monday.

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