Buyers pay sales tax or excise tax at the time of purchase. If your state doesn't charge you sales tax on online purchases, you should be aware that you may have to pay sales tax. This duty applies to items purchased outside your country.

Over the years, e-commerce has flourished without the added complexities of sales tax, thanks to the 1992 lawsuit, Quill Company v. North Dakota. The decision in this case provides a link for interstate sales that requires the physical presence of a company for the state to collect sales tax from them. While consumers are supposed to pay use tax on tax-free purchases, this isn't enforced and most consumers don't even know the rule exists.

The Supreme Court's most recent 5-4 decision in South Dakota v. Wayfair Inc. is the most significant Internet sales tax decision since the Supreme Court in Quill Corporation v. North Dakota in 1992, in which the court ruled that in Quill Overturns part of the precedent by stating that a state can use economic ties (rather than physical ties) to determine whether a business is subject to sales tax. The court's decision was guided by the principles that taxation must be fair and non-discriminatory, must have a substantial connection to case law, and the relationship between taxation and all government-provided services.

The Impact of the U.S. Supreme Court's Decision

It found that the Commerce Clause of the U.S. Constitution did not prohibit South Dakota from enacting laws requiring remote sellers to collect and pay sales tax on goods and services delivered to buyers in the state, even though it was a corporation, sold, and had no physical presence in the state. exist.

This means that businesses that sell a certain amount in a state may now have to pay sales tax, even if they don't have a physical presence in that state. Since each state has different tax laws, each state must pass its own laws to take effect. Most states have now passed these laws, and some are already in effect.

‍Do I need to collect sales tax? If so, how much?

As mentioned earlier, each state has its own set of economic relationship rules. If you sell physical goods, VAT will most likely be charged. Only five states have no statewide sales tax:

-Alaska

-Delaware

-Montana

-New Hampshire

-Oregon

If your business location is in one of the other 45 states and you sell physical goods, you must collect sales tax from your customers. While most states set a threshold of $100,000 in sales or 200 transactions per year, some states have thresholds as low as $10,000 or 100 transactions. Because of the 2018 South Dakota v. Wayfair decision. Define "substantial transactions" as more than 200 transactions or $100,000 worth of goods sold to the state. This chart shows which states have legislated what their thresholds are and when are their enforcement dates.

Don’t figure out sales tax on your own

It depends on how you sell your product. Many states already require online marketplaces to collect sales tax from companies selling on their sites. Some platforms also offer simple support for each state to increase sales tax. It's normal to bite your nails on the thought of managing your sales tax. Figuring out all the sales tax laws and details can be daunting. If you're selling on your own website, it may be time to invest in tax support or accounting software that can collect these fees or calculate invoices at checkout. Sales tax may never be what you expect. But having the right help and resources in your corner will make the process easier.

What happens if I don’t collect sales tax ?

Because every state has its own law, you could be opening yourself up to multiple fines, lawsuits, and injunctions against your business,

A state might ask you to pay years’ worth of sales taxes. If you haven’t filed returns, the state could go back multiple years when they look for taxes owed, your business and personal assets could be seized, you might owe more than just the taxes, other costs could add up, too, you could be accused of fraud.

Enforcement will vary from state to state, but you may face severe penalties for failing to meet the requirements. It’s in your best interest to talk to a tax professional to ensure you are compliant with each law. If you’re audited or a state takes legal action against you, you’ll probably need to pay a professional to represent you.

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