In the past, when it came to tax obligations businesses who sold goods online often only needed to worry about the states they had offices and manufacturing sites. This physical presence led to tax obligations within that state. That basic rule changed two years ago.
What happened two years ago to change state sales tax laws?
Two years ago the Supreme Court of the United States (SCOTUS) issued its holding and Wayfair v. South Dakota. This holding led to monumental tax law change allowing for states to collect sales taxes from online transaction. The holding essentially changed how states determined the physical presence of a business. Instead of just looking at how the business operated, where its offices were, the state taxing authorities could now base tax obligations off of the location of the consumer.
Since the holding, states have been working to adjust their tax policies to collect sales taxes from these purchases. States that have not already put such collection practices into effect will likely do so in the near future.
What does this mean today?
The push for states to increase the collection of sales taxes from online transactions is particularly of note considering the current coronavirus pandemic. Social distancing recommendations and the shutdowns of many stores have led consumers to purchase goods online. In addition to the surge of online transactions, state officials are likely looking at this tax as a way to build their coffers. Many state budgets are struggling due to the current coronavirus pandemic.
As of the time of this post, 43 states along with the District of Colombia have enacted laws to take advantage of sales tax on online transactions. As for compliance, the majority has states have viewed the last couple of years as a transition period. Audits were minimal, penalties sparse. That is likely to change. Once COVID-19 related tax measures are lifted, many professionals within the tax field are predicting state tax authorities will increase enforcement measures. This will likely translate to a jump in audits.
Vendors who are looking to come into compliance may consider voluntary disclosure programs. In the least, they should look to legal counsel for guidance.