Paying Sales Tax on Out of State Purchases

Packages from Internet retailers are delivered on Friday

This law was challenged by the state of South Dakota as it seeks to collect sales taxes from out-of-state internet retailers.

It does seem fair, because as it now stands, certain retailers have an unfair advantage over others.

Still, the change in precedent could put a burden on small- and medium-size online retailers who will have to navigate up to 16,000 different taxing units, according to Wayfair, which wants the current rule should stay in place.

Large retailers with brick-and-mortar stores have to collect sales taxes nationwide, but smaller online sellers can often avoid doing so. However, the vast majority of purchasers do not pay tax on these transactions (98-99%), and it's likely that many aren't even aware of this law.

South Dakota sued top online retailers Wayfair, Overstock, and Newegg, for failing to comply to the said state tax law.

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Retailers like Amazon, Walmart, Target, Apple and other major companies do now collect sales tax via their ecommerce channels, so that's not what this case is after.

A reversal could mean that all online retailers must collect sales tax everywhere. Something brick-and-mortar have argued will level the playing field. South Dakota and other state and local governments say they've been cheated out of billions of dollars because of this rule.

Many small retailers depend on online sales. Software does exist that would allow online retailers to easily automate the state and local sales tax collections process.

The case is especially timely since President Donald Trump has publicly blasted Amazon for not collecting sales taxes, even though it does so on its own sales. However, GAO also estimated that untaxed online sales would make up just 2 to 4 percent of state and local sales tax revenue.

A decision on the case by the U.S. Supreme Court is expected to be announced in June.

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