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Online Retailers Contend with Uncertain Sales Tax Future

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By Michael Cohn
December 6, 2013

Even though legislation requiring online retailers to collect sales taxes from their customers passed the Senate back in May, it remains in limbo in the House, leaving online retailers in a state of uncertainty after the Supreme Court declined on Monday to hear Amazon.com’s appeal of New York State’s so-called “Amazon tax” law.

“It was somewhat appropriate that the Supreme Court decided on Cyber Monday that they were not going to spend their time reviewing the Amazon cases, so now we have the two options left,” said Carla Yrjanson, vice president of tax research and content for indirect tax at Thomson Reuters. “We’ve got the states taking their own way and deciding the rules they want to put in place following what New York did originally, or trying to band together for the Marketplace Fairness Act. So we’ve got those two focus areas still moving, but we don’t have resolution on the Marketplace Fairness Act.”

Over the years many more states have tried to impose their own sales tax collection requirements on e-commerce merchants, so Internet sales taxes are not that unusual anymore. However, that makes for a confusing situation for etailers, who have to leverage rely on technology such as specialized sales tax software to help them determine which transactions get taxed and how much. The Marketplace Fairness Act would have leveraged the Streamlined Sales and Use Tax Agreement, or SSUTA, which 44 states and the District of Columbia have already signed onto, to help them figure out those calculations.

“All of those people out shopping on Cyber Monday, a lot more of those transactions are getting taxed,” Yrjanson pointed out. “At some point in the future, it may be that either states implement more Amazon taxes or the Marketplace Fairness Act takes off, but we’re starting to see a trend in the states grabbing that tax revenue and not relying on customers to remit the tax.”

Currently 17 states either already require retailers to collect sales taxes for online purchases or plan to do so in the near future. Yrjanson noted that four of the states implemented such laws just this year. But there has also been some movement in the opposite direction recently, with the Illinois Supreme Court striking down the state’s Amazon tax law in October.

“The laws and the public view of them are changing all of the time as well,” said Yrjanson. “We see lots of activity and movement as states try to implement these Amazon taxes.”

This holiday season will be a critical one for retailers, as more consumers shift their spending online and avoid the hassles in the stores. Shop.org forecasts online holiday sales will increase between 13 and 15 percent to as much as $82 billion during the months of November and December. The average state sales tax rate as of Q3 2013 was 5.615 percent, leaving a lot of much-needed tax revenue going uncollected by states.

Thomson Reuters has produced a graphic showing which states are imposing the taxes that you can view below.

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