Before, online retailers didn’t have to charge tax because of a court case from 1992. This gave them an advantage over regular stores. States had a hard time making people pay the tax themselves. But now, a new court decision means that online retailers might have to charge tax, just like regular stores do. In 1992, the Supreme Court’s decision in the Quill case said that a company called Quill Corp. didn’t have to collect sales tax in states where it sold goods but didn’t have a physical presence. This created two tests to decide if a state could make a company collect taxes: one based on due process and one on the commerce clause. The due process test is still used today and looks at whether a company has purposefully targeted a state to do business. The commerce clause test was thrown out by the Supreme Court in the Wayfair decision, which means states can now make online retailers collect sales tax even if they don’t have a physical presence in the state. Before the Quill decision, if a company didn’t have a physical presence in a state, it didn’t have to collect sales tax there. This was like a “safe harbor” for retailers. But if a company did have some physical presence in a state, there was a question of how much presence was enough to have to collect sales tax. The case of Florida Department of Revenue v. Share International, Inc. involved a company from Texas that sold chiropractic supplies. Even though the company had no offices or employees in Florida, it sold products through mail and had representatives at a trade show in Florida. The court ruled that the presence of the company’s representatives was not enough to require them to pay taxes in Florida. This case is important because it shows that even if a company has some physical presence in a state, it may not be enough to require them to pay taxes there. This ruling changed the way states can tax out-of-state companies. After the Quill case, internet retailers could sell goods without charging sales tax, giving them an advantage over traditional stores. This caused chaos for states trying to collect taxes from online sales. Online retailers like Amazon grew rapidly during the recession and many states were upset that they weren’t collecting taxes. Colorado tried to make remote sellers give them a list of customers and sales so they could collect taxes from state residents. This led to a Supreme Court case, where Justice Kennedy said that the Court should revisit the rule that exempted online retailers from collecting state taxes. He wanted the rule to be overturned. After the US Supreme Court overturned the Quill precedent, South Dakota and other states passed laws requiring out-of-state businesses to pay sales tax if they meet certain sales thresholds. South Dakota sued major online retailers, and the case made it all the way to the US Supreme Court, which ruled in South Dakota’s favor. Now, we have to wait and see how these new laws will be enforced and how they will impact businesses. Before, if a company sold things online and shipped them to a state where they didn’t have a store, they usually didn’t have to collect sales tax. But now, because of a new court ruling, they might have to collect and pay sales tax in every state where they send stuff. This makes things really complicated for small businesses. It used to be clear when a company had to pay sales tax, but now it’s not so clear. For example, Florida has a law that says companies have to pay sales tax if they send stuff to people in Florida, even if they don’t have a store there. Before, this law wasn’t enforced much because of a rule that said companies only had to pay if they had a physical store in the state. But now that rule is gone, so the Florida law might be enforced more often. The Wayfair decision changed the rules for online sales taxes. Now, companies that sell to people in Florida may have to pay taxes even if they don’t have a physical presence there. And some states might even apply these new rules retroactively, meaning they could make companies pay for past taxes they didn’t collect. This could have a big impact on businesses and state governments for a long time. Sales tax and use tax are state-level taxes on retail transactions. Sales tax is paid by the customer to the retailer, who then pays it to the government. Use tax is paid directly by the customer when sales tax is not paid. Florida residents who buy goods without paying sales tax must file a form and pay use tax to the state. Small businesses are often surprised to learn they have to pay use tax on their online purchases. A landmark case, Quill v. North Dakota, established the physical presence “safe harbor” for remote sellers, but this was eliminated in the Wayfair case. The taxes must be fairly apportioned and not discriminate against interstate commerce. States have been passing laws to make online retailers like Amazon collect and report sales taxes. Some of these laws have been challenged in court, with the Supreme Court saying that challenges can go forward. Some states have been pushing the boundaries of these laws in an effort to challenge a Supreme Court ruling that says states can’t force online retailers to collect sales taxes unless they have a physical presence in the state. South Dakota even admitted that they passed a law specifically to challenge this ruling. These are references to specific laws and court cases related to the collection of sales tax on purchases made online. The laws in Wyoming and Indiana were created to challenge a previous Supreme Court ruling (Quill) and were designed to bring the issue before the Supreme Court again. The Supreme Court case involves South Dakota and the company Wayfair, and the Court is considering whether states can require online retailers to collect sales tax. The Supreme Court is debating the complexity and potential confusion of having different sales tax rules across thousands of jurisdictions. The laws in Florida have specific rules about when a company selling products or services in the state needs to pay taxes, even if they don’t have a physical presence there. This is because of a recent court case called Wayfair that changed the rules. Now, companies that only sell a small number of items in Florida might still have to pay taxes. The court case also raised questions about whether these new rules can be applied retroactively, meaning companies might have to pay taxes for past sales. Two articles discuss the potential retroactive application of a Supreme Court decision on sales taxes. One article talks about the implications for financial reporting, and the other mentions that no state has expressed an intention to apply the decision retroactively. The authors are Steven M. Hogan, a tax lawyer, and Alan J. Lacerra, a law student. This information was submitted by the Tax Law Section.
Source: https://www.floridabar.org/the-florida-bar-journal/south-dakota-v-wayfair-the-case-that-changes-everything/
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