Understanding Online Sales Taxes for Out-of-State Purchases: An Updated Guide

With the rise of e-commerce, many consumers are now faced with a new question: Do buyers have to pay sales tax on out-of-state purchases?

State Sales Tax Updates in 2019

It depends on your specific state, but generally, the answer is yes. The tax is still the same, just called 'Use Tax'.

Sales taxes are typically collected and reported by the seller, then paid to the state. However, if the seller is not required to collect sales tax for out-of-state sales, the buyer must report and pay the Use Tax to their own state. This is often ignored, but can cause issues, particularly for large-ticket items like cars purchased out-of-state.

Impact of the Wayfair v. South Dakota Decision

Before the US Supreme Court's decision in Wayfair v. South Dakota, there were restrictions on states' ability to require remote sellers to collect and remit sales tax. However, this ruling changed that, having significant implications on online sales tax obligations.

Wayfair v. South Dakota effectively ruled that states could require remote sellers to collect and remit sales tax, even if they don't have a physical presence in the state. This means more sellers are now required to collect sales tax according to the buyer's state rules.

Thresholds and Registration Requirements

Each state has its own rules and thresholds for when sellers must start collecting sales tax. Generally, this threshold ranges from $100,000 to $250,000 in annual sales before sellers are subject to collection obligations. Of course, this varies widely.

The rationale behind this is simple: states want to collect the tax revenue they've been missing, but they don't want to burden small sellers with hundreds of thousands of new tax forms.

Impact on Popular Online Marketplaces

Amazon is one of the largest online marketplaces, and it will now charge sales tax according to the buyer's state rules, even if the goods are shipped from another state. This is true even if the seller on the platform does not have a physical presence in the buyer's state.

For instance, if a buyer in California purchases a product from a seller on Amazon, and the seller doesn't have a physical presence in California, Amazon will still charge the sales tax applicable to California.

Conclusion

As online shopping continues to grow, it's crucial for both buyers and sellers to stay informed about changes in state sales tax laws. The Wayfair v. South Dakota decision has significant implications, and more sellers are likely to collect sales taxes in the future. Understanding these obligations can help ensure compliance and prevent unexpected costs.