U.S. Supreme: States Can Charge Sales Tax on Internet Sales
Avoiding paying Connecticut Sales Tax is one reason Connecticut residents buy goods on line. That may be ending soon. The Supreme Court in the case of South Dakota v. Wayfair greatly expanded the ability of states to makes retailers collect sales tax on internet purchases by the state’s residents. In all states with a sales tax, if the seller doesn’t collect sales tax, the buyer is still required to pay what is called “use tax” on the purchase. But without anyway for the state to find out if its residents purchased someone on line, the practical effect of sellers not being required to collect sales tax was that no tax was paid on most on-line sales.
The Supreme Court had previously held a retailer had to have a physical presence in the state before the state could make the retailer collect sales tax. So, if Amazon had a warehouse in your state, you would have to pay the state sales tax on an internet purchase, but if not, the seller didn’t have to collect sales tax for the state, and the state had to rely on you to file a return with the state and pay the tax.
Overturning its prior precedents, the Court held that the prior physical presence rule was an “unsound and incorrect” interpretation of the Commerce Clause that has created unfair and unjust marketplace distortions favoring remote sellers and causing states to lose out on enormous amounts of tax revenue. The Court held that the State had established that the vendor had substantial nexus in this case through “extensive virtual presence”.
The Court remanded the case for further consideration, so no one knows what will constitute “extensive virtual presence,” and you don’t have to start paying sales tax now on your out-of-state purchases. You can expect Connecticut tax authorities, and other states, to aggressively pursue collection of sales tax on on-line sales in the future.
ZNC’s business lawyers have extensive experience with State of Connecticut tax issues, including sales tax, Department of Revenue Services sales tax audits, and Connecticut income tax audits. Please call Robert Cooper with any questions you may have in this area.