Last week, Georgia waded into the sticky issue of collection of state sales tax on Internet sales made by out-of-state businesses. The governor signed a law requiring online retailers who make at least $250,000 or 200 sales per year in Georgia to collect and remit sales tax on items delivered in Georgia. As an alternative, online merchants will be able to send “tax due” notices to Georgia customers who spend at least $500 yearly on their sites. Recipients of the notices would be required to remit sales and use tax returns to the state for unpaid sales taxes due.
The new law goes into effect January 1, 2019. It has been estimated that the measure could mean as much at $500 million to $600 million in annual sales tax collections to state and local governments in Georgia.
While meant to “level the playing field” between online retailers and brick-and-mortar merchants, the move is controversial given the judicial precedence against the collection of sales tax by businesses without a physical presence in the state.
As early as 1967, the Supreme Court held that only businesses physically located in a state were required to add sales tax. In 1992, Quill Corp. V. North Dakota further solidified the concept of physical presence as a constitutional prerequisite to the collection and remittance of sales tax by non-resident taxpayers. In Quill, the Court held that mail orders placed with companies outside of North Dakota did not have to add sales tax.
Before Georgia, South Dakota led the way in the tangle over collection of sales tax from online sales. The state sued four online retailers, including Wayfair, Overstock and Newegg, after they did not heed its 2016 law requiring online retailers to charge South Dakotans sales tax. Its case, South Dakota v. Wayfair, Inc. was heard by the Supreme Court in April. The Court will likely decide in June about whether to overturn Quill. If it does, online retailers from the big players like Amazon to small independent online stores, as well as merchants on sites like Etsy and eBay will have to figure out how to deal with the state and local tax regulations of any state they sell into.
Stay tuned. If your small business has an online presence and you sell products across state lines, you may have some serious compliance, record-keeping and reporting issues to consider beginning this June, or, in Georgia, starting next January.
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