Tax Collection Duties Unknown to Many Online Sellers: Attorney

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Ryan Prete

Many small and medium-sized businesses that sell goods online are unaware of their potential sales tax collection duties, according to a tax attorney.

Carolynn Kranz, a Washington-based partner with Kranz & Associates PLLC, said May 31 that she works with many companies that sell digital goods but “have no idea what’s out there” when it comes to sales tax regimes.

It’s crucial that a business be aware of each state’s requirements, Kranz said at the Georgetown University Law Center’s Advanced State and Local Tax Institute.

Internet sellers have to comply with a variety of state tax collection regimes, which have proliferated in recent years, including:

  •  economic nexus models that impose sales tax collection duties on retailers that rise above a specified sales threshold;
  •  Colorado-style notice/reporting regimes that require retailers to alert customers to their tax liabilities;
  •  marketplace provider provisions that require Amazon-type sellers to collect sales tax on third-party transactions conducted on their platforms; and
  •  “cookie nexus” regulations, which require online vendors to collect state sales tax if they have property interests in or use in-state apps and “cookies.”

Notice/Reporting Laws Likely

Kranz said she foresees a “ton” of Colorado-style notice and reporting laws if the U.S. Supreme Court rules in favor of the e-retailers in South Dakota v. Wayfair, the long-awaited direct challenge to the 1992 decision in Quill Corp. v. North Dakota.Quill, which states for years have tried to “kill” through lawsuits and legislation, prohibits states from imposing sales tax collection obligations on vendors lacking an in-state physical presence. The case was argued April 17, and practitioners expect a decision by late June.

“I would expect a lot of companies to opt for sales tax collection in this situation, to avoid the headache of notifying customers,” Kranz said.

James Taylor, vice president of state tax and local tax at Alliance Data, said he expects the growth of multiple nexus regimes despite a ruling in June.

“Regardless of how the court rules in Wayfair, I think we’re going to see the expansion of nexus in many states in the coming year.”

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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