Articles

End to Tax-Free Online Purchases!

In Accounting & Finances, Business, Taxes on November 13, 2018 by Sufen Wang

The End is Near: Tax-Free Online Purchases May Soon Be a Thing of the Past

The benefits of online shopping are many, from being able to peruse knick-knacks in your PJs, to getting goods delivered right on your doorstep, to saving a little extra cash because online purchases are sales-tax-free. However, an upcoming case in the U.S. Supreme Court’s dockets means we might have to bid adieu to that last perk in the very near future.

On April 17, the Supreme Court will begin hearing oral arguments in South Dakota v. Wayfair. This case will challenge whether states can tax online purchases made from retailers that do not have a physical presence in the state where the wares are being delivered. Currently, if a retailer has set up shop in the state where the online purchase is shipped, the state has elbow room to impose a sales tax.

South Dakota v. Wayfair comes 26 years after Quill Corp. v. North Dakota. In Quill, the Supreme Court ruled that states can’t impose sales and use tax collection obligations on vendors who don’t have an in-state physical presence, based on the “dormant commerce clause.” This sleepy little clause is a judge-created legal doctrine that prevents states from poking their noses into interstate commerce unless authorized by Congress. And since Congress hasn’t stepped in, shoppers have been buying cat mugs and swanky shoes tax-free online for years now.

Of course, states and traditional retailers aren’t too happy about this. States are missing out on a big chunk of revenue when people order online and don’t pay sales tax, and brick and mortar retailers, who are required to pay state and local taxes, feel online vendors have an unfair advantage. And it seems that a state tax that’s already in place that should even the playing ground – the use tax – has been pretty much ignored by most taxpayers across the country.

So, the question at hand in the South Dakota v. Wayfair case is whether the physical presence test, established nearly three decades ago in Quill, is still valid in the e-commerce age. The Supreme Court will mull things over and make their decision sometime in June – and no matter the result, we’ll all still be able to jump online and buy a bunch of stuff we don’t really need.

Sufen Wang, M.S. Accountancy
www.sufenwang.com
Wang Solutions, Long Beach, CA (562) 856-0793
Editor: Hannah Huff, M.F.A. Creative Writing: Poetry, (626) 806-5805

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