April 9, 2018
The sale of goods and services over the internet have not be subject to state sales tax unless the merchant has a physical presence in the state. The Supreme Court ruled in 1992 that states could not collect sales taxes gathered by mail order companies (off and online) without a physical location in the state. This is about to change – at least in some states.
Pennsylvania passed a law in 2017 requiring internet merchants to charge, collect and remit sales tax even if they do not have a physical presence in the commonwealth. In addition, online marketplaces, such as Amazon, must collect sales tax on behalf of third-party sellers.
Amazon started calculating, collecting, and remitting sales tax (6%) on April 1 for orders shipped to customers in Pennsylvania from third-party sellers. Merchants in Pennsylvania and Washington (Amazon’s home state) take part in Amazon’s new service called “Marketplace Tax Collection.” Up to this point, Amazon has collected tax on items it sells in all 45 states that have a sales tax, but not for third-party merchants. It is estimated that approximately half of Amazon’s unit sales are done by third-party sellers.
Other states, including Colorado and South Dakota have also passed laws requiring the collection of internet sales taxes. Whether other states will follow suit may be in the hands of our nation’s highest court. The U.S. Supreme Court will hear arguments in April from officials in South Dakota who contend that its 1992 ruling is no longer appropriate. A ruling on the matter is expected in June.
The Government Accountability Office estimated that state and local governments could have gained up to $13 billion in 2017 from taxes on internet sales.