Sales Tax And The Recent California/Amazon Changes
After legislation that has been in the works for years, Amazon and other web retailers began collecting sales tax in California in September. Depending on the location, sales taxes in the state range from 7.25% to 9.75%. While this revenue will be a boon to the coffers of state and local governments, it’s an extra hurdle for Internet retailers.
Every out-of-state business that sells more than $1 million in merchandise to California customers will be required to collect sales tax and make payments to the state. Before this law took effect, that was only true of companies with a physical store in the state, such as Target or Wal-Mart.
For years, Amazon, the world’s largest online retailer, fought against having to pay sales taxes in California, saying it wasn’t responsible for sales tax because it didn't have a physical presence in California. This created an unfair competitive landscape between Amazon and other California retailers that did have to charge the tax. Over the years Amazon has eliminated its affiliate programs in several states rather than begin to pay sales taxes. Overstock.com shut down all of its affiliates in California so it could avoid paying the tax, which it calls unconstitutional.
California’s new law requires out-of-state retailers with more than $1 million in sales to the state and more than $10,000 in sales referred by an affiliate operating in California to collect and pay sales tax. Affiliates generally utilize blogs or websites that have advertisements or links, or coupon sites that drive traffic to merchants.
Keep in mind that many states, including California, target retailers above a certain annual revenue threshold. If you are a smaller Internet retailer, the state-by-state requirements might not apply to you.
Right now, the online sales tax firestorm is centered in California, but other states may enter the fray. The state of California has hired a legion of tax specialists, auditors, lawyers and call center operators to determine which California retailers must collect the tax. The sales tax change could very well help even the playing field between online retailers and those with a brick-and-mortar location in the state, but it’s too early to say what the full impact of this change will be.
Amazon currently collects sales tax in eight states: Kansas, Kentucky, New York, North Dakota, Texas, Washington, Pennysylvania and now California. Amazon will begin collecting sales tax in New Jersey and Virginia in 2012; in Indiana, Nevada and Tennessee in 2014; and in South Carolina in early 2016.
So what should you do?
1. First of all, keep an eye on tax-related developments, as it’s only a matter of time before state-specific legislation is passed which affects every state. The Marketplace Fairness Act, a bill by Sens. Mike Enzi (R-Wyo.), Lamar Alexander (R-Tenn.) and Dick Durbin (D-Ill.), would give states the power to require online retailers to collect sales tax. Another bill, the Marketplace Equity Act, is co-authored by Reps. Steve Womack (R-Ark.) and Jackie Speier (D-Calif.) and would do roughly the same as the Senate version.
2. Review with your accountant your current sales tax approach. Ensure that you are conforming to laws and regulations within your state.
3. Contact HEROweb about adding sales tax settings for additional states, if you determine that you need to expand your sales tax collection policy.
Every out-of-state business that sells more than $1 million in merchandise to California customers will be required to collect sales tax and make payments to the state. Before this law took effect, that was only true of companies with a physical store in the state, such as Target or Wal-Mart.
For years, Amazon, the world’s largest online retailer, fought against having to pay sales taxes in California, saying it wasn’t responsible for sales tax because it didn't have a physical presence in California. This created an unfair competitive landscape between Amazon and other California retailers that did have to charge the tax. Over the years Amazon has eliminated its affiliate programs in several states rather than begin to pay sales taxes. Overstock.com shut down all of its affiliates in California so it could avoid paying the tax, which it calls unconstitutional.
California’s new law requires out-of-state retailers with more than $1 million in sales to the state and more than $10,000 in sales referred by an affiliate operating in California to collect and pay sales tax. Affiliates generally utilize blogs or websites that have advertisements or links, or coupon sites that drive traffic to merchants.
Keep in mind that many states, including California, target retailers above a certain annual revenue threshold. If you are a smaller Internet retailer, the state-by-state requirements might not apply to you.
Right now, the online sales tax firestorm is centered in California, but other states may enter the fray. The state of California has hired a legion of tax specialists, auditors, lawyers and call center operators to determine which California retailers must collect the tax. The sales tax change could very well help even the playing field between online retailers and those with a brick-and-mortar location in the state, but it’s too early to say what the full impact of this change will be.
Amazon currently collects sales tax in eight states: Kansas, Kentucky, New York, North Dakota, Texas, Washington, Pennysylvania and now California. Amazon will begin collecting sales tax in New Jersey and Virginia in 2012; in Indiana, Nevada and Tennessee in 2014; and in South Carolina in early 2016.
So what should you do?
1. First of all, keep an eye on tax-related developments, as it’s only a matter of time before state-specific legislation is passed which affects every state. The Marketplace Fairness Act, a bill by Sens. Mike Enzi (R-Wyo.), Lamar Alexander (R-Tenn.) and Dick Durbin (D-Ill.), would give states the power to require online retailers to collect sales tax. Another bill, the Marketplace Equity Act, is co-authored by Reps. Steve Womack (R-Ark.) and Jackie Speier (D-Calif.) and would do roughly the same as the Senate version.
2. Review with your accountant your current sales tax approach. Ensure that you are conforming to laws and regulations within your state.
3. Contact HEROweb about adding sales tax settings for additional states, if you determine that you need to expand your sales tax collection policy.
