Back in June, the U.S. Supreme Court issued a decision in South Dakota v. Wayfair, Inc. that reversed Quill's requirement for physical presence to establish sales tax nexus for out-of-state businesses. Individual states are now hurrying to decide upon economic or transactional thresholds to govern who should be collecting and paying over sales tax concerning primarily e-commerce sales.
In a 5-4 decision, the Supreme Court ruled today that states may now require online retailers to collect sales taxes from consumers, regardless of where the business is located or the product is delivered. In 1992, the same court ruled that a business had to have some kind of "physical presence" or "nexus" in order to be required to collect sales tax in a state. With the increased use of online shopping, however, it turns out not all taxpayers report non-taxed purchases to the states in which they reside. In fact, an estimated $33.9 billion goes uncollected in sales taxes each year, costing states a significant sum. Additionally, internet shopping tax-free has hurt the brick-and-mortar stores that already have higher operational costs due to a physical presence in a state, since they must collect sales tax on taxable transactions.
Californians will be able to vote on two new legislative measures related to taxes on the June 5, 2018 Statewide Direct Primary Election ballot.
South Dakota is taking the physical presence rule back to our nation's highest court in its dispute with Wayfair, Inc., to determine whether it may continue to require out-of-state sellers such as online retailers to register with the state and collect and pay over sales tax. In the seminal case from 1992, Quill Corp. v. North Dakota, the U.S. Supreme Court ruled that retailers did not have to collect sales tax in any state where they have no physical presence. However, the exponential growth of eCommerce and internet sales has significantly changed the retail landscape since that time.
If Congressman Jim Sensenbrenner (R-WI) and House Judiciary Chairman Bob Goolatte (R-VA) get their way, it will. On June 12, 2016, Sensenbrenner and Goolatte introduced the "No Regulation Without Representation Act of 2017" which would expand the "physical presence" requirement of a similar 2016 House Bill (H.R. 5893) to all taxes and to all regulations in general.
As of January 1st, your dollar will go a little further as California reduces its sales tax rate by 0.25%. Actual sales tax rates vary by county and city. To look up the current sales tax rate where you live, click here.
The temporary statewide sales and use tax increase approved through California's Proposition 30 expires on December 31, 2016. Effective January 1, 2017, the state sales and use tax rate in California will decrease by 0.25% to the new rate of 7.25%. The California State Board of Equalization notes, however, that in many cities and counties the total tax rate will be higher due to local voter-approved district taxes.
The California Board of Equalization (BOE) will update sales and use tax rates effective October 1, 2016, in the following cities:
Taxation can be a touchy subject, especially when it comes to personal items. Consumers in California currently pay over $20 million each year in taxes on tampons and sanitary napkins alone, which some lawmakers say are necessary health items for women. The state Assembly approved a bill this week that would make these products exempt from sales and use tax in California, arguing that the taxation of such items creates a penalty to women.
Not surprisingly, a recent declaratory action has challenged South Dakota's bold move to require many out-of-state sellers to register with the state and begin collecting sales tax (previously discussed here). American Catalog Mailers Associations and NetChoice v. Gerlach questions the constitutionality of the economic nexus legislation based upon the physical presence rule from Quill Corp. v. North Dakota.