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The Growing List of States with Online Sales Tax Laws

Tax
The Growing List of States with Online Sales Tax Laws

As of today, California is requiring out-of-state sellers to start collecting sales tax from California buyers, joining numerous other states with such laws.

California allows an exception for small sellers: Out-of-state sellers must have more than $100,000 in taxable sales in California or at least 200 retail sales for delivery in the state in the current or preceding calendar year before a tax collection obligation kicks in, according to CPAPracticeAdvisor.com.

Sellers must also track sales by district. The tax site explains, “Both out-of-state sellers and in-state sellers must also collect additional sales and use taxes (i.e., applicable county, local, and district taxes) if/when they surpass the economic nexus threshold ($100,000 sales/200 transactions) in a district.”

In addition, California wants sellers who use Amazon’s FBA fulfillment program to pay sales tax retroactively. However, in an unusual move, California State Treasurer Fiona Ma disagrees with that practice.

TaxJar explained that California had sent letters to Amazon FBA sellers saying that because they had products in Amazon’s warehouses and fulfillment centers, they must now pay sales tax. “The CDTFA claims these small business owners should potentially pay up to eight years of back taxes, plus penalties and interest, and are demanding they become compliant with California sales tax laws.”

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But, TaxJar continued, Treasurer Ma strongly disagreed, since sellers have no control over where their inventory winds up via Amazon. In a letter to Governor Gavin Newsom, Ma called on him to end California’s pursuit of retroactive and future sales taxes from remote Amazon sellers who have economic nexus due to warehouse inventory.

In the meantime, sellers are left to figure things out themselves. TaxJar, which recommends sellers comply with such laws, notes that, “For online sellers, the amount of conflicting information can be mind-boggling.”

Internet Retailer compiled a chart showing 36 states with sales tax laws showing the sales-tax collection start date and minimum sales thresholds. Two of those on the list – Nevada and DC – have proposed sales tax, and Tennessee’s status shows “pending further legislation.”

Some states are requiring marketplaces to collect sales tax from buyers in their states, lifting some of the burden from sellers, but for now, it’s just one more complication for multi-channel sellers.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

2 thoughts on “The Growing List of States with Online Sales Tax Laws”

  1. Sellers need to unite, picket, and get this supreme court decision repealed. It is asinine to force online sellers to pay other states taxes.

    If someone in ohio goes to texas, that texas store doesn’t have to pay ohio taxes for that person.

    This will eventually destroy all small business, as the tax laws will sooner or later target small and medium sellers directly.

    FIGHT, RESIST.

  2. A threshold of 200 retail sales should protect most small sellers from South Dakota but it is unlikely to exclude small sellers from California and other populous states. A seller of $10 items grossing $20,000 per year could easily cross the threshold if 10% of retail sales are to California buyers. The Wayfair threshold is unfair for populated states.

    California population is almost 40 million while South Dakota is about 877,000, less than one million. The California to South Dakota population ratio is 45 to 1. If the Wayfair criteria had been weighted by population, the retail sales threshold would be 9,000, not 200. The hypothetical seller of $10 items would have to gross $90,000 in California instead of $2,000 to meet the criteria.

    Unfortunately, lawyers do not seem to be required to understand arithmetic or simple logic.

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