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Amazon, eBay and others: Can Texas and other states tax online sales?

It's been 25 years now since the U.S. Supreme Court held that states could not impose the obligation to collect sales-and-use taxes on out-of-state sellers who lack a physical presence in the state.

Back then, the retailers in question were mail order companies. Now of course it's an online-driven sales world in which Amazon recently passed Macy's as the nation's largest seller of clothes and Uber has aggressively expanded its ride-sharing services into more and more cities.

Are there initiatives underway to revisit the Supreme Court's 1992 decision that prohibited states from taxing out-of-state sellers?

The answer is a resounding yes. And it isn't only Amazon-style online sales that are in question. It is online sales a la Uber, in which a third party provides the platform for third parties to make sales. In fact, Amazon itself offers such services for many smaller third-party sellers.

This year, at least five states, including Texas, have considered legislation to impose tax collection requirements on out-of-state companies that provide online platforms that third parties use to make sales.

Though no state has passed a bill yet making out-of-state marketplace providers such as Uber liable for taxes, the time may become ripe before long for that approach.
In Texas, proposed bills in the House and Senate would impose sales tax collection obligations on marketplace providers who operate in Texas and meet certain criteria.

The bills acknowledge that if the retailer has already collected a use tax from the purchaser, the marketplace provider doesn't have to do it. After all, that would raise the specter of double taxation. But if the retailer doesn't collect use tax, the bill would require the marketplace provider to do so.

The Texas bills are SB 1713 and HB 3875. We will update you in an upcoming post on their legislative fate.

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