This time of year, Black Friday and Cyber Monday are in serious competition for retail shoppers. In the past, Cyber Monday has had one distinct advantage over Black Friday: a lower tax bill. Cyber Monday shoppers could often take advantage of a final bill that did not include state sales taxes.
Unfortunately, those days are no more.
Just last summer, the Supreme Court of the United States (SCOTUS) issued a holding in South Dakota v. Wayfair that changed the rules regarding a state’s ability to apply sales taxes to online transactions.
How did the Supreme Court change my Cyber Monday deal? SCOTUS’ ruling results in the ability of states to apply a sales tax on items purchased online. In the past, the state would need to meet a physical presence test. This basically required the state to establish the business had a retail store or headquarters located in the state before it could tax the transactions.
This is no longer required.
Due to SCOTUS’ holding in Wayfair, states now only need to establish a business meets certain threshold requirements to apply a sales tax to online transactions — even if the business has absolutely no physical presence in the state. In this case, South Dakota taxed businesses that sold $100,000 in goods or services or conducted over 200 transactions within the state with a state sales tax.
When will additional sales taxes apply? Not every state currently applies a sales tax on online transactions. According to a recent report by Bloomberg, twenty-three states currently apply a remote sales tax. These states include Washington, Oklahoma, Alabama, Ohio, New Jersey, and Massachusetts. Retailers need to collect state sales taxes from retailers that reside within these states.
Other states that do not currently have a remote sales tax in place, like Texas and New York, may soon pass their own version of the tax to take advantage of additional revenue in the future. When this happens, businesses in these states that sell products online will need to review their tax collection practices to ensure they are in compliance with the changes.