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July 20, 2018

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How will Texas tax online transactions?

Earlier this year the Supreme Court of the United States (SCOTUS) ruled states can impose a tax on online transactions on out of state merchants. SCOTUS also noted in the case behind the ruling, South Dakota v. Wayfair, that states could not impose a tax in a manner that would result in an undue burden on interstate commerce.

What constitutes an undue burden on interstate commerce? Although SCOTUS did not clarify what an “undue burden” entails, it did provide some guidance. The court explained that South Dakota’s law appeared to “prevent discrimination against or undue burdens upon interstate commerce” by using simplified tax rates and uniform definitions through its membership in the Streamlined Sales and Use Tax.

South Dakota also included a small seller exception. The law specifically provided the tax applied to sellers that delivered $100,000 or more of goods and services in the state or engaged in 200 or more separate transactions annually.

SCOTUS stated these clear rules helped to ensure the tax did not result in an undue burden on interstate commerce.

How will Texas respond to this ruling? The Texas Comptroller released a publication that provides some insight. The piece notes Texas is not a member of the Streamlined Sales and Use Tax Agreement, but that it could become a member in the future through legislative action.

The Comptroller has also called on legislators, retailers and remote sellers to provide input and clarified that it does not plan on applying the law retroactively.

How should businesses that operate in Texas respond? Texas is becoming more aggressive in its attempt to collect taxes. Although the details of the tax law have yet to emerge, it is wise for online entrepreneurs that serve clientele within the state to prepare for potential tax obligations.

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