Skip to Content

January 26, 2018

|

Texas sales and use tax may soon apply to online transactions

The sales and use tax results in funds for the state to use towards road construction, education and other government services. Various studies show that the amount of revenue collected through this tax is not nearly as large as it should be if it were a true reflection of items purchased within the state. The culprit for this disparity: the internet.

Online shopping has grown in recent years. The convenience of purchasing goods on one’s computer in the comfort of one’s own home has translated to large amounts of money shifted from the brick and mortar stores of yesterday to the online marketplace. 

How does this impact state taxes? Back in 1992, a ruling clarified that states were not allowed to collect taxes on sales delivered into a state if the vendor is not physically located within that state. In 1992, this was not a crippling decision. In 2018, the impact is much different.

How much of an impact does the lack of sales tax have on state revenue? A study noted in a recent report in the Athens Review finds that state and local governments will lose an estimated $33.9 billion in funds this year due to this ruling. The projection further estimates that up to $51.9 billion will be lost in 2022.

What does this mean for businesses in Texas? The Supreme Court of the United States (SCOTUS) has agreed to hear this case. If SCOTUS rules in favor of applying state taxes, in addition to addressing state and local tax obligations in Texas, businesses that conduct business online could be required to pay state taxes in any state that consumers purchase their goods.

Navigating such a change is complex. As such, businesses that may be impacted are wise to seek legal counsel. 

Tax Controversy