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January 2, 2019

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Will Texas require businesses to pay an online state sales tax?

The Supreme Court of the United States issued a decision last year that will change the future of online shopping. The decision, Wayfair v. South Dakota, resulted in the ability of states to tax online purchases. Previously, a state would need to establish that the online business had a physical presence within the state in order to charge a state sales tax on an online transaction.

The holding and Wayfair changed this rule.

What has changed?

Although this holding has led to the ability of states to tax online transactions more easily, states need to first enact a law that allows for reasonable taxation. In Wayfair, South Dakota used a clear set of elements before it applied a sales tax on online transactions. Online businesses that conducted over $100,000 in sales or 200 transactions per year were required to pay a state sales tax.

Until states enact such a law they cannot apply a sales tax to online transactions. The Texas Legislature has not yet enacted such a law.

Why hasn’t Texas enacted an online sales tax slot? 

The Texas Legislature is not in session year-round. When the holding came down, the state’s Legislature was not in session. As a result, although the state will likely pass such a law in the near future, it does not currently exist.

What does this mean for businesses that sell Goods in Texas?

The Legislature is currently considering a law that would apply for businesses that conduct $500,000 or more in online transactions in Texas. It could include language to make the law retroactive. As such, business owners are wise to stay apprised of the evolution of this type of law. It is wise to review the business’ current business strategy to better ensure it can successfully evolve with this change.

Tax Evasion