You May Soon Have To Pay Sales Tax On All Your Online Shopping
For many years, you could avoid paying sales tax by shopping online.
Well, the party may soon be over.
In a landmark decision, the Supreme Court voted to change the rules Thursday. States will now be able to require online retailers to impose sales tax on their customers. (That means you.)
But wait, I just looked. Amazon already charged me California sales tax. What gives?
Yes, eagle-eyed shopper, you're right. California has a law, passed in 2012, that requires larger internet retailers (looking at you, Amazon) to collect and pay California's sales tax under certain conditions.
It was only last year that Amazon agreed to start charging sales tax across the country. You could have still avoided it though, if you bought from a smaller online retailer.
But whyyyyy? I don't want to pay sales tax.
Because money. The Supreme Court cited studies suggesting the rule costs states up to $33.9 billion a year. That's money that could go to education, infrastructure -- you name it.
How did we even get to this point?
Well, it's a long story. A Supreme Court ruling from 1992 said states can only require retailers who have a physical presence in their state to collect sales taxes. That made sense in a mail-order world. A business based in Wisconsin that sent goods to a California customer didn't have to charge California sales tax.
But as the internet exploded, the ruling stayed the same. Online retailers could be headquartered in one state, send goods to customers all over the country, and still not have to charge sales tax if they didn't have a physical presence in those states.
To combat this, some states revised their own tax rules -- 31 out of the 45 states that charge sales tax impose some kind of online sales tax, with varying rules of complexity. (Alaska, Delaware, Montana, New Hampshire and Oregon are sales tax-free.)
But many still wanted to make a change nationally, so they started a campaign to "Kill Quill" - after the name of the 1992 ruling, Quill Corp. v. North Dakota.
So what happened?
In 2016, South Dakota enacted a law that required merchants with more than $100,000 in transactions to collect the tax. The state then sued some out-of-state online sellers including Wayfair and Overstock to get the issue before the Supreme Court.
Has Quill been killed?
Essentially, yes. The Supreme Court said the ruling effectively incentivized businesses to avoid having a physical presence in states and led to a "judicially created tax shelter."
On Thursday, the justices overturned it 5-4. It will now be up to states to decide whether to require online retailers to impose a sales tax.
What does that mean for me?
Nothing is changing immediately. California's Department of Tax and Fee Administration said it was still figuring it out.
In the meantime, you can find what your tax rate could be using this nifty tool.
California's sales tax is 7.25 percent, but counties and cities have their own taxes too. For example, Los Angeles County adds an extra 2.25 percent, meaning a 9.5 percent tax in total.
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