Battle over sales taxes on online purchases heads to Supreme Cou

Paying Sales Tax on Out of State Purchases

"In several states, recent sales tax agreements with major internet retailers have not fully addressed local sales taxes, resulting in continued revenue losses for local governments", the Fitch report said.

States generally require consumers who weren't charged sales tax on a purchase to pay it themselves, often through self-reporting on their income tax returns. Even retail companies without a physical store in South Dakota were required to follow the state law.

As for the burden of dealing with thousands of tax rates across the country, the state says software programs now make it possible for a retailer to instantly compute the correct sales tax simply by entering a buyer's ZIP code.

Additionally, independent businesses on websites like Etsy and Ebay would be included in a rewritten sales tax law, as well as third party merchants that operate in Amazon's global marketplace, which totaled almost two-thirds of the company's gross merchandise volume at $313.4 billion.

In four other states where the case is expected to have less impact, sales tax revenue accounts for less than 20% of their overall tax revenue - Vermont (12%), NY (16.8%), Virginia (18.5%) and the District of Columbia (18.5%).

Out-of-state sellers disagree, calling it costly and extraordinarily complex, with tax rates and rules that vary not only by state but also by city and county. Sellers say free or low-priced software isn't accurate, more sophisticated software is expensive and that collecting tax nationwide would also subject them to potentially costly audits. "For small businesses on tight margins, these costs are going to be fatal in many cases", Andy Pincus, who filed a brief on behalf of eBay and small businesses that use its platform, told the Associated Press.

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Consumers nationwide would pay more for what they buy online if South Dakota gets its way before the U.S. Supreme Court in a case to be argued Tuesday.

South Dakota sued top online retailers Wayfair, Overstock, and Newegg, for failing to comply to the said state tax law.

South Dakota says the high court's previous decisions don't reflect today's world.

And besides, the companies argue, while e-commerce is growing rapidly, it still accounts for only about 9 percent of all retail sales - a smaller share than catalog companies had when the Supreme Court exempted them from paying sales taxes in states where they had no physical presence.

Supporters want to overturn the ruling in the "Quill vs North Dakota" case that prevented catalog sellers to remit sales taxes. "The "physical presence" rule of those eras was enunciated by the Court long before virtual presence was even imaginable", added White. As CNN explains it, the current law requires that "online retailers to collect the tax only in states where they have a physical presence", which is why big companies like Amazon and Walmart already collect sales tax on purchases made in the 45 states that require it. "A connection to a shopper's favorite store is a click away regardless of how close or far the nearest storefront".

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