Illinois Shoppers Pay More for Online Purchases, Good News for Small Businesses

24 June, 2018, 23:34 | Author: Manuel Hopkins
  • Supreme Court closes online sales tax loophole

Governor Mary Fallin also applauded the Court decision which overturned an earlier ruling that a business had to have a physical presence in a state in order for that state to collect state sales tax on online purchases.

CPA and Senior Director of Tax & Accounting North America for Wolters Kluwer (publisher of CCH SureTax) said under the 1992 Quill ruling, the interpretation of the Commerce Clause was that the "substantial nexus" required to justify imposition of a sales tax was "physical presence" (that is, property or employees) of the company in the state.

The Retail Industry Leaders Association, another trade group, said the ruling allows retailers to compete "without government's thumb on the scale" and called it "a win for all those who believe in free markets".

Unlike the local option sales tax, which is sent back to the counties where the sales took place, Grandy said the current online sales taxes collected by retailers located in the state are remitted based on population.

Honestly, this shouldn't be surprising to anyone, but it's a bummer nonetheless.

The Illinois law takes effect on October 1, and it's built on legislation passed in South Dakota that is the focus of the recent Supreme Court decision.

The 5-4 decision was a victory for South Dakota, which wanted the high court's blessing for its recently enacted sales tax on internet transactions. "It's taxes and regulation all combined in one unfortunate tax", says Raymond Keating, chief economist with the Small Business & Entrepreneurship Council.

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"New Hampshire's lack of a sales tax is a competitive advantage for our state, and this decision will unfairly punish small businesses that are the backbone of our economy", U.S. Senator Maggie Hassan said in a statement.

Joe Henchman, who runs the state tax policy project at the Tax Foundation*, a conservative think-tank that supports the Wayfair decision, has been talking with officials from states who are looking to tax online sales in a way that complies with it.

What it means for out-of-state retailers is that sales tax nexus is no longer exclusively based on a physical presence standard.

But sellers that only have a physical presence in a single state or a few states could avoid charging customers sales tax when they're shipping to addresses outside those states. Until that case is resolved, South Dakota has already enjoined itself from enforcing that law on any out-of-state retailers. The Supreme Court heard the case in April of this year and decided in South Dakota's favor. Some states have exemptions for collecting sales tax. Supreme Court in a decision that should help level the playing field between bricks-and-mortar and internet-based sellers.

At a local retailer, a consumer is going to pay a six percent tax rate. "Part of the biggest challenge for the sellers is to know in each particular state if its goods and services are subject to sales tax, because there's no uniform definition".

Even before that change, Pennsylvania got $202 million of online sales tax revenue in 2017 - 2-1/2 times as much as it did in 2014, when it received just $81.2 million, according to information the Pennsylvania Treasury provided to Reuters.

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