Internet Sales Tax Updates Ecommerce Sellers Need for 2017
- Jan 16, 2017 | Jessica Sillers
The new year brings important changes for online retailers. Brush up on ecommerce trends, new sales tax policies and rates, and Supreme Court decisions that can affect your online business.
Why Ecommerce Sellers Should Watch the Supreme Court
As ecommerce grows, states have increasing reason to push for access to tax revenue. In 2017, the Supreme Court may face more cases seeking to overturn Quill Corp. v. North Dakota. (Refresher: This 1992 Supreme Court ruling upheld previous laws saying states can't impose sales tax collection obligations on businesses lacking a physical presence in the state. With the internet making it easy for businesses to reach customers remotely, some states are eager to overturn this rule.)
One of the tricky aspects of Quill Corp. v. North Dakota is that the Supreme Court agreed that use tax applied to remote sales. The issue was how to collect it. States can't require remote sellers like Quill Corp to collect use tax, but it's often not feasible to track down customers individually, either. Some state legislators are finding workaround ways to drive online businesses to collect the tax.
One such law was unsuccessfully contested in 2016. Colorado's “Amazon tax” law says out-of-state sellers must either collect sales tax on online purchases, or deal with paperwork and processes to remind their customers to submit the tax. Given the work the second option entails, the law essentially compels online businesses to collect sales taxes by making the alternative so challenging. In December, the U.S. Supreme Court declined to hear a challenge to a Circuit Court ruling in favor of this law. This may encourage other states to pursue online sales tax laws in 2017.
Not every new proposal favors internet sales tax, though. Online sellers should also keep an eye out for updates to the No Regulation Without Representation Act of 2016. This bill was introduced to Congress in July 2016 and referred to a subcommittee in August. If this bill becomes law, states would be restricted from imposing sales and use tax collection obligations on businesses that don't have a physical presence in the state. Most internet affiliate arrangements are excluded from the "physical presence" definition. Unless the internet advertising services are exclusively directed toward in-state customers, states couldn't require sales tax collection. This would appear to outlaw practices like click-through or affiliate nexus.
Amazon Sales Tax Updates
Amazon has been updating some of its sales tax collection practices in 2016. Third-party sellers using the platform should check whether they need to--or want to--follow suit. For example, in November, Amazon began collecting a flat 8% tax rate on Alabama sales. Amazon's compliance with the Simplified Sellers Use Tax Remittance Act doesn't necessarily include third-party sellers who use the platform. A business's sales per year and other business activity will determine whether they're required to collect the tax. Some businesses may choose to collect it even if not required, since they may be held liable for unpaid sales and use tax.
Amazon is also collecting sales tax in Utah, Louisiana, and Iowa, beginning in January. In Utah's case, and possibly others, the tax collection is voluntary, and Amazon will keep part of the money. It could be worth investigating whether these states may also reward smaller businesses that voluntarily collect sales and use tax.
New Internet Sales Tax Laws
Lawmakers in other states are also discussing internet sales tax bills. Wyoming recently advanced a bill that would require online retailers to collect sales tax if they make 200 transactions or $100,000 worth of sales in the state. Mississippi's governor proposed creating a voluntary remittance program, similar to Alabama's. Louisiana’s tax notification requirements for remote sellers take effect on July 1, 2017. Remote sellers must provide purchasers with an annual notice of their purchases and keep records of Louisiana sales with aggregate value of $250 or more per sale.
The way your online business attracts new customers may also influence your sales tax obligations. Tennessee is enacting new economic nexus regulations effective July 1, 2017. Get ready to collect sales tax if you use “regular and systematic solicitation” to attract customers in Tennessee and earned $500,000 from Tennessee buyers during the previous twelve-month period. Meanwhile, as of November 1, 2016, Oklahoma's Retail Protection Act removes certain affiliate nexus criteria, such as holding a “substantial ownership interest” in a related business that advertises on your business’ behalf.
How Much Sales Tax Should I Collect?
Like any retailer, ecommerce business owners need to stay on top of sales tax rate changes in areas where they do business. California and New Jersey are lowering their state sales tax rates. Missouri has a county-by-county breakdown explaining which counties are extending or imposing new sales tax in 2017. Other states with changes on the way include:
- Arkansas (6 counties changing sales tax rates)
- Florida (11 counties imposing new sales taxes)
- Georgia (2 new transportation sales taxes, effective March 1, 2017)
- Illinois (sales tax changes in Danville and special districts)
- Kansas (city, county, and district tax changes)
- Minnesota (4 counties adding transit sales tax, 1 county's local sales tax expires)
- Nebraska (1 new local tax, 4 tax increases)
- Nevada (sales tax increase in Washoe and Clark County, effective April 1, 2017)
- Oklahoma (12 sales tax increases, 1 decrease, and a new use tax)
- Utah (North Logan's energy sales and use tax increases to 6%)
- Washington (new sales tax rates in 12 areas, including unincorporated areas)
- Wisconsin (Sheboygan County imposes new 0.5% sales tax)
Three Ecommerce Trends for 2017
Staying on top of industry trends is essential for online sellers. Watch these aspects of ecommerce to stay competitive.
Digital personal assistants, like Siri and Alexa, have made it normal for many consumers to chat with artificial intelligence in their day-to-day lives. This may make customers more likely to use a chat feature on a shop website. It also means online sellers might want to update their websites with voice-search-friendly copy, like common search questions.
One popular piece of online business advice is to strive for same-day delivery, like Amazon. Most online businesses can't achieve this, but they may be able to make delivery improvements. If you can afford to, consider investing in one additional storage facility near a large customer base or on the opposite coast. Adding one or two inventory centers can make a big impact on shipping time. Review the state’s tax law so you know whether storing inventory leaves you liable to collect sales tax.
The last important question to consider is whether your customers use mobile versus desktop. An E-Commerce KPI Study compared website traffic and sales revenue on mobile and desktop devices. Their findings suggested that customers prefer to browse and make shopping decisions on their phone, but make purchases on desktop. Rather than merely checking that their website is mobile-friendly, more online businesses assume customers will find them primarily over a mobile device in 2017.
Because customers still seem to prefer desktop computers for purchases, though, ecommerce sellers shouldn't focus solely on designing their websites for a mobile device. One smart desktop-friendly move is to make checkout as streamlined as possible, to serve customers who’ve already picked out purchases on their phones.