In a major ruling last June, the U.S. Supreme Court upheld the authority of states to impose sales tax on online transactions. The Court said such taxation is permissible even if a company does not have a physical presence in a state.
As we noted in a post at the time, however, future litigation will probably be needed to decide what constitutes an undue compliance burden for businesses from online sales taxes.
How is the Supreme Court’s decision likely to impact businesses in Maryland and other states? Here are three things to note as companies cope with the new tax realities.
Small online-only retail companies are likely to be hurt the most by states’ imposition of online sales taxes.
The reason for this is that small businesses will now have to make sense of a multitude of state and local tax rates across the country. According to the Washington Post, the number of local sales taxes in the U.S. is about 9,600.
Most small companies are not well positioned to handle the complexity of so many different taxes to calculated and collect.
Imposing taxes on online sales could affect overall sales and use tax rates for businesses. But it is too soon to tell how this will play out.
In Maryland, the state collected $4.5 billion in revenue from the sales and use tax in fiscal year 2017. The state projects the amount collected to increase to $4.6 billion this year.
It is conceivable that an influx of revenue from online sales could lead to calls for a reduction in business tax rates. This is especially true if the state stands to get a revenue windfall from taxing online sales.
State reductions are not In New Jersey, the state reduced its statewide sales tax this year from 6.8875 to 6.625 percent.
The effect of online sales taxes could inhibit entrepreneurs who start their companies as online only companies.
This is because many new business owners start their businesses as online only before attempting to establish a brick-and-mortar presence.