As most of you are no doubt aware, there is much concern by states over lost revenue from internet purchases where an out of state seller does not collect sales tax on sales to customers in a state that imposes a sales tax. Estimates for uncollected sales taxes are as high as in the billions nationwide. It’s such an issue that In California in an effort to coerce folks into voluntarily paying the tax, the state has gone as far as requiring people to affirmatively claim on their income tax filings that they have no unpaid sales taxes from out of state sources.

This situation exists because of a court decision (Quill) regarding catalog sales by out of state sellers. The Supreme Court ruled that retailers had no obligation to collect such taxes if they had no established presence in the subject state. But that was many years before Al Gore invented the internet, and now states that collect sales tax are pushing hard for Congress to enact legislation allowing them to collect taxes on internet transactions. Congress has done what its best at – nothing, and in doing so has favored consumers, anti-tax groups, and the five states that do not collect sales taxes at all.

The situation has come to a head with South Dakota enacting a law that directly conflicts with Quill. Predictably, it was challenged on constitutional grounds and is currently being heard by the US Supreme Court. The Supremes are expected to rule in June on the matter, and with 41 sales tax collecting states filing briefs agreeing with South Dakota, its looking like there may well be a change coming.

By: Paul, P. Scholz, CPA

Managing Partner Onisko & Scholz, CPAs