Sales Tax Collection Directions in the United States Dr. Ralph F. Wilson Web Marketing Today - Sep 1, 2009

Under a US Supreme Court Decision (Quill v. North Dakota, 1992), businesses only need to collect sales tax for the state(s) in which they had a physical presence or "nexus," such as a store, office, or warehouse. In sales tax states, this decision has favored online purchases from out-of-state businesses to avoid paying sales taxes.

But revenue hungry states have been hard at work to find ways around Quill v. North Dakota. Such efforts are moving along two lines:

Streamlined Sales Tax Project

At least 41 states and the District of Columbia have agreed to simplify sales tax policies under the Streamlined Sales Tax Project, and at least 22 states (representing over 31% of the US population) have passed implementing legislation. Now they hope to persuade Congress to pass legislation that will allow states to require larger retailers and catalogers to collect sales tax. Smaller merchants would be exempt, at least in the short term. To learn more, see the Streamlined Sales Tax Governing Board site.

Extending the Definition of "Nexus"

Another approach has been for states to extend their definition of "nexus" to allow them to tax web sales of national firms. Previously, some national chains claimed that their brick-and-mortar store business were separate entities from their web sales operation, though this has often failed to be recognized in court.

However, in 2008, New York State ruled that a business had a "nexus" in its state and must collect sales tax if any "sales associate" in the state generated more than $10,000 in sales. Amazon, which has a large army of affiliates, immediately cut off its affiliates in New York state in order to keep from having to collect sales tax there. New York's lead has been followed so far by Rhode Island and North Carolina, but vetoed recently in California and Hawaii. Where this movement will go remains to be seen.

Dr. Ralph F. Wilson is an e-commerce expert. He has built stores for dozens of clients (including a prominent Internet Retailer 100 company) and has written extensively on e-commerce. He is the author of The Shopping Cart Report (Second Edition, 2004). He is the founding editor of Web Marketing Today.