The ongoing battle over the collection of sales tax by online retailers has taken a new turn following a ruling by a federal appeals court that could pave the way for states to collect tax on online sales.
The 10th U.S. Circuit Court of Appeals in Denver this week reversed a lower court ruling that prevented the state of Colorado from enforcing its “Amazon tax” law (named after online retail giant Amazon). Previously, online retailers were not obligated to collect sales tax on purchases made by residents of states in which the retailer had no physical presence (such as warehouse or office).
While Colorado’s Amazon law does not require online retailers to collect sales tax from state residents, it does require retailers to report such sales to the state tax authorities, and to inform customers of their obligation to self-report – and pay – sales tax obligations (sometimes called “use tax”) from online purchases when they file state tax returns.
The appeals court ruling could mean that the state’s revenue department will know precisely how much sales tax is owed by Colorado residents who circumvent the tax by buying goods online. And, because the decision came in at federal court, it may set a precedent for similar laws in other states.
Proponents of the decision say it will help “level the playing field” for local retailers who are obligated by law to collect state sales tax. Colorado officials estimate they lose as much as $170 million per year in tax revenue lost to online purchases, and that the national loss of state sales taxes may be as high as $11 billion annually.
For more information on this topic and other tax issues, please contact the “SALT” (state and local taxes) experts at Gray, Gray & Gray by calling (781) 407-0300.