For years, businesses have been able to skirt the taxation power of local governments when selling goods online. Those days are over.
In the case Wayfair v. South Dakota, the Court held that local governments could indeed impose sales tax on companies who did not maintain a physical presence in that state. The Court viewed decades of precedents as being out of step with the modern realities of internet commerce.
Calling them “substantial virtual connectons,” today’s contacts between a given business online and a particular state satisfy the requirements necessary for a state to tax a business. The Court observed that to rule otherwise would be to allow those businesses to “free ride” on the local governments and the services they provide to enable commerce in a given geographic area.
Here in Texas, local governments will be looking toward the legislature to determine what changes, if any, are needed to begin realizing tax revenue from online commerce. Texas itself, and other states, could look to South Dakota, the defendant in this case, to see what lessons can be gleaned from South Dakota’s existing sales tax laws for remote sales. Further, as observed by the Court, software will most likely be developed soon by vendors seeking to help local governments calculate and capture the tax revenue. Perceived burdens with respect to accurate collections as anticipated by worried online businesses are unlikely to materialize.
Given this dramatic change in the law, local governments nationwide would be prudent to consult with their legal counsel as soon as possible.