Amazon and other online retailers like Overstock must collect state taxes from New York customers, the state's highest court has ruled.
The decision is at odds with other state decisions and could potentially lead to the U.S. Supreme Court stepping in and clarifying the issue of when online stores have to charge sales tax, reports Reuters.
For many retailers, this decision will only make their online businesses more confusing as they will have to follow different rules for different states. For example, an Illinois Supreme Court recently ruled that a similar "Amazon tax" was not permissible.
Why the Decision Is Notable
So far, New York is in the minority of states that require out-of-state retailers to collect sales tax even when they do not have a physical presence in the state, reports Reuters.
Traditional brick-and-mortar stores must always collect sales tax, as do online stores with a physical presence in the state. However, there has been a question as to whether stores without a physical presence in the state must also collect sales taxes.
In recent years, Amazon has agreed to begin collecting sales taxes in states where it has physical distribution facilities like California and New Jersey. But the New York decision seemingly requires the collection of taxes even without that physical nexus.
Effect on Small Businesses
So what is a small online business to do? Unfortunately, you are likely not in a position to drive policy-making like Amazon. Instead, you should remain flexible in your business model and prepare for both collecting sales tax and not collecting sales tax.
And unless the Supreme Court steps in, you should be prepared to meet conflicting requirements in different states. If you are unsure of your tax requirements, you may want to talk to a small business attorney.
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- Amazon tax payoff starts to arrive in some U.S. states (Reuters)
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- What Online Sales Tax Means for Small Biz (FindLaw's Free Enterprise)