Four primary approaches to sales and use tax, one big discussion for remote sellers

CHICAGO, April 9, 2014 /PRNewswire/ -- The internet has transformed the consumer products space over the past 10 years and accelerated the trend toward remote purchasing. According to the U.S. Department of Commerce, e-commerce sales accounted for 5.8 percent of total 2013 sales, which represents a 16.9 percent increase over 2012. Businesses are adapting and the once very expensive brick-and-mortar retail storefronts are becoming a necessity of the past.

(Photo: http://photos.prnewswire.com/prnh/20140409/CL01764 )

According to McGladrey's What's the deal with sales and use tax on remote purchases?, the transformation in the retail space has sparked debate around the administration and collection of sales tax on remote purchases.

• Are remote sellers required to collect and remit sales tax on purchases made by buyers in other states?
• What is the responsibility of the government to create a level playing field for remote sellers?
• Who is responsible for the accuracy of use tax compliance?
• Will remote sales tax collection effectively turn all remote sellers into multistate entities?

While consumers are supposed to pay use tax on remote purchases for which they do not pay sales tax, they rarely do. Consumer non-compliance is a major contributor to annual lost state tax revenues of between $2 and $22 billion each year.                     

Through 2013 and 2014, states have taken strong measures to close this gap, including:

• Strongly supporting national legislation such as The Marketplace Fairness Act, which would overrule the physical nexus standard and require remote sellers to collect and remit sales taxes,
• Pushing click-through nexus rules by which states assert that remote sellers have established physical nexus if they have entered into commission agreements with in-state agents for referring customers to the seller's website,
• Monitoring Colorado's new disclosure rules which require remote sellers to either voluntarily collect and remit sales taxes on sales to Colorado residents or to file a report with the state disclosing detailed information on all sales to in-state purchasers, and
• Enacting various laws and reporting requirements designed to encourage greater use tax compliance by purchasers.

For more information on the growing battle between online retailers and states hungry for revenue, read the McGladrey white paper, What's the deal with sales and use tax on remote purchases?.

SOURCE McGladrey