If you own a retail business and frequently get calls or emails inquiring about buying your products online, you may wonder whether it's worthwhile to expand your presence. However, doing so could have tax and administrative complications if you take orders from out-of-state customers, so it's important to know exactly how (differently) these sales are processed, especially after a number of recent court decisions have attempted to crack down on online retailers' failure to collect state sales taxes for out-of-state buyers. Read on to learn more about how a federal court decision could have tax implications for your business if or when you decide to expand to the web.
How will a recent 10th Circuit Court of Appeals decision impact businesses that sell online?
In early 2016, the 10th Circuit published a decision announcing its intent not to repeal a 2010 Colorado law that required online retailers to report sales tax information to the state's Department of Revenue (and provide this information to the consumer). This law was designed to prevent online-only retailers from undercutting local ones by not charging sales tax; although those who purchase tax-free items online in a state that charges sales tax are required to report these unpaid taxes each year on the state's income tax return, many do not, and this can hurt local retailers as well as state coffers. By requiring online vendors to report this tax information directly to the Colorado Department of Revenue, lawmakers hoped to capture more of these unpaid taxes while preserving the local business base.
The 10th Circuit announced that repealing this law would provide a boon to online retailers, who would again go back to failing to charge sales tax or make any independent reports to the state's department of revenue. Opponents of the law cite the burden for online retailers, which must potentially track and report tax revenue for the majority of states (and D.C.) with a state sales tax.
What does this mean for your ability to sell products online?
If you're still interested in putting your inventory on the web, but don't want to deal with the tracking and reporting that may be required, you may want to sell and ship only within the state. This ensures that proper taxes are charged and no additional reporting is necessary.
There are also a number of smart point of sale (POS) systems that can automatically log and report tax information, making it simple for you to generate reports at any time. By taking much of the leg work out of this process, you may find it to be far more lucrative than time-consuming.