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Internet sales tax debate headed to Supreme Court

| Jan 31, 2018 | sales tax

Many small businesses in Maryland do business over the internet as well as in person, and the growth of largely online businesses has also led to concerns about state sales tax collection. In January 2018, the U.S. Supreme Court agreed that it would hear a case on whether states can collect sales taxes on internet sales from businesses that do not have a physical presence in the state.

The law that has governed internet sales tax collection to date has been one that was developed for mail order catalog companies in 1992. In that case, the Supreme Court ruled that states could not compel catalog corporations to collect and remit sales taxes, except for companies with a physical location in the state. However, now 36 states have joined a lawsuit filed by South Dakota seeking a reexamination of the issue.

The high burden of calculating different sales tax rates and maintaining records of purchases was a factor in the 1992 decision. Today, states’ lawyers argue that these concerns are no longer valid as modern computing and storage technologies make it easy for online retailers to process sales taxes.

The matter has also been considered in Congress, but no legislation has been adopted that would regulate the imposition of state taxes on non-resident companies’ sales to locals. On the other hand, internet companies have argued that local tax systems have massively increased in complexity and that some large retailers now already collect sales taxes around the country despite the lack of legislation or a court mandate.

State sales tax laws can be confusing for Maryland businesses. State tax authorities place a priority on pursuing violations for alleged improper reporting or withholding of sales taxes. A tax attorney can help businesses dealing with taxation concerns to defend against unreasonable assessments and to come into compliance with the law.