Online trading has enormous benefits. For example, with online trading there’s no need to establish an office, goods do not need to be stocked, and a huge number of buyers can be reached just through a simple website. However, every source of income from online sales is liable to income tax and sales tax, and this occasionally leads to tax complications. Ongoing state and use tax issues in relation to online commerce are highlighted be the so called “Amazon Laws” put in place in states such as New York. For example, on December 2, 2013, the Supreme Court rejected the appeals of Amazon.com and Overstock.com in regards to a New York law that would require them to collect taxes in that state.
Online Sales Tax Case Background
Issue
Amazon and Overstock.com Inc. made an appeal against the introduced tax statute; it requires out-of-state Internet retailers with no physical presence in the State to collect New York sales and use taxes. The companies objected, saying the law violated the Constitutiondemandin tax collection from businesses that do not have any physical presence in New York. They refered to these rulings as the “Amazon Law”.
Amazon Laws
These are laws passed in states like New York, Colorado, et cetera, with reference to Internet retailers like ’Amazon’ to obtain taxes on Internet sales through certain measures, such as:
1. Imposing responsibility for collecting use tax on representatives (state residents) who participate in online referral programs for such websites and are paid for placing links to the retailer’s website on their own websites. Example: A New York resident who has their own website but advertises for Amazon, gets paid by an agent of Amazon for doing so – such an agent is also supposed to collect “use tax” from Amazon.
2. Requiring online sellers to provide information about sales and taxes to the state and/or the in-state customers. Example: A N.Y. resident seller who sells goods through Amazon or other similar internet retail website, is supposed to provide the breakdown of the selling price and taxes charged to the customer and state tax authority.
New York (NY) Tax Law § 1101(b)(8)(vi)
The law states any “entity selling tangible personal property or services taxable” as a ‘seller’ per U.S. Income Tax Laws, will be categorized the same as those carrying out business in NY through an independent contractor or other representative,(if the seller enters the information on an agreement with a resident of this state), for commission or other consideration, if the following statements are applicable:
•The representatives/contractors refer customers to the seller directly or indirectly through links on an internet website.
•If the above activity results in past year’s income in excess of $10,000 over the prior four quarterly periods or more being from the “referred customers” of particular state (in this case N.Y).
Court’s Decision
The New York court of appeals denied Amazon and Overstock’s petition on the basis that the companies need to provide proof demonstrating that the New York (NY) Sales Tax Law § 1101(b)(8)(vi) rule is not applicable, i.e. although the company has no presence, it needs to satisfy the other requirements such as: they do not have any contracts resulting in referrals or income.
Amazon LLP and Overstock Inc. have decided to take the case to Congress to reconsider the decision since application on this law may affect online sales business due to increased pricing of good due to added sales tax.
The lack of sales tax on online goods helps consumers to save significant amount by purchasing products from online stores rather than visiting a nearby store. The U.S. government has recently proposed the Marketplace Fairness Act to bring in equality between ‘online’ and ‘bricks and mortars’ (physically present stores) retailers.
Individuals and small business owners (SBOs) who are into selling online goods could face severe competition as they would need to increase the costs to accommodate taxes, additionally giving rise to penalties in case of failure to pay these taxes if this proposed bill is passed. It is advisable that an online retail business owner should consult a tax professional to plan their taxes, taking proper measures to minimize the tax burden where possible, and being tax compliant to prevent a tax situation.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
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