By Jim Clanin
Today, a skilled ecommerce developer in Georgia must take the collection of sales taxes for every customer transaction into consideration. At the turn of the century, online merchants in our state only collected and remitted these funds from customers located within the Peach State. Yet recent legal changes now require businesses to undertake this responsibility whenever a sale occurs, whether a customer resides in Atlanta or Sacramento (or Zurich).
The complexity of the sales tax issue can seem daunting. Some key questions to consider include: What software platform should the site utilize to maintain current information about sales taxes? Has your enterprise registered with sales tax authorities in each customer jurisdiction? Will your firm collect and remit sales taxes only from U.S. residents, or from customers in other nations, as well?
Infusing Complexity Into E-commerce
A few years ago, Georgia-based merchants could simply register with our state’s taxing authorities and collect and remit sales taxes from customers residing in Georgia. Transactions completed with customers in other jurisdictions (including foreign nations) essentially occurred sales tax-free. Out-of-state Customers sometimes preferentially purchased items online because they could avoid paying sales tax charges.
This simple business model ended when the Supreme Court of the United States decided the case of South Dakota v. Wayfair on June 21, 2018. By a slender five to four majority, the Court ruled states can now mandate certain sellers located outside the state to collect and remit sales taxes. Justice Ginsburg joined in the majority opinion. The decision changed the requirements for a sales tax nexus from physical presence to economic activity.
How Merchants Collect Sales Taxes
In the United States, businesses collect sales taxes by registering with the taxing jurisdiction and setting up an account. At the end of each tax period, the firm must remit any sales taxes owed to the state or face potential criminal and civil liability. Many states collect additional sales taxes and special levies for cities and counties located within their borders.
For example, the sales tax rate for Omaha exceeds the rate applied in many small Nebraska towns. Merchants remit taxes they collect from Nebraska residents to Nebraska’s Department of Revenue. The state agency then allocates the proceeds among the various taxing entities. It proves vitally important for merchants to collect the correct tax rate based upon each customer’s residential location in order to avoid owing the state funds at the end of each quarter. Nebraska requires businesses to charge the correct tax rate for every address. Most states in the USA adhere to a similar model for distributing sales taxes among counties, cities, and special taxing districts.
Building Sales Tax Compliant Websites
Currently, Atlanta Area businesses discover advantages in consulting with an experienced web designer to create ecommerce sites that comply with the new sales tax provisions. Some issues to discuss include:
- What business model do you maintain, and how many transactions do you conduct that require sales tax collection and remission?
- Which sales tax software program(s) will you utilize?
- How will you keep your sales tax software current and updated?
- Have you completed registration with taxing authorities outside Georgia in every jurisdiction where you will accept customers?
- Will you conduct transactions with customers residing overseas, and, if so, have you taken steps to meet the sales tax requirements of those jurisdictions?
Businesses currently navigate through a complex sales tax compliance landscape. This issue demands careful business planning!