Accounts payable professionals may have to start re-writing their sales and use tax policies as more states begin charging sales tax on online purchases.
Currently, 12 states have passed so-called "Amazon" laws designed to expand the definition of nexus to make more online purchases subject to sales tax. These states are Arizona, California, Colorado, Connecticut, Illinois, New York, North Carolina, Pennsylvania, Rhode Island, South Dakota, Texas and Vermont.
The requirement for a business to collect sales tax in a state is called nexus. A retailer has nexus in a state if they have a physical presence there, such as a brick-and-mortar store, factory or distribution center. However, thanks to a crop of new laws across the country, in the above states, nexus can mean little more than a website hyperlink.
States that have implemented Amazon laws have ruled that if the online retailer pays businesses in the state to host links back to the retailer's site, then the retailer has nexus and must collect sales tax.
What this means for your department is that you could start seeing more transactions subject to sales tax at the time of purchase. Savvy AP departments know that use tax is already due on any merchandise purchases if the vendor failed to collect sales tax. The new nexus rules put the onus on the retailers to collect this tax up front.
In addition to the 11 states that have Amazon laws on the book, two others (Massachusetts and Michigan) have pending legislation. Brick-and-mortar stores have spearheaded these laws (aided by revenue-starved revenue departments) to level the playing field against online retailers such as Amazon.com.
Despite the widespread support for online sales tax initiatives, some states, including California, have struck deals with online retailers. According to an article published in The Huffington Post, Calif. Governor Jerry Brown has agreed not to enforce the state's Amazon law until at least September of 2012. The intention is to give the U.S. Congress time to attempt to settle the issue on a national level.
For more on California's compromise, see California Governor Jerry Brown Approves 'Amazon Tax Compromise'. .
Congress' attempts to address the issue have not had significant traction. According to govtrack.us, a website that tracks legislative traction, The Main Street Fairness Act was referred to committee in July 2011 and has not been acted on. The bill would require all states complying with the Streamlined Sales and Use Tax Project to collect sales tax on online purchases.
See Welcome Back Main Street Fairness Act.
With one-third of all states that have a sales tax either rolling out new nexus laws or planning to, the chances of seeing sales tax added to your online purchases has never been higher.
