Perspectives

Risky business: The evolution of sales/use tax policy in the e-commerce era

Challenges facing remote sellers

This article discusses a few approaches that states are taking to address this issue. It then discusses the pending federal Marketplace Fairness Act of 2013, including our general assessment of the likelihood of adoption of this proposed federal law and recent developments in July 2014. Finally, it addresses the impact of potential federal and state legislation, as well as possible approaches that remote sellers may wish to consider to address related business risks and potential unanticipated infrastructure costs. As with many other areas of the law, the tax code must evolve with the technological advances of the business world and, as the law catches up, businesses must be prepared to understand and comply with the new requirements.

Sales and use tax laws

We live in an environment in which e-commerce continues to grow and evolve while state legislators attempt to catch up to the ever-changing technology. On a global scale, e-commerce sales are growing at approximately 19 percent a year and are expected to exceed $1 trillion in 2014, while e-commerce is growing steadily at 10 percent a year in the US and is expected to surpass $250 billion in 2014. 1 Many consumers shop online to save time, avoid crowds, easily compare prices, save money, and access greater variety. Interestingly, a survey conducted by Invesp.com suggests that one reason 30 percent of consumers prefer to shop online is to avoid paying sales tax. 2

In the absence of federal legislation, states are becoming increasingly active in their efforts to address the problem of remote sellers that do not collect sales tax. In this article, Brian R. Ertmer, Joe Eleniewski, and Eric Schaefer of Deloitte Tax LLP discuss a few approaches that states are taking to address this issue. They discuss the pending federal Marketplace Fairness Act of 2013, including their general assessment of the likelihood of adoption of this proposed federal law and recent developments in July 2014. Finally, they address the impact of potential federal and state legislation, as well as possible approaches that remote sellers may wish to consider to address related business risks and potential unanticipated infrastructure costs. As with many other areas of the law, the tax code must evolve with the technological advances of the business world and, as the law catches up, businesses must be prepared to understand and comply with the new requirements.

by Brian R. Ertmer, Joe Eleniewski, and Eric Schaefer of Deloitte Tax LLP, originally published in the Journal of State Taxation 

1 How Big is E-Commerce? INVESP. August 9, 2013.

2 Id.

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