The days of escaping sales taxes by shopping online are over in Texas — and most states
Author: Maria Halkias
Source: Retail Wire
Avoiding sales taxes by shopping online is about to get a lot tougher.
The Texas Legislature fixed a loophole in the last session that dates back to the days when interstate commerce by regular folks was not a daily occurrence. Now that boxes arrive regularly on doorsteps from all over the place, states don't want to miss out on sales taxes.
Starting Tuesday, most out-of-state retailers will start collecting sales taxes from their Texas customers.
The comptroller estimates that Texas will collect an additional $500 million a year in sales taxes from formerly tax-free online purchases.
Texas joins other states that made adjustments after the U.S. Supreme Court ruled in 2018 that states could force out-of-state retailers to collect state and local sales taxes from their residents. California changed its rules in April, and New York did it last year. Louisiana said it will start no later than July 1, 2020, and Oklahoma will make the changes Nov. 1.
Since Texas is such a big state with so many different combinations of local taxes added to the state's 6.25% cut, Texas is making it easier by allowing sellers to collect a flat 8% on purchases.
Texas already required out-of-state sellers with employees or facilities in Texas to pay sales taxes. Online retailers that are already collecting state taxes won't be allowed to switch to the flat 8% rate.
Retailers that start charging taxes Oct. 1 can choose whether to charge the actual combined state and local rates, which in Dallas totals 8.25%, or the flat 8%, said Kevin Lyons, spokesman for the Texas Comptroller's Office. Once they choose, they have to stick with that choice.
Another change has to do with the size of the retailer. Retailers that have sold at least $500,000 worth of goods to Texas residents in the preceding 12 months must begin collecting sales taxes. Smaller retailers are still exempt.
But smaller sellers that sell through a big marketplace — Amazon or Walmart, for example — will pay sales taxes because the marketplace will collect them. Texas lawmakers decided to put that burden on marketplaces instead of third-party sellers.
Why? Because the big marketplaces like Amazon have operations in Texas, so the $500,000 threshold is no longer a consideration, Lyons said.
Some states have a $100,000 sales cutoff, and the cutoff could change in Texas in the future, he said. The Legislature allowed the comptroller the authority to make that rule.
The new rules seem difficult to police.
"We have an audit division and we audit companies all the time. And we have enforcement functions," Lyons said. "The first year there may be some challenges, but we think we'll be able to handle it."
Finally, Texas shoppers won't see any changes when they're buying from in-state sellers, he said. "You buy online from Walmart.com or Target.com, or Jane's shoe store somewhere in Texas, nothing changes."
The Supreme Court's ruling last summer in South Dakota v. Wayfair replaced a 1992 decision that prevented states from requiring catalog companies, and later online retailers that operated outside of a state, to collect sales taxes from customers in another state.
Forty-five states and the District of Columbia now impose sales taxes. There are only two states with sales taxes, Missouri and Florida, that haven't passed new laws since the Supreme Court ruling.
That means Texas retailers with customers in Missouri and Florida won't collect sales taxes on purchases from those states, said Scott Peterson, vice president of tax policy at Avalara, a tax compliance firm.
For various reasons, some political, those states had bills proposed but not passed into law, he said.
"But starting Oct. 1, Texas consumers will find a sales tax on invoices that they haven't seen before," he said. "They need to know they aren't being cheated."