Pennsylvania Trying to Get Online Retailers to Collect Sales Taxes

Pennsylvania's attempts to make online retailers pay state sales taxes made a big gain when a major internet retailer agreed to collect taxes on purchases. However, the fight to get retailers to pay state taxes is still facing an uphill climb.

The governor is looking for ways to collect new revenue for the state without raising taxes, but has to contend with consumers who seek out tax-free items on the internet. In the meantime, brick-and-mortar retail businesses are unable to compete with internet retailers due to having to charge taxes on purchases.

Officials estimate $43 million in revenue will be generated for the rest of the fiscal year as a result of the push to make online retailers comply with state laws but a revenue department spokesperson said that it has no idea how many businesses are responsible for collecting taxes.

Recently, a deadline for online retailers to register with the Revenue Department recently closed. Those retailers that did register now have to collect the 6 percent state tax on purchases shipped to Pennsylvania, as well as local sales taxes in various cities. Not complying means online retailers could face audits and penalties the same as in-state retailers. Online retailers who do not have a physical presence in the state of Pennsylvania can ignore the deadline as long as they do not participate in specific business activities.

Twenty years ago, the Supreme Court made a decision that established a standard known as "physical presence", which requires a business to have an established business in the state before it starts collecting sales taxes. The major internet retailer has six fulfillment hubs in the state, constituting a physical presence. Thus, it is possible for Pennsylvania to enforce collection of sales taxes from the retailer.

Source: San Francisco Chronicle, "Pa. sales tax push puts heat on online retailers," Peter Jackson, Sept. 2, 2012.

Our law firm represents businesses with a variety of tax law issues including tax law compliance, tax return preparation and tax planning.


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