Two-year-old MTailor has garnered millions in sales for its custom-made shirts, all via its app.
Wal-Mart Stores Inc., Target Corp. and other retailers started charging sales tax this week, following a deal with 37 states and the District of Columbia that grants them immunity from paying any back taxes on past online sales.
For some multi-channel retailers, it`s beginning to make sense to collect sales taxes for online sales. Wal-Mart Stores Inc., Target Corp. and other retailers started charging sales tax this week, following a deal with 37 states and the District of Columbia that grants them immunity from paying any back taxes on past online sales.
Widespread tax collection by online retailers is not expected to happen soon, because states that support online sales taxes are still at least a year away from having a mandatory online sales tax collection system, says John Logan, a tax analyst with CCH Inc., Riverwoods, Ill.
But retailers like Wal-Mart and Target, because of the widespread presence of their stores throughout many states, have reached the point where it`s become difficult to claim an exemption from online sales tax. The U.S. Supreme Court has ruled that retailers with a physical presence, or nexus, in a state can be required to collect sales taxes for the state from where a consumer makes an online purchase. Although a federal moratorium on Internet-related taxes runs until November, many experts say the moratorium is not likely to be extended. And it does not apply to sales tax, although some no-sales tax advocates are hoping it can set a precedent in regards to sales taxes.
Because the Supreme Court did not clearly define what constitutes physical presence, states and retailers have differed on what would actually require collection of online sales tax. Even states differ. While one state might say the presence of a few retail employees in a state establishes physical presence, another might not, Logan says. "States are all over the board about what constitutes nexus," he says.
And that has left much open to interpretation, giving retailers little impetus to go along with a tax collection system that could require them to sort through a huge number of taxing jurisdictions.
But with a resolution to tax collection considered inevitable, retailers with integrated online and store sales are finding it hard to avoid the tax issue. "That opens them up to charges from states that their physical stores are acting as a sales agent for their dot-com operations," Logan says.
Wal-Mart admits that closer ties between Walmart.com and Wal-Mart stores have persuaded it to get more directly involved in online tax collection. "Walmart.com is becoming increasingly integrated with our store operations, and this creates a presence for Walmart.com in all states," a spokeswoman says. Wal-Mart also wants to support the funding of state services hurt by declining state revenues, she adds.
Before this week, Walmart.com had already been collection sales taxes in nine states where it has employees: California, Georgia, Arkansas, Colorado, Utah, Ohio, Mississippi, New York and Connecticut.
Of the 47 states (including the District of Columbia) that collect sales tax, all but three -- Arizona, California and South Carolina -- are expected to join the recent agreement regarding a waiver of back taxes, Logan says. (Delaware, Montana, Oregon and New Hampshire don`t collect sales tax.)
Logan adds that states participating in the recent pact have agreed to let retailers collect only one statewide tax, which states will then distribute to other local jurisdictions.