A recent loosening of states' sales tax collection affects purchases of products online. According to the Chicago Tribune, Illinois can collect more sales tax thanks to a Supreme Court ruling on the matter. For small businesses, this could mean a more even playing field, since large online retailers have been able to skirt taxes in states where they don't have a physical presence.
This law affects Illinois shoppers that check out of shopping sites without paying sales tax, and the sites are now required to add them. For example, if you buy a laptop or printer from Newegg or a loveseat from Overstock you should budget for state sales tax. Those dollars are expected to provide $200 million a year for the Illinois state treasury according to estimates by the Department of Revenue.
The high court decided that states have the right to mandate sales charges from retailers whether or not they have a physical location within the state. In preparation, state lawmakers included language in this' year's budget bills that would let the legislature move forward quickly in collecting sales tax from more online purchases. Amazon is one of the online giants that started this early, and they began doing so in 2015.
With the larger sites having to pay sales taxes, smaller businesses have a bit more of an even playing field, especially if they have tech-savvy local marketing ads on Google and content-rich sites that attract prospective customers.
The Case That Started It All
Soon after the South Dakota law passed, South Dakota took it to court with retailers Newegg, Wayfair and Overstock, alleging that the companies failed to comply with their state sales tax laws. The Supreme Court heard the case in April of this year and decided in South Dakota's favor.
The Illinois law takes effect on Oct. 1, and it's built on legislation passed in South Dakota that is the focus of the recent Supreme Court decision. With a vote of 5 to 4, the highest court in the land overturned earlier decisions exempting online retailers from collecting sales taxes when they didn't have a physical presence. As consumers shifted away from brick and mortar business and took their purchase power online, states lost billions in annual tax revenue.
The Illinois change isn't a new tax, but rather a decision to force online conglomerates to enforce the existing statutes. Illinois residents are required to pay state sales tax if the site doesn't add it. Few do, either through lack of knowledge or motivation.
Understanding the Change
For small businesses, local advertising may now more effectively draw consumers away from the e-Commerce giants. With the bigger players now forced to add sales tax, the total cost of online products becomes less of an issue for smaller businesses with physical presences in the state. Previously, these businesses had to charge state sales taxes on top of their base price in what many consider an unfair advantage since online retailers largely ignored the requirement.
For a better understanding of how the ruling could impact consumers and businesses in the Chicago area, reach out to local legal experts.
Filed under: Regulations