Published on 16/10/2020

Apparel giant H&M recently announced that it will shut its 250 stores across the world. Zara has announced the closure of at least 1,200 stores globally. Many other brands have announced the shutting down of their offices and stores since not many people opt for in-store shopping on account of the pandemic.

Instead, many people choose to go online to shop as it’s a much safer shopping experience. Besides, online shopping offers a range of discounts, perks, and freebies to customers that in-store shopping does not allow.

All this and more has prompted retailers and even wholesale vendors to sell online. Of course, they save a lot of money with no employees to pay, no rent/mortgage to pay, no electricity, and other charges. However, they have not been charging Sales Tax on these online purchases. Part of the problem lies in the fact that not many businesses (especially small businesses) know about the sales tax compliance when selling online.

The IRS has also been a little lenient with sales tax in the past few months since COVID-19 hit, but it may come to an end. The IRS is running low on funds, and it is this sales tax money that can help them.

2018: Sales tax can now be collected for online transactions

Before June 2018, a seller would not have to file sales tax for a transaction that wasn’t done in the state where the enterprise was. In June 2018, The U.S Supreme Court ruled, saying both state and local Governments had the right to collect sales tax from a seller for the transactions made, irrespective of the fact where the seller was located.

After this, new rules for collecting this tax were made (some are still being modified). Hence, it is a very new thing for online sellers. And some businesses were exempt from this tax altogether because they were small and were doing very little interaction. However, the pandemic has changed people’s buying patterns. Many are stocking up on things like toilet paper, among many other things. So, it is likely that it has been raining money on even a small toilet paper enterprise. It is only fair that the company pays their due sales tax to the Government in such a scenario.

Several such small sellers have been making a profit in the pandemic, and it is highly likely that the Federal agents could get into your bank account and collect taxes.

Dynamic tax rules

The tax rules and guidelines are continually changing, especially with new policies being made and modified during the pandemic. It can also be a challenge to keep up with all the changing tax compliances. The most important thing you need to know is that not all businesses have to file sales tax. The selling of a business needs to cross a certain threshold to be eligible to file sales tax.

This monitoring has to be done only by direct sellers who have at least 200 transactions in a year. However, this threshold has been brought down in many areas like Tennessee, Georgia and Arizona since last year, making more and more sellers pay taxes. The appropriate sales tax is automatically added during checkout for sellers on marketplaces like Etsy or eBay and Amazon.

What lies ahead

What these discrepancies have resulted in is a budget deficit. With extra spending on COVID-19 relief schemes, the State reserves are running dry. Therefore, it is expected that the IRS will be focusing more of its attention on this arena, which can fill its reserves with some money.

The Feds have also been overwhelmed due to COVID-19, with much of their attention being diverted to public health issues and trying to stay afloat. It is about time that the IRS will start giving its attention here into this domain and end this deficit. It is speculated that sales tax rules for online selling could be revamped. Those affected due to this would include both direct sellers and sellers on marketplaces. More robust rules would be introduced to increase the profit rather than directly attack small business owners.