A Connecticut sales tax law that may require marketplaces to collect and submit sales tax on purchases made by Connecticut buyers may have created a lot of confusion.
Like many states, Connecticut has a use tax that requires residents of the state to submit 6.35 percent tax on purchases made out of state.
And just like any other state that that his this law, most residents don’t follow it because enforcement is extremely difficult.
Last year the Connecticut Department of Revenue Services sent out a letter to major online retailers asking them to collect sale tax on orders shipped to Connecticut addresses or turn over sales records so the state could track down buyers that had not submitted the required use tax.
“We realize now it wasn’t the best way to do right by our customers,” the company wrote in an email to Connecticut customers that was shared with The Hartford Courant.
Newegg further stated it was working with the state behind the scenes to meet the tax obligation and said to customers: “If you received a notice dated prior to March 19 and have yet to pay the taxes, we recommend that you talk to us before paying the tax.”
The state had sent out letters last month to Newegg customers stating they owed tax monies on purchases as far back as three years.
Obviously, Newegg customers were not amused, and Newegg had to admit “We know many of you are upset with how this situation has been handled.”
Part of the confusion appears to be that the marketplace thought that Connecticut was not going to send out those notices as it was working with the state on a solution.
In the email to customers, it suggested it would work with customers that already paid the tax bill to obtain a refund.
Supreme Court Clarity and Federal Legislation
This is just another example of why it is necessary for the Supreme Court to provide some clarity to this situation with the upcoming South Dakota v. Wayfair case.
Regardless of the position one may have on interstate sales tax collection, the system must be fixed.
Working around 45 different state sale tax collectors, mostly responsible for about 10,000 different taxing districts, making up different rules from state to state is not a long-term sustainable and fair system.
eBay recently called a victory for small businesses because it managed with the help of 85,000 plus letters from its users to keep an what it considered a harmful tax legislation out of the U.S. budget must-pass spending bill.
However, more problems are brewing as counties, cities, and communities that make up the vast majority of the taxing districts are often left out of taxes collected by online retailers.
The bottom line is that eBay’s victory was good. There was no need to include this language until the U.S. Supreme Court offers its decision, likely to be sometime in June.
If the U.S. Supreme Court effectively overturns Quill, then hopefully there will be a concerted effort by states to come up with a singular solution and policy. But that might be a pipe dream without Washington’s help.
However, if the Supreme Court validates Quill, then states must find different ways to replace the “lost” sales tax income. And it could lead to resurrecting Congressional legislation on the issue.
One way or another, there must be clarity for online retailers so that these type of confusing situations, like the Newegg one, are not repeated.
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