SP Tax Reporting Notice - CO & WA

Please correct me if I'm misunderstanding your question, at the core of the Supreme Court case is the question 'when a sale occures on-line, via mail-order, or on the phone where did the transaction take place'? This is pertinent for tax reasons not only because different states can have different tax rates and conditions for sales (e.g. age or quantity restrictions) but because states only collect when the sale takes place within its borders (i.e. South Carolina does not collect sales tax on SP products purchased out of state). In 1992 the Supreme Court found that for tax purposes, whilst sales occur where the buyer takes hold of the product, states were unable to force companies without a physical presence in the state to withhold, self report, and pay taxes to the state.

Companies normally withhold taxes on behalf of states, self report them, and pay them. Without any leverage for state's to punish companies without a physical presence in their state, state's passed laws forcing consumers to withold, declare, and pay taxes on goods bought via mail-order or on-line. State's quickly figured out that consumers were not likely to declare and pay on their own and without companies providing data on purchases and purchasers there was no effective way for the state to collect these taxes. States have now gone further still by threatening to seize goods that enter the state through the mail claiming that prior to customers claiming them, that they are the out of state companies' property (which can always be seized for failure to pay back taxes accumulated from prior sales that went undeclared).

This has the potential to mess up mail services and interstate commerce bringing it once again to the attention of the Supreme Court. The issue before the Court has to do with whether existing law allows states (e.g. South Dakota) to force out of state companies to withhold, self report, and pay sales tax on purchases made from the state (e.g. South Dakota) given that shipped goods are in fact an out of state company's property. For tobacco users, the fear is that the Supreme Court could find that existing law grants states the right not just to demand that sales tax be whithheld, self reported, and paid but to also include all duties including those placed on tobacco products! Some companies like Amazon have been independently complying with states' demands on sales taxes for a couple of years now due not just to fears that their shipped goods could be seized but that the Supreme Court may decide that back taxes could be owed going back several years.

In short the Colorado Revenue Office isn't interfering with South Carolina's business practices, it's claiming that Smoking Pipes is conducting business within Colorado and is failing to withhold, report, and pay taxes on its in state business.