Australia: Australian retailers face significant implications arising from US Senate’s decision to charge tax on online purchases

Last Updated: 11 July 2013

By Simon Scalzo

Selling online into America could become significantly more complex for Australian retailers following the passing of a bill earlier this month which gives the states of America the power to collect sales taxes from out-of-state retailers (as currently, the US only collects from operations within each state's borders). The bill has passed through the US Senate but does face a second test in the US House of Representatives, however, in a bid to protect traditional bricks-and-mortar retailers the US state governments have a clear mandate on making this bill a reality.

In Australia, online purchases under $1,000 do not pay GST. This American bill, however, has no minimum purchase limit, provided online retailers have a turnover of more than $1?million in the US.

In addition to the tax, the level of administrative complexity for Australian online retailers with operations in the US will increase significantly as each US state has different tax laws. This will mean online retailers will need to know the city and state where each of their US customers reside so that customers are levied with the correct amount of tax for their specific situation, otherwise retailers risk paying the tax themselves. The US landscape is currently made up of 50 different state tax regimes, with roughly 7,700 separate imposts underlying them, presenting a highly complex tracking process.

Under the current bill, states will be required to provide merchants with free software to help online sellers calculate sales taxes, and they will also need to designate a single office within each state to handle all out-of-state tax collections so that retailers don't have to remit to individual counties or cities.

This sounds fine in theory, but in reality this is a highly unworkable solution and will result in large compliance costs for retailers.

With this new tax looming on the horizon a lot of Australian retailers who were keen to move into the US due to its larger sized market and lower costs of doing business will see this as a significant hurdle.

This may only be the tip of the iceberg as governments both at home and abroad are re-examining their tax base and looking for means to generate greater receipts, as revenue bases are falling.

Please note, our advice outlined above is general in nature and does not take into account individual circumstances and is current at the time of writing.

BDO refers to one or more of the independent member firms of BDO International Ltd, a UK company limited by guarantee. Each BDO member firm in Australia is a separate legal entity and has no liability for another entity's acts and omissions. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. BDO is the brand name for the BDO network and for each of the BDO member firms. © 2013 BDO Australia Ltd. All rights reserved.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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