Doing business online in Georgia? New sales tax law may impact you

The governor of Georgia recently signed into law a bill that will make Georgia the tenth state in the country to charge sales or use tax on online purchases. Currently Georgia does not require most vendors to collect sales tax on tangible personal property or services sold via the internet. Twenty-five years ago, the Supreme Court ruled that sales tax could only be collected by a state if the business selling goods had a physical presence within that state. Of course, this was before the boom of the Amazon era and the multi-billion dollar e-commerce revolution. This year the Supreme Court is hearing a case challenging this generation old ruling, which could allow states to start collecting some form of sales tax for online transactions. In preparation for the anticipated June ruling, the governor signed this law to ensure Georgia won’t miss out on an additional $500-600 million in annual tax revenue.

Under the new law, beginning January 1, 2019, online retailers meeting specific thresholds will be required to charge a 4% sales tax at the time of sale (“sales tax”) or not charge at the time of sale and notify customers how much tax is owed to the state at the end of the year for total goods purchased from them during the year (“use tax”). To avoid placing an undue burden on small businesses the law only requires online retailers with at least $250,000 in sales or 200 individual transactions in the state of Georgia to comply with the new law. These businesses will be required to collect and remit sales tax to the state similar to brick and mortar businesses or send “tax due” notices to customers who purchase more than $500 during the year. Once the tax due notices are sent to customers and the state, the burden of payment is on the customer.  

Georgia law defines tangible personal property as “personal property that can be seen, weighed, measured, felt, or touched or that is in any other manner perceptible to the senses. Tangible personal property includes electricity, water, gas, steam, and prewritten computer software. Tangible personal property does not mean stocks, bonds, notes, insurance, or other obligations or securities.” While this is straight forward for sellers of physical goods, there are many products sold that need further clarification on sales and use tax requirements such as music, films, and services with a physical component as part of the online purchase.

While several questions have yet to be specifically addressed by the Department of Revenue, compliance should be taken seriously by businesses. The new law includes penalties for all violations of not sending the tax due notices to customers and the state. These penalties could easily become material if a business were to not comply with these new requirements, as the penalties range from $5 to $25 per customer depending on the level of compliance. As an example, if a business were to totally disregard the requirements and not send the tax due notices to the state and their 1,000 customers who spent more than $500, they would be on the hook for $25,000 in penalties. 

If you think this law could impact your business or you have questions regarding your business’ readiness to comply with this law contact the CPAs at Geeslin Group LLC.