Online businesses continue to face changing tax collection policies as federal and state governments adjust to the growing digital economy. Lawmakers have introduced new regulations to ensure that online retailers, service providers, and digital platforms meet tax obligations. Understanding these updates is essential for businesses to stay compliant and avoid penalties.

Expanding state sales tax requirements in New York

New York requires online businesses to collect and remit sales tax if they meet specific economic nexus thresholds. Following the 2018 Supreme Court ruling in South Dakota v. Wayfair, Inc., New York enacted regulations requiring remote sellers and marketplace facilitators to collect sales tax if they generate more than $500,000 in gross revenue and conduct more than 100 transactions in the state within a year. Businesses operating in New York must comply with these laws to avoid penalties and ensure proper tax reporting.

Increased IRS focus on digital transactions

The Internal Revenue Service (IRS) has increased oversight of digital transactions to ensure businesses report online sales and revenue accurately. Payment platforms such as PayPal, Venmo, and Stripe must report payments exceeding $600 per year to the IRS. This policy change, which lowers the previous $20,000 threshold, aims to improve tax compliance among gig workers, freelancers, and e-commerce sellers.

Marketplace facilitator laws

New York has enacted marketplace facilitator laws that require online marketplaces such as Amazon, eBay, and Etsy to collect and remit sales tax on behalf of third-party sellers. Under these laws, marketplace facilitators must ensure compliance with New York’s tax regulations, even if the individual sellers do not have a physical presence in the state. These laws simplify tax collection for small businesses but also introduce compliance requirements for online platforms operating within New York.

Compliance challenges and business impact

Online businesses must stay informed about changing tax laws to remain compliant. Failure to collect and remit taxes correctly can result in audits, fines, and legal consequences. Many companies now use automated tax software to navigate multi-state tax obligations efficiently.

As e-commerce continues to grow, tax policies will likely evolve further. Businesses should monitor legislative updates to adapt to new tax collection requirements. Staying proactive ensures compliance and reduces financial risks associated with tax liabilities.