4 Things for Online Retailers to Know about the Supreme Court Internet Tax Ruling

The days of “tax free” online shopping are officially coming to an end. The recent Supreme Court decision in South Dakota v. Wayfair Inc. has closed a loophole that was costing states $17.2 billion in lost sales taxes each year. While this is good news for brick-and-mortar retailers and state coffers, e-commerce companies may struggle under this ruling. Here are four things online retailers should consider as they move forward.

#1 This Is Not a New Tax, Just One That Was Hard to Collect

While out-of-state retailers were previously not required to collect state sales tax from their virtual customers, this does not mean no tax was owed. The states simply expected consumers to pay a use tax in lieu of sales tax. Of course, consumers did not fulfill this obligation, and enforcement was virtually impossible. Placing responsibility on remote vendors instead of individual consumers was the logical solution.

#2 There Will Be Expenses Associated with the Ruling

While consumers will be paying the actual sales tax on online purchases, e-commerce companies will face the burdens associated with managing this complex process. Since each state has its own tax code and rates, transactions and purchase amounts must be tracked for each state (and in some cases, for each county or city). Online retailers can expect to invest in new software and integration with existing systems as well as accounting or other professional advice. There is also a time cost associated with compliance. Businesses must adjust their operating processes to include ongoing research to keep up with changing tax codes across the nation.

#3 Small Online Retailers Should Consider the Future

Currently, very small e-commerce businesses are not impacted by the ruling. According to the court’s decision, “The Act applies only to sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State.” However, businesses with an upward growth trajectory for online sales should plan in advance for how they will appropriately collect and report on sales taxes.

#4 With the Ruling in Place, Enforcement May Be Close Behind

While it may be some time before state revenue collection officials begin fining online retailers who do not collect and remit sales tax, no e-commerce company wants to be the first in line to become a cautionary tale. It is possible to take a proactive approach to compliance. Amazon led the charge over a year ago by putting steps in place to collect sales tax in all 45 states that have applicable tax codes. With appropriate legal and tax counsel, online retailers can address their tax liability now rather than waiting for an audit.

While this Supreme Court ruling may come as a disappointment for online retailers, it is simply a sign of how far e-commerce has come and how much opportunity there is for success in this sector. The online marketplace has created incredible opportunity for small businesses to compete on a national and global scale. With the right guidance, it’s possible to tackle regulatory challenges and still thrive. Contact Regina Gordon Law Office to discuss the implications of this new ruling.