What does the US Supreme Court ruling on State Sales Tax mean for you?

What does the US Supreme Court ruling on State Sales Tax mean for you?

Wednesday, June 27, 2018Lauren Macdonald


If you sell exclusively online with no physical in-store locations, up until now you may not have been collecting state sales tax, which in some cases may have made your online goods appear cheaper than some of your competition.

However, things are about to change for merchants that have previously been in this position.

In a US Supreme Court ruling last week, a 1992 precedent that had barred states from requiring businesses with no “physical presence” in the state (such as out-of-state online retailers), to collect sales taxes, has now been overturned.  Can you guess why?  Yes – the online commerce tidal wave.

But what does all this mean for you?

If you’re a brick-and-mortar retailer, this is great news as it effectively removes a competitive advantage that some eCommerce companies had over brick-and-mortar rivals that had already been forced to collect sales tax. You’ll likely find that this ruling will level the playing field.

If you’re an online retailer that also has physical presence in various states, you’ve likely already been collecting sales tax. For example, many large online sellers with warehouse distribution centers across the United States, have already been forced to collect sales tax based on the 1992 ruling.

As far as Amazon sellers go, Amazon itself has stated that it does collect state taxes on its online sales. But, levies on sales from its online marketplace, where third parties offer goods, have previously been collected at the seller’s discretion. This means that Amazon itself could benefit from this new ruling, since they may be able to sell more of their own items directly, if the new state sales tax requirement does end up hurting the marketplace sellers.

Arguably the sellers who will be most impacted by the Supreme Court’s recent ruling, will be the smaller companies who sell online. These sellers are the ones that have likely succeeded, up until now, by beating their larger competition in price since they’ve avoided collecting state sales taxes. It’s also likely that these small companies will lack the staff required to follow the rule across thousands of U.S. tax jurisdictions.  An added burden will be managing these new tax regulations. Avalara, tax compliance experts in the eCommerce space, went public earlier this month.   

How will states respond to this ruling?

The Supreme Court ruling will also most likely create more legal questions to follow, since states may begin passing their own statutes with the goal of raising revenue from online retailers. Some may even try to collect levies from previous years, which could be especially damaging for companies with smaller revenues.

The ruling could also spur Congress to pass a law setting a federal standard for which companies must collect the tax.

As reported in The Globe and Mail, states such as South Dakota that depend heavily on sales taxes for their revenue are likely to benefit most, with a predicted maximum revenue increase of around 3 per cent, according to a Barclays research note. Also in South Dakota, a very public victory for brick and mortar shops against Wayfair, explained by the New York Times.
 

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Have more questions about the recent Supreme Court ruling on state sales tax? Reach out anytime: marketing@ebridgeconnections.com