By Synnove Vandal
As of 2018, state sales taxes are collected on just half of ecommerce sales, according to The Tax Foundation. But the Supreme Court’s landmark South Dakota v. Wayfair decision in June is likely to change this number drastically.
For the last 50 years, internet sellers only had to collect sales tax from buyers if the company had property or employees in the state of sale.
The court’s ruling doesn’t require ecommerce companies to start collecting sales tax. But it allows individual states to put such a mandate in place.
Prior to this decision, many ecommerce sites could operate without worrying about complex sales taxes. Now, online sellers will have to figure out how to comply with individual sales tax requirements.
Factors influencing the overruling of the 1992 Quill case
Internet purchases weren’t actually exempt from taxation prior to the June ruling. In fact, consumers have always been required to pay taxes to their resident state on purchases where they didn’t pay sales tax.
In the 1992 Quill case, the Supreme Court reaffirmed a previous ruling disallowing states to require sales tax from out-of-state sellers.
Initially intended to reduce burdens on interstate commerce, the ruling allowed online-only retailers to operate at an advantage over local retailers. This led to the South Dakota v. Wayfair decision this past June.
Several other factors that influenced the court’s June decision include:
- Growth of eCommerce – ecommerce has grown tremendously from 1992 to 2018. Many ecommerce sellers aren’t collecting sales tax despite widespread directed sales and activity in a state.
- Technological advances – new platforms have lowered the cost of collecting sales tax.
- Ineffective physical presence rule – 31 states already required tax collection with minimal physical presence prior to the ruling.
How can ecommerce sellers comply with new laws?
Now that states have the legal right to dictate if ecommerce companies must abide by state tax laws, ecommerce sellers must remain abreast of the individual laws.
There are more than 15,000 taxing jurisdictions in the U.S. Understanding the complex tax laws is no easy task, even for large ecommerce sellers.
Technology has luckily reached a point where online retailers don’t have to figure out individual laws themselves. Consider using sales tax software to assist with this transition. Why stress about tax compliance when you can automate it?
For example, Avalara helps more than 20,000 companies globally with tax compliance. Avalara integrates with your existing systems and automatically makes sales tax decisions on every purchase. Learn more about how Avalara works in this YouTube video.
Regardless of how you choose to comply, start working towards a solution now. Don’t wait until individual localities begin imposing taxes.
Follow the link below for more information on the supreme court’s decision.
Online Sellers Stumped over Sales Tax Collection – Ina Steiner, eCommerceBytes.com
Synnove Vandal is a Client Manager at InTouch Manufacturing Services, a QC firm that performs product inspections and factory audits in Asia for clients in the US, EU and Australia.