If you sell anything online, the new Supreme Court sales tax ruling needs your attention.
On June 21, the US Supreme Court ruled that states may collect sales taxes from out-of-state online retailers.
What that means is that if you sell an item from your website to an out-of-state buyer, you are responsible for paying whatever sales tax that state (or city or county) requires.
The ruling upheld a South Dakota that out-of-state online seller must pay sales tax if they sell over $100,000 in sales or more than 200 transactions in a year.
At first glance, over $100,000 looks like “big ecommerce retailers,” and you might think of Amazon and Walmart. But Amazon and Walmart already pay sales taxes nationwide.
The businesses that will be most affected are small to medium businesses, because the costs of compliance may be very high.
What the Supreme Court Sales Tax Ruling Means to You
The Supreme Court sales tax ruling means that you pay sales taxes to the purchaser’s jurisdiction. Don’t be overly comforted by South Dakota’s $100K and 200-transaction floor. That could change at any time, and other jurisdictions can set the floor to zero if they want.
The number of US jurisdictions is not just the 47 states that charge sales tax (Oregon, Delaware, and New Hampshire don’t sales taxes). Alaska and Montana don’t charge state sales tax, but their cities and counties may charge their own sales taxes. Some states, such as Louisiana have both state and local sales taxes, with different rates across the state.
That means that the number of taxing jurisdictions may be 10,000 or more, says USA Today. [Sales tax on internet purchases: States, retailers reach Supreme Court]
Online retailers face two hits to their income. The first is the tax itself, which is easy enough to pass on to the client or customer.
The bigger — and for now hard to calculate — hit from the Supreme Court sales tax ruling is compliance.
Not only are the tax rates different from jurisdiction to jurisdiction, even within the same state, but there are differences in what is taxed and how much.
“Court papers filed by eBay and retailers who use the service cite several examples: Minnesota taxes blankets, but not baby receiving blankets. Texas taxes deodorant, but not antiperspirant. Illinois taxes Snickers bars as candy but Twix bars as food,” says Richard Wolf of USA Today.
I sell services (writing web work for companies) and at first assumed that this ruling doesn’t apply to me.
Instead, again, it depends on the jurisdiction. The trend is toward taxing services. In 2014, Washington, DC, implemented a yoga tax, and in Hawaii, New Mexico, and South Dakota, all services are subject to sales tax, says Jean Murray in What Products and Services are Subject to Sales Tax?.
“Other states have only taxed certain types of services. As the service industry continues to grow, look for more services to be taxed,” says Mark Faggiano at Tax Jar, a company that helps businesses comply with sales taxes.
On top of all that, it’s up to the online seller to keep up with all tax law changes and file with all the relevant jurisdictions, according to their rules.
What to Do
I’m not a tax expert, and I’m just learning about this myself. If you sell only in Oregon, where I live, you’re fine for the time being, because we don’t have sales tax, and the voters seem to hate the idea of it.
If you sell outside your state or jurisdiction, the clock is ticking.
Talk to your tax accountant or business lawyer about your options.
There are services that handle sales taxes for you. The price differs depending on your sales tax needs, so you’ll need to talk to a representative about what your business entails. Amazon has a list of these services on its website.
Here are some articles for further information:
- Supreme Court ruling lets states collect sales tax from online purchases
- Supreme court rules states can collect sales tax from online retailers
- Supreme Court decision to allow more online sales tax worries small business groups
- Why the Supreme Court Sales Tax Ruling May Benefit Amazon
- Supreme Court online sales tax ruling: What businesses need to know
- States, online sellers bring sales tax fight to Supreme Court in case that could affect millions
- Here’s what that Supreme Court sales tax decision means for you
- New tax rules mean many smaller businesses may move to Amazon
- Supreme Court online tax decision sends smaller businesses reeling