On Thursday, June 21, 2018, the Supreme Court gave states the green light to have online retailers collect sales tax, just like any brick and mortar retailer. What does this mean for e-commerce sellers? Considering that there are over 10,000 jurisdictions in the US levying a sales tax, it could be a nightmare for small sellers.
The largest online retailer, Amazon, has already been collecting sales tax on their first party sales in the 45 states that require sales tax. That accounts for about 50% of all of Amazon.com sales. The other 50% of sales come from smaller third-party sellers. Amazon already has a system to collect and report the sales tax for these third-party sellers. So it will be up to the sellers to file for a Tax ID in every state and submit tax in every state for their Amazon sales.
If that is not burdensome enough, what about the other sites that sellers list their products that do not have such detailed reporting such as Walmart.com, Jet.com, eBay, and Rakuten. This could become a logistical nightmare for smaller online brands.
Before the supreme court decision, e-commerce retailers only needed to file sales tax in states where they had tax Nexxus, a physical presence such as an office or warehouse. What the ruling essentially says is that now you have to file where you have sales Nexxus. In South Dakota, which is the state that brought the suit against Wayfair, they have a minimum of $100,000 or 200 sales before a seller needs to file sales tax.
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This new ruling is not going to take effect overnight. Everyone, including the states, needs an adjustment period.
The e-commerce industry is asking Congress to act to streamline the process so that smaller companies can put in the necessary procedures.
Software and applications exist to help sellers and eCommerce sites collect, report and submit sales tax. Taxify, Avalara, and several others will link up to your Amazon seller account and your e-commerce shopping cart to track, report and submit your sales tax.
“Retailers have been waiting for this day for more than two decades,” National Retail Federation president and CEO Matthew Shay said in a statement Thursday. “The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well. This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules, whether they sell merchandise online, in-store or both.”
Leveling The Playing Field
Undoubtedly, this action levels the playing field for brick and mortar retailers and e-commerce sellers. However, most eCommerce sellers do not have the sophisticated tracking and reporting systems required to submit sales tax in all of the states that require it.
My advice to e-commerce sellers is simple. Don’t panic. Check with your tax accountant and determine the best course of action before this becomes final. Next, look at the states individually and decide which ones you are at risk for. For example, states have different barriers before sales tax kicks in. It may be $1,000 in online sales, or it may be 1,000 orders. So the smaller e-commerce sellers may not be affected. Next, find a system that will help you file and report your sales tax.
As e-commerce and Amazon sellers, we knew this day would come. What should happen is that Congress should step in and create a logical process for collecting sales tax. This, along with a smooth and consistent tax rate would make it much easier for the e-commerce sellers to manage the process.
What the country does not need are a bunch of casualties from not paying sales tax, causing small sellers to shut down. This country is built on the smaller companies, and that hurts everyone.
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