What Should Retailers Know About the Changing Sales Tax Landscape?

| By: Erica Mazzucato

Thanks to a Supreme Court ruling in 1992, online retailers have been exempt from collecting sales tax in states where they have no physical presence. But times are changing.  

South Dakota recently won a Supreme Court battle to enforce its Remote Seller Compliance law — meaning online sellers located out of state can now be required to pay taxes on sales made to consumers located in South Dakota. And many other states are about to follow suit. For online retailers, the sales tax landscape is about to radically change.

A bit of background about the case

On June 21, 2018, the Supreme Court of the United States ruled in favor of South Dakota in South Dakota v. Wayfair, Inc. South Dakota claimed that the inability to collect sales tax from online retailers located outside of the state was detrimental and causing “imminent harm to the state.” Part of the argument was that the changing landscape and continued growth of ecommerce could not have been comprehended in 1992 during the first court ruling. Among other things, the state petitioned the court because it was missing out on an estimated $48 to $58 million annually, and it’s brick-and-mortar businesses were being treated unfairly.

What you need to know about South Dakota v. Wayfair ruling

The ruling allows South Dakota to enforce the existing law. Out-of-state sellers will be required to pay taxes if they have more than 200 taxable sales transactions or more than $100,000 in gross revenue in South Dakota in a calendar year.

The industry felt an immediate impact with large online retailers like Wayfair, Amazon, eBay and Etsy experiencing drops in their stock prices. But large retailers aren’t the only ones that will need to make business adjustments. Small- and medium-sized businesses should take heed as well.

What about the other states?

Some states have already created their own economic nexus rules and determined when and how to enforce them. Other states will likely start drafting their own laws in response to the Supreme Court ruling.

What exactly is economic nexus?

When dealing with taxes, a “nexus” refers to the connection between a seller and state. Prior to this ruling, the nexus has primarily been defined as having a physical presence in the state. Through an economic nexus, South Dakota is stating the amount of sales/impact on the economy is as valid of a connection to the state as a brick-and-mortar operation.

When will these changes happen?

The case will be returning to South Dakota court later this summer and litigation could take a few more months. No immediate changes are required at this time, but it’s important to start planning now.

I’m no tax expert. What should I do?

There’s no need to panic. Automated solutions exist to ensure your online sales collect the right sales tax each time. One of our technology partners, Avalara, specializes in ecommerce tax compliance, and will be discussing how the court’s decision paves the way for a new world for sales tax in an upcoming webinar.

Get expert advice and answers to frequently asked questions such as:

  • What does the decision mean for online sellers?
  • How do I know if I’m on the hook for sales tax in South Dakota?
  • How soon should I begin collecting sales tax?
  • How does this ruling affect other states?

Register now and learn what you can do to prepare for the new sales tax rules.

 

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Corra is a digital agency creating transformative commerce experiences for fashion, beauty and lifestyle brands. With headquarters in New York, Los Angeles and London, Corra provides strategically led creative and technology solutions to a growing global market.