June 28, 2018

US Supreme Court Rules That States May Be Able To Collect Sales Tax On e-Commerce

Last week the US Supreme Court ruled that states may be able to collect sales tax from out-of-state vendors on orders shipped to that state. If you have an e-commerce store or sell through an e-commerce platform like Amazon Marketplace or Etsy, this may have a huge impact on you.

Until now, states have not been able to collect sales tax from vendors who do not reside in that state even if the orders are shipped to that state. With this new ruling though, states could start requiring vendors to pay sales tax on all orders shipped to that specific state. To make things a little more confusing, you might even be required to collect state and local city taxes based on those specific tax rates and then report them to the appropriate tax authorities. Does this sound like a huge headache for small businesses – that’s because it could be!

While this ruling undoubtably makes small merchants nervous, there are a few ways this could all pan out. First of all, it’s important to note that the Supreme Court did acknowledge that there’s a difference between internet giants and small micro businesses so perhaps states will recognize that difference as well. For example, there is some talk of setting minimum per-state revenue threshold amounts. If you make less than $XXX in State A then you don’t pay taxes to that state, for example. Whether this would be on a state-by-state or a federally-mandated where all states have the same threshold amount remains to be seen.

Another potential way this could pan out is that this does provide a tremendous opportunity to a third-party company. Ideally one that could help you determine appropriate sales tax and file the taxes for you. Someone has got to be able to figure out a way to automate all of that for small businesses – ideally with a small business price tag attached.

Lastly, I can also see this playing out by creating more big internet retailers (or an expansion of the ones we currently have). For example, if you could set up your own online store or you can work with an Amazon who will also help collect and file all your taxes for you which would you rather do? By all means though, consolidating the power of large internet retailers and minimizing smaller retailers could be very dangerous in the long-term.

So how will this all play out? It’s yet to be determined but it will, without a doubt, impact how small businesses sell products online.

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