The latest ruling by the U.S. Supreme Court has many implications on online e-commerce and its future in the online retail world and the economy. The new ruling has declared that even if an online retailer does not have a physical store in the state, it would still have to pay internet sales tax through its customers.
This issue arose on the basis of the fact that the state suffered glaring economic losses of up to $33 billion while it gave an unfair advantage to the big online retailers who operated as an out-of-state seller.
Where It All Began…
The landmark case of South Dakota vs. Wayfair brought the change in the internet sales tax law and was initiated by South Dakota in a bid to make online retailers obey their new sales tax law. The ruling stated that even if a company does not have its physical presence in the state, it is still bound to collect internet sales tax from its customers and pay to the state where it operates through online selling.
Previously it was required that the online seller had to have a physical presence in the state before it could be subjected to pay sales tax through its customers and was as a result of the ruling in the 1992 case, Quill vs. North Dakota.
South Dakota vs. Wayfair paved the way to overrule and invalidate the previous ruling made in Quill Corporation vs. North Dakota as it was proved that there is indeed a nexus with the state even if the transaction is made online.
It also ensured that the taxes were fair and nondiscriminatory as previously, through the ruling in Quill vs. North Dakota, online retailers had an arbitrary advantage over physical stores as they did not have to charge their customer’s sales tax and pay to the government.
The ruling has mentioned that the Quill case has distorted the marker rather than resolving it as it was not aware of the realities of the online eCommerce market and its far-reaching prevalence.
This new law required online retailers to pay sales tax even if they did not have a physical store in the state. In the latest case, the bench of judges was divided 5-4 when they passed the ruling.
South Dakota had in the original lawsuit sued Wayfair, Newegg and Overstock, who are three big players in the online market.
The new ruling exempts small businesses from the sales tax if they have less than 200 customers or makes sales that do not exceed $100,000. This rule offers such small sellers’ protection from undue burden from the new sales tax ruling.
How Will e-Commerce Store Owners Be Affected?
- Retailers may find it difficult to correctly calculate and remit sales taxes on all e-commerce sales. Over 10,000 jurisdictions levy sales taxes, each with different tax rates, different rules governing tax-exempt goods and services, different product category definitions, and different standards for determining whether an out-of-state seller has a subtial price in the jurisdiction.
- Small retailers, such as Amazon re-sellers, will need to bear the heavy costs of new technology imply with the new sales tax rules.
- Companies like Amazon will have tep an eye on how each state handles sales tax legislation and whether they will have to collect the funds behalf of third-party sellers.
- It is impot to note, though, that the South Dakota law requires a merchant to collect the tax only if it does a considerable amount of business in the State.
- For small online retailers already burdened with the challenges of running their businesses, this just adds to the complexity. They need to find and evaluate a solution for this. Thankfully, there are a few available in the marketplace.
The new ruling has impacted not only small businesses but also other states that are now looking at making a rule similar to South Dakota’s bill.
It also prevents the state from suffering revenue losses and thereby allows them to enforce a tax from which they can also benefit from online eCommerce. These benefits can further help South Dakota and other states in their healthcare, infrastructure and education plans.
It is believed that the new ruling is more relevant and consistent with the present times when the dynamics of online retail and commerce has shifted as it has emerged as a major segment in the economy. It is clear that online retailers are a part of the future — and now, the states will be able to reap some benefits!
Having further questions or want to implement new tax modules in your eCommerce website? Talk to our certified experts! Call (888) 478-4799