Are you a seller on any e-commerce platform? Heard the US Supreme Court verdict on South Dakota vs. Wayfair Inc? What do you think about it? Surprised? Want to know what exactly is happening?
If yes, then this article is for you.
As an ecommerce service provider, here are our insights into the new US online tax regulation.
Take a look,
Online shopping has many advantages. In the recent past, people across the globe are keen on online shopping. Ecommerce promises a relatively low price, an array of product choices and the convenience of buy from home and door-delivery facility. Besides, online shopping has an added benefit, i.e., most of those sales are, tax-free. An Exemption from tax resulted in low pricing for the online product, a competition for offline stores and loss of revenue for the state.
Since inception, online stores enjoyed tax- exemption. The State, Brick and mortar stores were always against this privilege enjoyed by online stores. As a result, the North Dakota Office of State Tax Commissioner filed a case against Quill Corporation demanding the tax collection on products shipped into the state.
In 1992, the court when considering Quill Corporation v. North Dakota case announced that the Constitution denies the rights of the countries from collecting sales tax unless they have a physical presence in the State. This rule helped online retailers a lot. Offline store owners and the State was not happy about the tax exemption is given for online retailers. Though the court ruling was against the states, since then arguments were on demanding sales tax collection from online retailers.
The New Regulation on Online Sales tax
Again, in March 2016, the Supreme Court case of South Dakota vs. Wayfair Inc was filed. This case was all about state’s requirement to collect sales tax for ecommerce purchases. South Dakota pointed out the growth in e-commerce revenue and argued, that the world is witnessing digital revolution and E-commerce has gathered the momentum. Every buyer and seller is using the ecommerce possibilities, and online shopping became the trend of customer behavior, resulting in the growth of ecommerce markets at an impressive speed. The state further explained that when internet retailers are exempted from tax payment, the State lose billions of dollars, as revenue.
After analyzing various aspects, On June 21, 2018, the court passed the verdict on South Dakota vs. Wayfair Inc case by rejecting its earlier decisions on Commercial Clause passed for Quill Corporation v. North Dakota case. The court denied the clause defined in the Quill Corporation v. North Dakota lawsuit, that a state has no “substantial nexus” with a merchant who doesn’t have any “physical presence” in the said state.
In a nutshell, the latest ruling says that South Dakota can collect taxes from online businesses even if they don’t have a physical presence in the state, but has a sales worth $100,000 or 200 transactions within the state.
So, does this rule have an impact on online shopping?
The rejection of the previous rule opens the door for state government to levy a wide range of duties which includes the excise duty and sales tax. Anymore, with the implementation of this rule, online sales must create a “substantial nexus” even though the platform lacks a “physical presence” in the State. Though the majority of the online sales carried out by bigger retailers like amazon.com already collect sales tax, most of the retailers who don’t own a physical store carryout transactions without tax collection. However, they are going to lose this advantage, “tax-free” with this new regulation.
See, how this rule affects retailers
Though most of the regular online consumers are already paying sales tax for online transactions, this law could potentially affect smaller online retailers. The Inclusion of online sales tax may affect different business elements and will change the business scenario to some extent. Possibilities are there that with the implementation of this new rule, online stores will not be able to compete with brick & mortar stores in pricing and convenient/ secure shopping transactions. Even though these factors are correct in many cases, larger retailers like Amazon and Walmart doesn’t have to worry. The big retailers already include sales tax for the items they sell. But small re-sellers will have to worry about “logistics” required for transaction tracking and tax collection. Because most startups or small retailers cannot afford the software or human resources to track the entire sales and tax details. And, this is going to be a herculean task for them. So it is evident that most of the customers are paying sales tax and they will not be worried about the amendment. Though customers don’t have to be concerned about tax payment, this state tax codes still has some effect on buyers. Retailers have to do business differently!
Let us see, how this rule affects buyers
The consumer is liable to pay taxes on all purchases they make, and that is not a worry for those who already pay taxes. Customers depend on ecommerce stores because of various advantages including convenience, 24-7 customer care availability, a wide range of selection, quick and flexible shipping facility, and mobile optimization, etc. But, if a retailer doesn’t pay tax for the said product, then Consumer should make the payment. The consumer should check whether the tax is included for the product if not should calculate the tax amount and remit it to the state department of revenue. This demand is going to be an unreasonable burden for people. Apart from these issues, the adverse impact on consumers includes fewer product choices, inability to purchase items of immediate requirement, high rate etc.
According to experts, this new verdict won’t affect buyer’ behavior as the decision on buying depends on convenience. Online sellers, especially smaller retailers should understand the proceedings of tax payment, if not they will be affected severely.
Are you worried about tax filing and payment? Wish to know how to organize transactions and tax payment? Need no worries. Virtina is happy to assist you.
We can help you with integrating automated sales tax filing apps for your store.