Background: Online Sales Tax – Then and Now
We all know that online businesses have had it good for years. They have never been forced to pay sales tax… until now. This was due to a Supreme Court decision in 1992 (Quill Corp. v North Dakota) that declared, “a retailer isn’t required to collect and remit sales tax to a state unless it has a physical presence in that state.”
For decades it has been criticized by states, they have argued (quite correctly) that a physical presence isn’t necessary for a considerable impact on the state. This came to a head in 2016 when South Dakota declared a fiscal emergency based on its inability to collect sales tax from remote sellers.
South Dakota estimated they were losing $48-58 billion per year due to the lack of sales tax from online purchases. In a case against Wayfair (a large online seller) the Supreme Court ruled “the physcial presence standard in Quill was ‘unsound and not correct’.”
What This Means For You (Or Your Online Business)
The ruling against Wayfair requires out-of-state sellers to collect and remit sales tax as if they had a physical presence in the state. This applies if they (1) deliver more than $100,000 of goods or services into the state or (2) engage in 200 more more separate transactions for the delivery of goods or services into the state.
If you shop online frequently, you should expect a slight bump in prices due to this ruling. If you own an online retail operation, you should expect things to get more expensive and complex. It is likely, as a result of this decision, the regulation within each state for its online sales tax is going to be changing. It is unlikely they will all change in the same way.
This law could even be applied retroactively (meaning you may have to pay on past sales tax you didn’t have to due to the Quill decision) depending on the state. Wayfair may also impact other state taxes, such as corporate income taxes.
This makes it a more important time than ever to ensure you have a great accounting staff to make sure you are up to speed and compliant with these new regulations. That’s what we do, and we’re here to serve you!
Cash Tax and Accounting
9590 N McGee Street
Kansas City, MO 64155