Perhaps you’ve heard that the Supreme Court recently ruled that online retailers must pay sales tax. It all started when the State of South Dakota sued online retailers Wayfair, Overstock.com, and Newegg. The state’s lawyers claimed the companies were in violation of a law requiring out-of-state ecommerce businesses that generate more than $100,000 in sales or process more than 200 transactions each year with South Dakota residents to collect sales tax and send it to the state.
Interestingly enough, the Supreme Court had already ruled on a similar issue back in 1992. In that case, Quill v. North Dakota, it was decided that you couldn’t force a retailer to collect sales tax if they didn’t have physical presence in your state.
But as e-commerce continues to grow and states miss out on hundreds of millions of dollars in taxes, the Supreme Court made the unusual move of overturning one of its own rulings. Thus, South Dakota v. Wayfair drove a proverbial nail in the coffin for the days when online businesses considered taxes passé.
The reaction to the ruling from the business world has been divided. For small business owners with brick-and-mortar stores, it was widely seen as a fair move that would help level the playing field. After all, many online retailers haven’t been charging sales tax and that gives them a noticeable advantage over those who are required to do so because of their physical location in a given state.
But things aren’t quite as rosy for small business owners with online operations. First, they’ll have to decipher the complexities of city, county, and state sales taxes so they can properly charge customers. Then they’ll need to set up systems to make sure it happens properly every time. Many businesses will probably end up hiring a third-party service that can automate the process for them.
The new ruling will also make things tougher for up-and-coming online businesses. After all, they’ll start in this era of mandatory sales tax, while competitors like Amazon and Walmart operated for years without charging it and were able to capture substantial market share because of that crucial advantage.
To be clear, the charging of sales tax won’t mean any money is coming directly from the pockets of online retailers. Rather, it’ll be added to the price of their products, possibly making them less attractive to customers.
According to some experts, this won’t be too big of a problem.
“At this point people are really making their purchasing decisions based much more on convenience,” retail analyst Bob Hetu told USA TODAY. “I don’t think they’re making decisions on sales taxes.”
It should also be noted that this Supreme Court ruling isn’t coming out of nowhere. More than 30 states already have laws on the books which require sales tax for online purchases. The thing is, those laws vary wildly. Whether or not this ruling will bring uniformity and clarity to the situation is yet to be seen.