For nearly 20 years, online retailers haven’t had to collect sales tax from all of their customers. That may be changing as a result of South Dakota vs. Wayfair, Inc. The Supreme Court ruled that Wayfair was responsible for collecting sales tax from South Dakota residents, even though Wayfair doesn’t have a physical presence in the state. This decision overrules a nearly 20-year-old decision, North Dakota vs. Quill, which had established the precedent that left many online vendors free from the need to collect and pay sales tax from all of their customers.
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What’s important to know about this decision: currently, this ruling applies only to South Dakota, which has a single sales tax rate and does not impose taxes retroactively on previous purchases. However, there are more than 12,000 taxing authorities within the United States, and they don’t all have the same rules. It’s likely that at least some taxing authorities will move to collect sales tax from online vendors, and this will impact your business.
Unfortunately, there’s no one size fits all approach to sales tax. Each taxing authorities has its own rules regarding what can be taxed, and at what rate. Some taxing authorities allow for retroactive taxation while others do not. It’s important to pay attention to this situation as it develops, so you can ensure that you’re in compliance with the law. There’s no doubt that addressing the sales tax issue will add a layer of difficulty to the online retailer’s life. However, there are some steps you can take now to make life easier for yourself later:
Many retailers don’t realize that they pay one of the highest effective tax rates in the nation. The National Retail Federation has been the industry’s advocate for tax reform and strives to keep all retailers informed of the latest news. An easy way to stay informed is to follow the National Retail Federation on Twitter @NRFNews The National Retail Federation also has a number of newsletters, some of which are members-only and some that are available to anyone. You can find out more information about them here: https://nrf.com/connect/newsletters
Ensure You Have the Right E-commerce Systems in Place
We know that South Dakota will require online vendors to collect sales tax (once certain sales thresholds are reached) and it is a reasonable assumption that other states and taxing authorities will do the same. It is a good idea to make sure your e-commerce platform is equipped with the relevant tax tables and tools to allow you to remain in compliance with the law. Shopify does, as does our own proprietary e-commerce platform, Stella. That way, when you’re required to begin collecting sales tax, you’ll be able to do so quickly and efficiently.