With the final verdict coming down in South Dakota vs. Wayfair, it’s time to start preparing for a change in the sales tax world.
On June 21st, 2018, the Supreme Court handed down a verdict that many of us predicted. With the rise of online shopping, this change was almost inevitable. The Supreme Court sided with the state that a physical presence does not need to be present in order for a state to mandate a seller to collect and remit sales tax. What does that mean for small businesses? It means it’s time to understand the impact this will have on your business.
If you are an Amazon Seller Central company, an Etsy seller, an Ebay seller or even sell goods from your website, you could not be subject to sales tax in every state you sell/ship goods. Under the old rules, you were only required to collect and remit sales tax in those states where you actually had a physical presence. This could mean inventory held, a storefront, a salesperson, etc. Now, states can base their requirements on shipping/sales into their state whether a physical presence is there or not.
If you own a retail business, contact your accountant now and start a plan. We recommend that you make a sales tax matrix for the sales tax compliance rules. This matrix should list the states in which you do business and what their sales tax laws are. Many states have new requirements for online sellers that begin in the next few months. The matrix should help you determine where you need to focus, get registered, and set yourself up to start collecting sales tax in these states. Be aware! This matrix will likely be changing frequently in the next several months as states analyze this decision and make changes to their own laws.
For those who sell on Amazon, Amazon collects and remits taxes for you in some states already (WA and PA). Amazon does have the option to add states in which you need to collect sales tax and they will ensure those customers are charged sales tax and you are given this money. However, you will be required to remit the taxes yourself. We will be keeping tabs on Amazon as well to see if they add other states for whom they will collect and remit for you.
After you make your matrix, start researching software that will help you keep track of all your states, the amount of sales, and the amount of sales tax collected. There are even ones that will file your returns for you! There are several options out there from Avalara to TaxJar to TaxJoy and so many others. Find the one that is right for you and your business. It will take a huge portion of the compliance tracking off your plate!
We are just beginning to see a new era in sales tax. As online sales continue to gain traction, the sales tax compliance confusion is only going to continue. Find a great consultant/accountant/tax firm to help your business navigate the murky waters!