Last Thursday's United States Supreme Court's ruling in South Dakota v. Wayfair Inc. (17-494) marks a major turning point in the debate over whether online sellers should be forced to collect and remit sales tax in States in which they have no physical presence (nexus).
The ruling overturned Quill Corp. v. North Dakota, and National Bellas Hess, Inc. v. Department of Revenue of Ill.,—which held that a State cannot require an out-of-state seller with no physical presence in the State to collect and remit sales taxes on goods the seller ships to consumers in the State.
Translation: The Supreme Court ruled that States have the right to collect sales tax from out-of-State sellers.
Justices Ginsburg, Alito, Thomas and Gorsuch concurred that States can require out-of-state sellers to collect and remit sales taxes on goods the seller ships to consumers in the State.
Justices Roberts, Breyer, Sotomayor and Kagan dissented.
If you're a multichannel online retailer selling on marketplaces and your own webstore, should you be taking action to adapt to this ruling and if so, what are the specifics you'll need to consider?
The 5-4 ruling has major implications on the thriving online retail industry because it may mean that retailers will need to register, collect and remit sales tax in every State that they ship to. That's right, all 50 States!
This ruling was big news in our office. I personally received calls from worried small, medium and large business owners that use Zentail to manage their multichannel selling.
Here's a list of things to consider:
We will refine as more information and guidance becomes available.
Compliance across all 50 states represents a major operational burden. We and our sellers agree this is entirely unreasonable given the lack of uniformity across States as it relates to registration, tax rates, filing schedules, category exemptions, etc.
Marketplace channels (i.e. Amazon, Walmart, eBay, Google) are at risk if their third party sellers can't take on this operational burden. Will marketplaces acquiesce and collect and remit on behalf of 3rd party sellers?
Make sales tax simple. States will need to work together to eliminate the aforementioned complexity. If all states worked through a central sales tax collection clearinghouse/portal and collected a standard flat percentage, adoption and compliance would be feasible.
Should there be a minimum sales requirement? This ruling references South Dakota's $100,000 threshold for out-of-State sellers and contends that sellers with over $100,000 of sales in a given state should be liable for sales tax collection and remittance. Will States begin introducing such thresholds and will there be variance? How will sellers reasonably comply with eventual changes?
Retail business competitiveness, valuation and acquisition appeal. Sellers that choose to proactively comply with States in which they have no physical nexus may become significantly less competitive. Sellers that choose to delay compliance may accumulate potential liabilities that could block or significantly diminish acquisition opportunities and associated valuation.
So, what should you do now? While the Supreme Court has remanded the case for further proceedings, you should expect more guidance from the Court and individual States. We recommend the following checklist:
- Which States do you have physical nexus in? Are you compliant with sales tax collection and remittance?
- Which States do you not have physical nexus but you generate greater than $100,000 of annual sales? Familiarize yourself with their registration, percentage rate(s) and filing schedules.
- Set up a Google Alert for additional news related to this topic.
We'd love to hear your thoughts. How might this ruling affect your business?