After Quill: What Will Change and What Won’t?
The Supreme Court’s Wayfair decision has overturned Quill, the landmark 1992 decision that allowed online sellers not to charge sales tax. “This changes everything!” is a natural reaction. That’s probably an
Changes affecting small online businesses
For small online businesses, nothing will change… maybe. The new court case, South Dakota vs. Wayfair, applies only to companies selling $100,000 of goods or services into the state or engaged in 200 or more separate transactions for the delivery of goods or services into the state to collect and remit sales taxes. Alabama’s new law sets the bar at $250,000. Oklahoma’s sales tax requirement kicks in at $10,000. Each state can set its own limits.
The Supreme Court said that states can’t put an “undue burden” on out-of-state sellers or discriminate against them. They can’t do anything that makes it hard for companies in another state to do business in their own state. With no definition of “undue burden,” though, it is likely that there will be more court cases as more states set limits.
For some businesses, everything will change. You can’t wait until the end of the year to see whether you’re going to have $10,000 in business in your neighboring state, so you’ll have to register and collect from the beginning just in case. Registering, calculating, collecting, and filing sales tax in numerous jurisdictions will become a new job for many small businesses. Automating these tasks with software could reduce
Changes affecting medium sized online stores
It all depends on definitions, but this group could be the one that is most affected. Small stores may slip in under the minimums set by the states. They could even cut off sales to other states as they approach the minimum for that state (though it would probably be simpler to collect sales tax).
Large online stores are often already paying sales tax in many jurisdictions. They also have the resources to comply with the states’ new laws as they come up.
Sellers who feel caught in the middle — making enough money to hit the minimum for sales tax collection but not enough to hire a full time accountant — may be affected most. Appropriate software will almost always
be the best solution.
Changes affecting brick and mortar stores
The law for brick and mortar stores hasn’t changed. They must register, calculate, collect, and remit sales taxes on all taxable goods sold in their stores. Mom and Pop stores suffering from the competition of online sellers hope that people will turn away from ecommerce once they have to pay sales tax. This is probably wishful thinking.
However, most states will probably update their tax codes in response to Wayfair, so there could be surprises.
Changes affecting states
For states, Wayfair could inspire a more consistent sales tax system. Sales tax is under control of the states at this point, and there probably won’t be general agreement among the states, let alone among all the jurisdictions within states. However, the Streamlined Sales Tax movement definitely got a boost from Wayfair. South Dakota is one of 23 states currently participating. If courts strike down states’ laws when they’re too hard to comply with, that could motivate states to streamline and standardize their rules.
States are also expecting to earn a lot more money than they do now. About 9% of all sales now take place online. Collecting sales tax on most of these transactions could give states billions more in revenue. The cost for the states should be manageable — the states will almost certainly pass as much of the cost as possible along to the online merchants.
For you, looking into automated sales tax solutions is probably the smart move right now. Web-based solutions that keep up with the changes can help you avoid “gotcha!” audits. We can help.
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Bloomberg's 19th annual Bloomberg Tax Survey of State Tax Departments tells us that 33 of the 50 states have already made tax changes in response to the Wayfair decision. That Supreme Court ruling struck down Quill, the case that said sellers didn't...read more
Ever since the Supreme Court's Wayfair decision made it possible for states to collect sales tax from sellers with no physical nexus in their states, there has been concern that states would go after retroactive tax collection. Now California has become...read more