The Supreme Court Online Sales Tax Ruling: What Is It? How Does it Affect You?

By Chris Peden on July 18, 2018

If you sell things online, your sales tax obligations just changed.

Last month, the Supreme Court decided in the South Dakota v. Wayfair case that states could charge online retailers sales tax for items they sold to residents of their state. This will affect online retailers who sell their products across state lines, which is basically everybody.

Fast facts

  • A retailer no longer has to have a physical presence in a state in order to be obligated to collect sales tax on items they sell.

  • States were given more authority on whom could be charged sales tax.

  • Only sales after July 1, 2018 are affected.

  • Very small retailers are exempted (<$100,000 in revenue, or <200 different transactions)

  • Many states have agreed to harmonize their sales tax rules so vendors have fewer rules these sellers need to know.

What’s changed?

Under the old tax rules, a business needed to have a nexus in the state to be required to collect sales tax in that state. A nexus exists when a business has a physical location or staff within the state where a sale was made. This would include having Amazon warehouse your goods in a state, regardless of whether or not you told Amazon to house your goods in that warehouse in that state.

Under the old rules (“Quill Corp v. North Dakota”), ecommerce stores were exempt from sales tax in most states except their own, since they kept their inventory and employees in one state.

Under the new rules (“South Dakota v. Wayfair”, effective July 1, 2018), some states now have the right to require online sellers to collect sales from any customer who bought from your store. Even if you don’t have nexus in that state. Many states can’t actually start collecting sales tax right away. But they could if they passed new sales tax laws that mirror South Dakota’s.

In sum, if you run an ecommerce store, you’ll be spending a lot more time collecting and remitting sales tax.

What you can do to handle the changes

Don’t stress. There are at least four things you can do to make this sales tax thing a lot easier.

1. Read up on sales tax basics

If you understand the basics of how to calculate, charge, and collect sales tax, everything else becomes easier. For a solid overview, check out Sales Tax Basics: A Guide for New Entrepreneurs.

2. Automate your sales tax

Software is eating the world, and we’re just fine with that :)

TaxJar is an online service that will automate your sales tax collection, reporting, and filings. We highly recommend checking them out. It will save you hours of work and frustration.

3. Talk to the people who ship your products

The relationship between buyer, seller, and dropshipper is a little complicated when it comes to sales tax. Make sure you’re on the same page with whoever is shipping your products.

Drop them a line and ask what changes they are making to their sales tax process, and how they will keep you compliant with the new rules.

4. Familiarize yourself with the state rules

Some states will not ask you to collect sales tax if you sell below a certain amount. Others may not ask you to collect at all, unless you have nexus. It’s worth checking in with your accountant to make sure you know the rules of the state you’re selling to.

This state-by-state guide from TaxJar is an excellent place to start.

Good news! Sales taxes are deductible

State income taxes are deductible on the Schedule C of your tax return if you are a sole proprietor or LLC, the 1120 if you are incorporated, or the 1120S if you are an S corporation.

But seriously. If your sales tax obligations are about to go way up, check out TaxJar. We want you to love what you do, and the burden of sales tax admin shouldn’t steal your joy.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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