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Supreme Court Ruling - SD v. Wayfair - What Next?
2018-06-21 SCOTUS - SD v. Wayfair - Background
June 21, 2018 - The Supreme Court of the United States has announced its ruling in the case of South Dakota v. Wayfair. Deciding in favor of the State of South Dakota, the future for internet retailers has become a lot more complicated. How so? Because the ruling removed the only roadblock to preventing states and by extension local taxing authorities from compelling online retailers from collecting and remitting sales taxes on the sales they make outside of their home jurisdiction (see SCOTUS ruling post ).
Wayfair, Overstock, NewEggAs co-defendants in the Supreme Court ruling, they will without a doubt need to begin complying with existing state laws. Not only will they need to compute, collect and remit sales tax on the bulk of their sales, but the cost advantage they had by not charging for sales tax will be lost. These and other large internet only retailers will need to modify their basic business plans in order to remain competitive in their respective markets. They will also have to build the infrastructure needed to account for all of these taxes. And they better do a good job since they will be under the preverbial microscope and subject to endless audits until the states are convinced they are in full compliance with the law.
Amazon and EbayAmazon is the elephant in the room when it comes to internet retailing. With gross revenue nearing $180 billion in 2017, Amazon accounted for 44% of all internet retail sales for the year. That of course is no where near the $500 billion for WalMart's total world-wide sales. Yet with sales tax rates averaging almost 8.5% nationwide, no state is going to let Amazon off the hook. Amazon has already agreed to collect sales tax on all of the sales in all states that have a sales tax and have been doing so since April, 2017. However, almost 50% of the sales made on the Amazon Marketplace are from third-parties selling their products through Amazon. And those sales for the most part go untaxed. So states will find ways to make sure Amazon assumes tax compliance for those transactions too. Ebay presents much the same case as Amazon, but further complicated by the fact that everything on Ebay is sold by "individuals" through an "online auction". Like Amazon, though, because of the potentially large tax liability presented, Ebay will undoubtedly be pressed to provide the means to ensure compliance with tax laws on all the sales that they facilitate.
WalMart, Target, Best Buy, Home Depot, Macy's, ...Big-box retailers are at a distinct advantage in the new internet landscape. They already have systems in place to account for and remit sales taxes in every state in which they already have a physical presence. Moreover, their customer base is already accustomed to paying sales tax on their purchases, whether bought at a store or ordered online. Yet tax compliance by these companies is primarily based on point-of-sale systems. Each store location has their systems set to comply with the local tax laws. So in-store pickups can be accounted for like any other in-store sale. But when shipping products to locations not served by a store, they will now need to develop the infrastructure to compute, collect and remit those taxes too.
You and Other Internet or Mail Order RetailersIf you are an internet retailer or if you sell products across a large geographic area, how do you plan to deal with the new reality? You too may need to compute, collect and remit taxes in every jurisdiction to which you make a sale. If you would like to know what some of your options are, please read the next post, 2018-06-21 SCOTUS - SD v. Wayfair - Options |