Last week, the Supreme Court ruled that states can collect sales tax from online retailers even if they do not have a physical store or warehouse in those states. While South Dakota may have been the first state to win such a decision, many other states are also aiming to expand their ability to reap sales tax revenue from e-commerce.
Many large companies such as Amazon already collect these levies, but what does this decision mean for smaller remote sellers? How will it impact their business?
Our friends at Avalara help businesses get tax compliance right. “As we continue to see state and local governments enact different strategies to expand sales tax collection on Internet purchases, the complexity increases for businesses of all sizes,” the company recently said in a statement.
Avalara is currently taking a hard look at how the court’s decision paves the way for a new world for sales tax, and have put together an array of helpful resources on their website, including this simple introductory FAQ :
What does the decision mean for out-of-state sellers?
If you sell into states where you’re not registered to collect and remit sales tax, economic nexus can change your tax obligations. Rather than require a physical presence in a state, economic nexus is based entirely on sales revenue, transaction volume, or a combination of both.
How soon should I begin collecting sales tax?
The U.S. Supreme Court decision places requirements on the South Dakota Supreme Court that will clearly take weeks to complete. There will be no immediate collection enforcement.
How do I know if I’m on the hook for sales tax in South Dakota?
Review your sales transactions carefully. To trigger economic nexus in South Dakota, a remote seller must have $100,000 in taxable sales or 200 separate taxable transactions delivered into South Dakota in the current or previous calendar year.
What other states should I watch for?
South Dakota was the first to get permission from the court, but several other states with economic nexus rules will follow its lead (see map below). Each state has a different start date and sales/transaction requirements that trigger nexus. Expect to see more states jump on board.
For a current map of economic nexus states, as well as a variety of supporting resources on this topic, please visit Avalara.