How the Wayfair Decision Affects You
Four primary facets of the law.
1. The law applies only to sellers who run a substantial amount of business in the state of South Dakota.
So what qualifies as substantial?
The state can’t just tax any seller. They can only tax sellers who have reached what is commonly referred to as a “minimum presence threshold.” For South Dakota, a threshold placed on total sales and/or total transactions.
Retailers with annual sales that either exceed $100,000 or that have more than 200 separate transactions in the state must set up their POS and sales systems to collect and pay taxes for the state.
2. The state had a simplified standardized tax code that was easy to comply with.
South Dakota is part of the Streamlined Sales and Use Tax Agreement (SSUTA), along with sixteen other states. These states share a simpler, more uniform tax system, which includes everything from product definitions to tax policy. The simplicity and uniformity of it removes some of the “undue burdens” of doing business in a different state and complying with their tax laws.
That said, cost of compliance remains a huge concern for some Court Justices and business owners everywhere.
As part of the decision, Justice Roberts expressed concerns in his final comments as:
“Correctly calculating and remitting sales taxes on all e-commerce sales will likely prove baffling for many retailers. Over 10,000 jurisdictions levy sales taxes, each with ‘different tax rates, different rules governing tax-exempt goods and services, different product category definitions, and different standards for determining whether an out-of-state seller has a substantial presence’ in the jurisdiction.”
3. The law will not tax out-of-state businesses for past sales.
This means that online retailers are legally protected from any retroactive taxes being assessed by any state or local municipality.
4. The state is providing free tax software to remote retailers.
The cost of compliance with all the various state and local taxes is a concern, and there was a concern that sales tax compliance software would not be available immediately or within the near future. Also, while there was confidence that the free market would quickly provide affordable solutions. Another caveat to this Court ruling was that only Congress actually has authority over this issue, and politicians could write legislation that contradicts or supersedes the Court’s ruling.
Because of the profit potential, many states are now following South Dakota’s lead in mimicking this new law.
How does this potentially impact you?
- States can tax remote sellers.
- Retailers must track sales levels and tax law changes in all states where they do business.
- Retailers must set up operations to collect tax wherever they sell, and then pay taxes on each state’s schedule, so this could require substantial additional business overhead in order to be compliant, especially if a business doesn’t have good reporting software on hand.
- Competing for business now presents a more even playing field. So If an online business must start charging tax, they lose the competitive advantage of being tax-free. This makes remote retailers more vulnerable to competitors,
including local brick-and-mortar shops. Huge online business such as Amazon are least likely to notice much of an impact because of the sheer scale of their business and their profit volumes. It’s feared that many small merchants will really suffer as a result of this ruling, however, if they don’t reach the minimum presence threshold, then they aren’t affected at all.
Medium-sized businesses might feel this the most, as they will be required to take on the pressures of tracking tax law changes, tracking their own sales volumes in each states taxing jurisdiction, and then actually collecting and paying the sales
tax when they need to.