A U.S. Supreme Court ruling is about to shake up the world of e-commerce. Per yesterday’s decision, states will be able to collect sales taxes from sellers and retailers on out-of-state purchases. Previously, e-commerce retailers were not required to collect sales tax unless a purchase was made in their state.
Our stance on collecting sales tax is simple: retailers should have been doing it the whole time. Here’s a segment from an article we published in 2016, 3 Things That Can Put Amazon Sellers Out of Business, that outlines our perspective:
Relying on a misinterpretation of federal case law (Quill Corp. vs. North Dakota) to avoid collecting and remitting sales tax is not a good business strategy. At the end of the day, a seller’s responsibility to collect and remit sales tax is a straightforward question: do they have inventory in the state? If a seller is utilizing Amazon’s FBA (Fulfillment by Amazon) service, then they can be assured they have inventory across many states, regardless of where they originally sent the inventory or where their business is located. Inventory in each one of these states means the seller has tax nexus, which means they have a legal obligation.
Determining nexus is not complicated. Amazon has provided the resources for any seller to identify where their inventory is located since the inception of the seller’s account (Monthly or Daily Inventory reports). This is where it gets complicated: with every day the seller does not contact each state and get right with the state, the seller’s liability is growing. That liability – including taxes owed, plus interest, plus up to 25% in penalties for each year that nexus was established – is something that every state will come looking for.
When it comes to those sellers who’ve invested in the process, not only registering to collect and remit but also getting right with the states for past sale taxes owed, the ability to invest in the future may be bright. Those sellers who continue to misinterpret case law to serve their lack of sophistication, or believe that they can outwit the states, will soon be very familiar with how knowledgeable about and hungry the states are for what is owed to them.
It’s hard to definitively predict what will happen next. Consumer habits will likely stay the same, while small and independent merchants may be damaged by the court ruling. Some relying on razor-thin margins may be put out of business due to non-compliance. However, retailers and brands that are already collecting sales tax shouldn’t have anything to worry about.