Your ability to buy online and avoid sales tax is coming to an end. In a 5-4 decision today, the US Supreme Court says that states can demand sales tax from all retailers — those with physical storefronts AND those that only do business online. And you can bet your britches that California already has a plan for implementing this – not only is California very aggressive in tax collection, but they stand to generate over 1 billion dollars of revenue!
So, what does this mean for consumers?
You’ll start to pay more for your online purchases because sales tax will now be collected. (Think Wayfair, Newegg, Overstock.com, etc)
What does this mean for businesses with storefronts?
These businesses are thrilled with the decision because they have had a hard time competing with online retailers who are able to offer cheaper products because they don’t charge sales tax. Matthew Shay, president of National Retail Federation, said, “Retailers have been waiting for this day for more than two decades .… This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both.”
What does this mean for online businesses?
Depending on your size, you could become a target for the states wanting their share of sales tax. This could mean figuring out the arcane rules around what is taxable or not, changes to your POS system to calculate the proper sales tax by state (and county and city), registering your business with multiple states, collection of sales tax, remitting of sales tax to the states and the regular filing of sales tax returns. Wowzer!
Justice John Roberts highlights the complexities of sales tax laws in his dissent: “Texas taxes sales of plain deodorant at 6.25 percent but imposes no tax on deodorant with antiperspirant….. Illinois categorizes Twix and Snickers bars as food and candy, respectively (Twix have flour; Snickers don’t), and taxes them differently. One vitalizing effect of the internet has been connecting small, even ‘micro’ businesses to potential buyers across the nation… People starting a business selling their embroidered pillowcases or carved decoys can offer their wares throughout the country — but probably not if they have to figure out the tax due on every sale.”
In California, sales tax is managed by the California Department of Tax and Fee Administration (CDTFA). They have a number of guides by industry to help you figure out the sales tax rules and the individuals who answer the phone at CDTFA are usually quite kind (well, until they start getting hundreds of calls from online business owners!). If you feel like this is too much to figure out on your own we expect there to be a plethora of offers from software companies and consulting companies in the upcoming months.