Last modified: November 2, 2018
In June 2018, the U.S. Supreme Court ruled to overturn what many considered a loophole in our state sales tax laws. The South Dakota v. Wayfair ruling means that states can now require retailers to charge sales tax on online purchases, regardless of where the company has a physical presence. The majority opinion, written by Justice Anthony Kennedy, overturned what many considered an unfair advantage for companies selling online verses in brick and mortar stores. This ruling has massive implications for retailers selling online and creates a compliance burden for ecommerce companies. Here are a few ways that brands selling online will be affected on a global scale:
1. The operational impact will be significant for many companies.
Businesses need to closely examine and retrofit their ecommerce operations to determine in which states they must collect tax, whether their goods are taxable, and how they are going to handle the new tax computation, filing and remittance obligations. Since tax laws in the U.S. are determined at the state level, laws vary across the nation. For example, states like Minnesota do not tax apparel, but its neighbor Wisconsin does. Companies need to be familiar with tax laws in every state in which they sell. And fast. Nearly half of all states already have processes in place to finalize their new tax laws and start collecting, with many expecting to be up and running by the beginning of July.
2. Brands selling direct will be impacted the most.
Many large retailers have a physical presence throughout the U.S., so they are already collecting sales tax in most states. Even Amazon, as its expanded and built warehouses across the country, is already collecting sales tax in many states and will be largely unaffected by this new law. But small- and medium-sized businesses working to grow their direct-to-consumer channels will need to put new teams in place to maintain compliance and be prepared to respond in the case of an audit. Furthermore, smaller businesses often lack the staff to follow all regulations across thousands of U.S. tax jurisdictions. They will need to find a partner to help them navigate this new compliance burden.
3. Brands located outside the U.S. also need to comply.
Just as any company that does business with European citizens need to comply with the GDPR, regardless of geographic location, these changes to U.S. sales tax laws do not apply only to U.S.-based companies. If a company sells to customers in the U.S., they need to follow these new tax laws. In many ways, selling globally is easier than ever before with more consumers gaining interest in cross-border transactions. However, the nuances associated with maintaining tax and regulatory compliance around the globe can cause massive headaches for brands.
Digital River handles the complexities of state-to-state and global online commerce for brands, including international regulatory law compliance and taxes. As both Merchant and Seller of Record for our clients, we can shield sellers from these new compliance burdens so they can focus on the parts of their business they know best. To learn more about how we can manage the multi-state tax collection and filing that will result from this new ruling, contact firstname.lastname@example.org.