The Supreme Court has ruled that a company does not need to have a physical presence in a state to be subject to its sales tax. (South Dakota vs. Wayfair)
Formerly, states could not collect sales tax from a vendor that is selling products in that state, unless that vendor has a physical presence in the state i.e. an office, store, warehouse, sales force, etc. Now, the Supreme Court says that states could collect sales tax even if there is no physical presence. Notice that it says “could collect sales tax”, not required to collect sale tax, so some states may opt not to implement this new ruling because the cost to collect from every retailer on the internet could be prohibitive.
So, potentially, every internet purchase you make may be subject to your state’s sales tax. There are 45 states that impose a sales tax with each state having different definitions of which items or services are taxable.
So each state has to decide 1) will they implement the new rule and 2) how they will collect and enforce collection.
But the headache will be for online retailers. First, the price that their customers pay will effectively go up while the retailer’s revenue from the transaction remains the same and 2) the cost of compliance could be enormous, especially for small Mom and Pop internet sellers. With 45 different sets of rules to follow the only option, for small online retailers, may be to outsource the compliance burden.
However, larger online retailers already have systems in place to comply with the new ruling. But, like Amazon, some of them also host third-party retailers, who may now have to figure out how to collect the sales taxes for 45 states.
So, the bottom line for consumer is that the Internet pricing will have go up to recapture the cost of implementing sales tax systems which must analyze every sale to figure out 1) to which state is the merchandise being shipped 2) has that state implemented this ruling, 3) does that state charge sales tax on any of the items being purchased and 4) what is the tax rate to be charged 5) how often is the sales tax remitted to the states, 6) etc., etc., etc..
Note 09/17/18 update:
Federal legislation has been introduced in Congress, to exempt from this ruling retailers with less than $10 million in sales.
