The Supreme Court’s ruling at the end of June 2018 on South Dakota v. Wayfair is the latest news that leads us to wonder about the future landscape of ecommerce. The headlines declare that consumers will be paying more for goods sold online now that States have the option to impose taxes on these sales. However, the reality is that the outcome of this ruling is not so black-and-white, and it’s the gray areas that make it appear that the future of ecommerce is still promising.

A saga spanning decades

The taxation saga started long before online shopping was a thought in people’s heads, and only a year after the World Wide Web became available for people to use at home. In 1992, the Supreme Court ruled in Quill Corporation v. North Dakota that the state could not force the Quill Corporation, a mail-order office equipment retailer, to charge a North Dakota state sales tax on items purchased by its residents. The ruling set the precedent that if a company does not have a physical presence (i.e., a nexus) in the state, the state cannot collect a sales tax.

In 2016, South Dakota decided to respond to this ruling by imposing a 4.5% sales tax on online retailers exceeding $100,000 in annual sales in state or more than 200 transactions in state. Details may be found within South Dakota’s Remote Seller Compliance law (Senate Bill 106). They then decided to take three companies to court for not abiding by this tax code: Wayfair, Overstock and Newegg.

Mixed messages

Previously, lower courts ruled in favor of the online retailers, giving the Quill v. North Dakota decision as their reasoning, according to the Capital Journal. However, in a 5-4 ruling, the Supreme Court ruled in favor of South Dakota.

The US Supreme Court laid out why South Dakota’s law is no burden to interstate commerce but made clear that more complex or overreaching laws would not be tolerated.

The outcome

Although this was a ruling of the Supreme Court, the decision of whether to tax online commerce, what to tax, and tax rates will ultimately fall onto the States themselves to decide in the form of legislation. In the case of South Dakota, smaller ecommerce websites may not be as concerned, since they may not qualify for collecting the sales tax.

To note, in the months since the court agreed to hear this case, several states have adopted economic nexus, including Connecticut, Georgia, Hawaii, Illinois, Iowa, and Kentucky.

All eyes will now turn to Congress, which has been floundering between alternate versions of federal solutions: the Remote Transactions Parity Act (RTPA) or Marketplace Fairness Act (MFA).

What can you and your business do?

Not to be taken lightly, there are actions you can do to prepare so that your company is ready to face this new reality.

1. Make sure your team is familiar with the ruling. There is a lot of unawareness going around about this ruling and what exactly it means. Do your own research starting with the actual ruling:

2. Continue data collection. Modern ecommerce systems make this type of reporting easy. But, confirmation that the system is tracking on a state-by-state basis is a first important step. In the case of South Dakota, if your annual sales do not exceed $100,000 or 200 transactions, collection of their taxes in not required. This is assuming no physical presence in South Dakota whereas tax collecting would then be mandatory (as it is today). No doubt every other state that becomes active will have a different set of rules. The common factor is sales at the state level.

3. Follow the news. Make sure you know what is going on in different states in regard to this ruling. Tax law can be complicated and is in continual flux.

4. Consult with the pros. Tax Compliance companies such as Avalara and Vertex can help you decide how to tackle the aftermath of South Dakota v. Wayfair, and implement tax collection methods on your ecommerce website.

The end of ecommerce as we know it?

The decision of South Dakota v. Wayfair basically means that online retailers are no longer protected from sales-tax collection without a physical presence within a particular state. The reality is that any changes resulting from this ruling won’t happen overnight. It may be described as a way to “even the playing field” between ecommerce and brick-and-mortar retailers; but, it will likely not dissuade anyone from continuing to shop online.


A landmark decision: The Supreme Court says states can force online retailers to collect sales tax

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