A little over a year and a half after the Supreme Court ruled in favor of taxing online transactions, small businesses are still trying to grapple with the change.
The decision has pushed the tax collection burden onto small business owners, according to the Wall Street Journal.
Nicole Snow, a chief executive of the New York-based online company Good Yarn Inc. told the publication she had to hire a part-time chief financial officer and purchase an updated sales-tax software to comply with the court ruling. The company estimates that it will spend about $25,000 in total this year to collect and remit $90,000 in state taxes on its $5.4 million in sales.
ONLINE SALES TAXES TAKE EFFECT IN THESE STATES
“It’s quite a big lift for us,” Snow told the Journal regarding the 34 states her company has to shell out taxes to. “There is a lot of complexity for a small company.”
In June 2018, the five-to-four Supreme Court decision in the South Dakota v. Wayfair Inc. case, states were given authority to order online retailers collect sales tax even if the companies didn’t have a physical presence within a state, such as a store or a warehouse.
“For example, a business with one salesperson in each state must collect sales taxes in every jurisdiction in which goods are delivered; but a business with 500 salespersons in one central location and a website accessible in every state need not collect sales taxes on otherwise identical nationwide sales,” the Supreme Court said in an issued statement at the time of the decision.
WILL SALT CAP RULING ACCELERATE HIGH-TAX STATE EXODUS?
Prior to the ruling, a “use tax” was supposed to be collected from customers making purchases online. However, not every retail company complied due to the 1992 Quill Corporation v. North Dakota Supreme Court decision that allowed for exemptions if there was no physical presence.
“In effect, Quill has come to serve as a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a State’s consumers—something that has become easier and more prevalent as technology has advanced,” the court noted with its revised ruling in 2018.
With the revision, items that get taxed and the frequency each is taxed varies from state to state. Some states allow city and local administrations to apply additional taxes.
INTERNET SALES TAX RULING ‘REBALANCES THINGS’
“Small businesses are definitely the ones that are really adversely affected,” Clark Calhoun, a state and local tax attorney in Atlanta told the Journal. “A bigger business is typically going to have more robust sales-tax software.”