South Dakota v Wayfair Has Far Reaching Implications For Online Retailers

The South Dakota v Wayfair decision will have a major impact on small online retailers. The U.S. Supreme Court sided with South Dakota, which sued Internet retailer Wayfair, along with six other online retailers, for not collecting a 4.5 percent sales tax. While Wayfair didn’t have a presence in the state, it made at least 200 sales to residents. South Dakota also wants out-of-state online retailers to collect sales tax if they make at least $100,000 in sales, regardless of the number of orders.

Previous Supreme Court decisions, such as Quill Corp. v. North Dakota, said states couldn’t collect sales tax if the online retailer didn’t have a physical presenter in the state. Quill Corp. v. North Dakota was decided in the early 1990s; Internet sales have skyrocket since then. Brick and mortar retailer have to collect sales tax so many people are turning to online retailers to avoid paying sales tax on big-ticket items.

According to harvardlawreview.org, smaller online retailers now have to understand and comply with each state’s laws about collecting sales tax, besides keeping up with any rapid changes in the laws. Large retailers typically already have the resources to do this, but the compliance burden on small online companies is enormous. Unless the federal government creates a uniform law for all fifty states, it will force small online retailers to spend more on compliance, which will decrease their ability to compete with major brands online.

An e-commerce seller could end up with a large tax bill if they don’t keep track of sales tax laws across the country. For unprepared website owners, this could be a disaster. States can go back years to collect from website owners who should have been collecting sales tax from residents, but didn’t do so. Tack on interest and penalties, the website owner could face a hefty bill.

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