New State Sales Tax Requirements for E-Commerce Businesses

A decision rendered by the Supreme Court of the United States could dramatically alter E-commerce businesses internal systems and requirements. Case 17-494 South Dakota v. Wayfair Inc addresses the new state sales tax requirements for online sellers.

South Dakota v. Wayfair Inc Decision

This decision gave authority to South Dakota and other states to compel out-of-state retailers to collect and remit state sales taxes. The state sales taxes collected would be dependent on their customer’s state of purchase. Previously, most states only required online retailers to collect and remit sales taxes if they have a physical presence in that state. Now states can collect sales taxes on online purchases made by their residents.

What Does this Mean for E-Commerce Businesses?

Furthermore, small e-commerce businesses will be required to change their internal systems if the current system does not oblige with the new state sales tax requirements.

In light of the ruling, small online businesses who sell via their website, Shopify, Amazon Marketplace or Ebay, among other platforms are now to be required to maintain a state sales-tax compliance system. The purpose of the sales-tax compliance system is to accurately remit the sales tax to the states to where they ship their products. 

Exceptions for Small Remote Sellers

Although, it is too early to say which exemptions are going to be afforded to small retailers by individual states to minimize any undue burden.

Example of Illinois State Sales Tax Requirements

Effective October 1st, 2018, remote sellers in IL will be liable for collecting Illinois sales tax. They will be liable for collecting state sales tax if they meet either of the following:

• if they have cumulative gross receipts of  $100,000 from sales to purchasers in Illinois
• have 200 or more separate sales transactions that are shipped to IL.

Next Steps for E-Commerce Businesses

We encourage all our clients to stay informed through their state department of revenue bulletins. It is best to implement or change internal systems to respond to new state statutes to be compliant. 

Solutions for Remote Sellers

We recommend using internal systems that can accurately track their remote sales by state. For example, at Founder’s CPA we often use QuickBooks Online, which allows you to use their class tracking feature to maintain state sales records. If you need assistance or would like to seek professional advice, feel free to submit a free consultation at Founder’s CPA today.