After the Supreme Court’s Quill decision in 1992, e-commerce companies were not required to charge sales tax in states where they did not have a physical nexus. This resulted in two major issues with the explosion of e-commerce over the last decade: 1) Brick-and-mortar stores had a major disadvantage because they had to charge sales tax, while online retailers could sell the same goods tax-free, and 2) States were losing out on billions of dollars in tax money—at least $13 billion, to be exact.
But this all started changing a year ago.
In June 2018, the Supreme Court overruled the Quill decision in South Dakota vs. Wayfair, citing the immense growth of e-commerce over the previous 26 years. The case involved three large e-commerce companies (including Wayfair) that challenged a South Dakota law requiring online businesses to charge sales tax if they generated $100,000 in sales or processed 200 transactions from South Dakota residents. The Supreme Court ruled in favor of South Dakota, making it legal to set such thresholds for collecting taxes on online sales.
This opened the floodgates for other states to follow suit. Today, 42 states have e-commerce tax laws and many adopted the same thresholds as the original South Dakota law.
So, what does this mean for your business?
On this episode of “The NetSuite Podcast,” Oracle NetSuite Content Manager and expert on the topic, Ian McCue, breaks down the Wayfair decision and what companies need to do to comply with the new laws. Other than hiring a tax expert to help monitor all of the various laws (and any future changes to them), McCue suggests companies invest in a business management solution—like that of Oracle NetSuite—that supports or partners with tax automation software to collect the data necessary to calculate the tax rate and comply with differing laws across states.
This type of visibility is key to continued success for online companies as ignorance is no longer a valid excuse, McCue says. States have already begun collecting back taxes, which can have a huge impact on the health and survival of a business.