Sales Tax is About to get Interesting

A few months ago, we talked about the big Supreme Court case that could upend the current sales tax regime. The decision came down last week, and as we expected, the court supported a state’s ability to force retailers from other states to collect tax for them. In the decision, the court ruled that an out-of-state retailer selling items may still be required to collect tax in that state, even if they have no physical presence there.

This was going to happen sooner or later; states have been losing out on far too much money for the “nexus” requirement to last forever. We once believed that the states might actually band together to create some kind of universal online sales tax (numerous attempts have been made before) but it’s never gotten very far. In an interesting way, this might force their hand.

Though the ruling is only for the South Dakota case, it implies that any state’s tax collection regime can be forced on any retailer that sells items into that state (South Dakota had a $100,000/200 transaction minimum, but we expect that many retailers will easily exceed this). That means that likely everyone selling anything online to other states must now comply with that state’s sales tax requirements. With 45 states collecting state sales tax and 38 of those adding local sales tax on top of that, you have a potential compliance and reporting nightmare for small online retailers.

So, will every small online retailer now have to file 45 different sales tax reports, pay 45 different bills and potentially get audited by 45 different agencies with 45 different sets of rules? It’s possible, and that’s where we hope sanity will prevail. There are already some reciprocal sales tax collection practices in place, but if the states are smart, they’ll come up with some truly uniform procedures for reporting and collection. Otherwise, the cost of compliance will likely drive many small retailers out of business, and that would be even worse for state tax bases.

At eBlox, we’re cautiously optimistic that this will bring some kind of harmonization to state-level sales tax collection. Luckily, we already offer “rooftop”-accurate sales tax collection on our storeBlox CS e-commerce platform, so if you’re selling in multiple states, the only thing you have to worry about is cutting (potentially 45) checks!