The time has come: eCommerce stores are now held accountable to pay state-specific sales taxes.
If your business hasn’t complied with the change, then it could mean a hefty bill is coming your way.
Consumers have grown quite accustomed to the new way of the digital shopping world. With platforms like Amazon and Alibaba more popular than ever, it’s clear that convenience is key to modern shoppers.
But with the massive opportunity for online sellers, comes difficult territory, best navigated with caution. Between data and payment information security, eCommerce stores have their hands full when it comes to complying with regulations. In light of the recent Supreme Court case, eCommerce sales tax has now taken the stage as a key compliance item.
We’re here to tell you everything to know about eCommerce sales taxes from the Supreme Court case, including the steps to take if you’ve fallen behind on tax payments.
In the glory days of eCommerce, sales taxes weren’t quite as documented.
Previously, there was no legislation or court ruling instructing eCommerce stores to charge all customers sales taxes. Sellers were only required to charge eCommerce state sales taxes for customers living in the same state, where they had nexus.
Under these conditions, only eCommerce stores selling products to in-state locals were held accountable for these sales taxes.
This loophole enabled them to bypass both charging and paying sales taxes for customers in the other 49 states— until now.
The state of South Dakota filed a lawsuit against Wayfair Inc. regarding charging state sales taxes in 2018.
Headquartered in Boston with most warehouses spread concentrated in the Northeast, Wayfair was not liable to pay sales taxes on transactions from South Dakota customers.
South Dakota sought revenue from these and other similar transactions, in which its residents were purchasing items online, but avoiding state sales taxes.
This lawsuit made its way up to the Supreme Court, which ruled in favor of South Dakota.
Even if retailers or eCommerce stores do not have a physical presence, they are subject to charge (and pay) sales taxes for customers in all states.
Now, economic nexus extends beyond physical presence, which was formerly the only criteria. Instead, eCommerce stores must pay sales taxes based on transactions in any state.
Taxes are certain, but they’re not exactly simple.
In the wake of the Supreme Court ruling, eCommerce state sales tax rates for unique customers can vary depending on:
Not all states charge sales taxes. And, the ones that do can have dramatically different rates. Not to mention, rates will vary depending on whether the item is considered clothing, groceries, or part of another category.
The tax rate for a sweater in New York might be completely different from rates on the same item across the country, or the state.
Many eCommerce stores have tackled this difficult state sales tax challenge by utilizing eCommerce integrations like TaxJar and Avalara. This dynamic software makes the process as simple as possible by calculating tax rates automatically based on an address. It requires no human attention at all, and fulfills your obligation entirely.
Assuming your eCommerce store meets the minimum nexus qualifications, the grace period has passed.
Even if you haven’t been charging your eCommerce customers accordingly, you’re still accountable for all of the state sales taxes incurred during this period.
This begs the question: what happens if you haven’t been keeping up-to-date with all of your eCommerce sales taxes?
Eventually, the states that are owed may catch up and send you a bill for the amount hanging in the balance. This might not be the end of the world if you made a few low-ticket sales in Florida. But if you’re based in, say, New York, and a large percentage of your customer base resides in California, then the impending bill could be quite large.
However, don’t count yourself out quite yet.
Your eCommerce state sales tax bill might be a bit high at the moment, but remember, this is far from becoming a routine expense. Rather, this one-time fee is a stepping stone on your way back to business as usual.
Can you afford the high state sales taxes bill? If the answer is no, then that’s perfectly normal— many business owners asked to pay a tax bill would be in a similar position.
Rather than foregoing inventory purchases or ramping down activity, consider applying for a small business loan instead. This financing will help you pay off any existing tax debt, while simultaneously positioning you to hit the ground running once again.
Having cash on-hand means you can settle any existing tax debts, without denying yourself the ability to handle week-to-week expenses that keep your eCommerce store in business.
And contrary to popular belief, you can access a small business loan in less than 24 hours to prevent sky-high interest rates.
The best part: your business loan is not limited to the amount dictated by the tax bill. You can request even more to grow your eCommerce store by:
When it comes to business growth, there’s no end to the possibilities, and our Business Financing Advisors will be there to lend a hand at each step along the way.
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Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!