How Will the Supreme Court Decision on Sales Tax Affect Small Sellers?

Changes in Sales Tax LawLast week the U.S. Supreme Court overturned a decision that prevented states from charging sales tax on sales by companies (and sellers) who did not have a presence (office, store, warehouse, etc.) in the state.

Before that decision, a small seller like you and me, was only required to collect and pay sales tax on sales made to, and shipped to, someone in your own state.  An exception to this was a Nexus argument put forth by some states that claimed that since a company like Amazon, Wal-Mart or Sears had operations or facilities in those states, that you as a seller on those platforms are required to collect and pay sales tax on any sale made to someone in that state.  The problem was enforcement, and many tax attorneys thought the law was unconstitutional.  I have always agreed with that position.

That argument now goes away.  The Supreme Court decision means that all 46 states that charge sales tax, can now force sellers to register, collect and pay sales tax on all sales made to a person in that state.

If the problem were only dealing with 46 states that might be manageable for small sellers, but there are over 10,000 separate taxing jurisdictions in the United States.  For example, I live in a small town about 1 ½ hours North of Seattle and the tax rate in my town is different than Seattle.  Seattle has a different rate than Spokane and so on.  I don’t really know how many separate tax jurisdictions there are in just my state but it is somewhere North of 100.

So what can small sellers do?

First of all – don’t panic.  This is not going to happen this week.  It will take some time for the states (and eBay & Amazon) to act.  Since both eBay and Amazon will quickly realize they could each lose thousands of sellers (and millions of dollars in sales), and since they as companies are already staffed and set up to collect taxes, I suspect they will step up and take over the tax collection and payment.

Some states have a minimum level of sales a seller has to reach in that state to be liable for tax collection, and it is possible other states will adopt that policy.

There are also a couple of bills in the US Congress on this issue, and both of them have exceptions for small sellers (those that sell less than $400,000/year).

In the meantime, there is a service I have used in the past to collect and pay my taxes for me.  That company is Tax Jar.  In addition to offering sales tax payment services, they can also connect you to tax specialists who can help you get set up with the various states.

Lastly – be patient.  This will take a while to work out.  Be sure and check the announcement boards at the sites you sell on as those companies will all be changing their sales tax policies in the coming weeks and months.

 

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2 Comments

  1. Hi Skip, thank you for offering some clarity. And hello from Mukilteo by the way. I am 99.99% an FBA seller. Only very rarely do I sell via MF model. If Amazon collects taxes, isn’t payment of these collected taxes on them? I don’t receive the taxes paid by the consumer, except of course if they are Washington state residents like I am.

    Like you say, this isn’t going to be unraveled quickly

    1. Author

      Currently both eBay and Amazon collect the taxes for you and send them to you to pay. But registration with the state, and payment is your responsibility. However, because of the new Supreme Court decision I think they will change and eBay & Amazon will not only collect the tax – I believe they will pay it also.

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