For more than 25 years, Internet businesses in the United States have enjoyed a big break: If a customer in another state buys something online, the company doesn’t need to collect state sales tax or file taxes in that state unless they have operations in that state such as a warehouse or branch office.
That is about to change, thanks to the recent South Dakota v. Wayfair ruling from the Supreme Court. This essay by a tax expert explains the situation and the impact pretty clearly. I draw your attention to the concluding paragraph (note: nexus is the ability of a state to require businesses to be responsible for taxes):
Many states have enacted economic nexus rules for income taxes that create a filing responsibility based on the amount of sales in a state. These amounts have generally been set at $500,000 and above. Now, states may seek to lower those thresholds to impact more sellers, and states that have not sought income tax nexus may move forward with new legislation.
I own a small business and use the Internet to sell goods to customers all over the country. The Supreme Court ruling is going to be a big headache. I don’t have a problem with paying taxes, but I do have a problem with dealing with 50+ entities (including states and territories) that have different filing requirements that will likely entail a lot of red tape. I don’t have a full-time accountant or staff that can deal with this stuff, so it falls on me to implement systems and processes to handle state taxes outside of Massachusetts.
I blogged my thoughts on this topic in As a small business owner, this is what I fear post-South Dakota vs. Wayfair, but the end result may mean not selling to customers in states whose red tape is too much of a pain … which hands even more power to big Internet businesses like Amazon.