Legal-Ease: What You Need to Know About South Dakota v. Wayfair (Hint: It’s All About Sales Tax)

[WillowOlder]

On June 21 2018, were you a) anxiously awaiting the outcome of a FIFA World Cup soccer match or b) anxiously awaiting the outcome of a United States Supreme Court case?

If it was the former, you know that France beat Peru. If it was the latter, you know that in South Dakota v. Wayfair, South Dakota won. The case has implications for small business owners selling online, so let’s find out more.

The case

In this much-anticipated ruling, the Court ruled in favor of a South Dakota law mandating that online, out-of-state businesses that meet a specific sales threshold must now collect sales tax from all purchasers located in South Dakota.

This ruling overturned a previous law which found that states were not required to collect sales tax against businesses that didn’t have a sufficient physical presence or in-state connection (known as nexus).

Examples

Before the 2018 ruling, if you ran a Colorado-based online business selling bespoke ski hats, you did not have to collect sales tax from customers in South Dakota.

After the 2018 ruling, if your Rocky Mountains custom-hat company is going gangbusters in South Dakota (with $100,000+ in annual sales or 200+ transactions a year in the state), now you must collect the sales tax from your awesome SD customers.

Why it matters: If you’re an online retailer, the new ruling may leave you responsible for collecting and remitting sales tax on purchases made by residents of 45 different states (that’s how many currently impose a sales tax on purchases in their state). Here’s a quick list of how the Court decision may impact the way you:

• Calculate sales tax. As a remote online seller, you’ll need to track a huge number of current state and local sales tax rates.
• Communicate about the tax. You’ll need to let your customers know about the new sales tax and what the rate is for a purchase, based on the buyer’s location.
• Collect sales tax. Now you’ll need to collect the sales tax, deposit it in a separate bank account and use that account to pay your taxes.
• Report your total sales. You’ll be collecting sales tax for each state and reporting your total sales (per state), as well as reporting the amount of tax collected at each level. Be prepared to submit sales tax payments monthly, at least.  

Next steps

We know that managing these changes may seem daunting, but don’t panic. Instead, we strongly recommend you click on the links below from the QuickBooks Resource Center to get a detailed run-down on the Supreme Court ruling, find out about the implications (short- and long-term) for small businesses and learn some straightforward steps you can take right now to help you understand and comply with the new sales tax regulations.

Supreme Court Ruling: South Dakota v. Wayfair Online Sales Tax FAQ

What does the Supreme Court decision for online sales tax mean for my business?

You can also find out how other members of the community are reacting to the ruling by reading (and then commenting on) this post from @Raywhite28:

How the New Supreme Court Ruling on Sales Tax for Internet Sales May Affect QuickBooks

QB Community members, how do you keep on the latest rules and regulations affecting your business? Thanks for telling us about your most reliable resources.

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[SueH]

For years, I have been asking for QuickBooks to implement an automated way to record and create reports for Use Tax for those of us who have businesses in states that require paying sales tax to our resident state when we purchase things online from vendors that do not collect sales tax (in any state). I managed to implement a work-around that isn't too cumbersome. Glad the shoe has finally dropped and landed on the vendors!

[EmilyCowan]

Hey @SueH - welcome to QB Community. It's great to have you here :smileyhappy:

That sounds pretty intriguing! What's your workaround on the sales tax issue?