Posted by Alex Jackson on January 11, 2019
Online retail is undergoing a big shakeup, the day that online retailers have been dreading but also expecting has finally arrived. That’s right sales taxes are becoming an unavoidable reality. The last nail in the tax-free shopping coffin came last June when the supreme court weighed in on the Wayfair v. South Dakota case and determined that the old standard of having a physical presence within a state was outdated and instead choose to focus on the connection to the state or nexus how much business, the number of orders and dollar sales transacted with a particular state. As any online retailer will tell you, not having a physical presence in a particular state is by no means a barrier, and states have finally woken up to the fact that they are missing out on millions of dollars of lost revenue in the form of sales taxes not collected on these sales.
Now the good news for independent retailers is that most states are setting the bar fairly high before you are required to collect sales tax. The threshold determined in the Wayfair v. South Dakota case is $100,000 or more in sales or 200 or more transactions to the state. Most states are adopting this same threshold, but some are setting the bar higher or lower in terms of dollar sales and transactions. It’s highly likely that most if not all states will eventually come into lockstep with the current $100,000 in sales dollars or 200 transactions or more threshold, but until then it’s important to understand your potential exposure in any given state. Your first step should be to check your sales by state for the previous year and then determine where your sales are going and how many, and how much you are shipping to a particular state. Sellers operating on sites like Amazon and eBay it’s a bit more complicated especially if you throw fulfillment by Amazon into the mix. It does appear highly likely that these sites will begin to collect sales tax on the seller's behalf, but again this has not happened yet so as a seller on these platforms it is your responsibility to monitor and remit these taxes where applicable. This may seem a bit scary to some sellers but again the threshold has been set quite high in most states if you have not yet hit $100,000 in annual sales then there is very little need to be concerned but if your close or over in one or more states do yourself a favor and consult an accountant familiar with the new regulations on internet commerce.
What this means to our customers is that in order to avoid paying sales tax you will now be required to fill out some basic paperwork. The form is called the Uniform Sales & Use Tax Exemption Certificate. Most states have exceptions for buyers who intend to resell tangible purchases like liquidated merchandise. Yes, it does require you to fill out some more paperwork, and I know no one likes paperwork but the good news is it's simple, and it saves you money. Fill out the form and avoid those added costs to your bottom line.
Sales tax will not stop online retail in fact it's legitimizing it, consider this just a small bump in the road that will soon be forgotten.
Below you will find a copy of The Uniform Sales & Use Tax Exemption Certificate with instructions on how to complete the form.