Sales Taxes and Small Businesses: South Dakota vs. Wayfair
South Dakota vs. Wayfair marks a significant change in how businesses and states handle sales taxes. Got questions? We’ve got answers.
Sales Taxes across State Lines
Particularly in the age of the viral news article, reading carefully about what judicial and legislative decisions mean for your business makes sense. In the particular case of South Dakota vs. Wayfair, it’s easy to get confused. This case marks a major turn in how businesses– especially multi-state businesses without a physical presence in all the states where they sell goods or services– and states interact, tax-wise. The hardest-hit businesses will (probably) be the mega-giants like Amazon and Walmart, which have huge online sales presences, but that doesn’t mean your smaller business won’t feel the impact eventually. Read on for a breakdown of the ruling and what that might mean for your business moving forward.
SCOTUS sided with South Dakota and said that, yes, states can charge sales tax even when businesses physically operate elsewhere. They also added a new term, economic nexus, to the list of what can be considered when states and businesses interact. States can now impose taxes on out-of-state sales, especially when those sales coincide with the state’s economy significantly– creating an economic nexus. That line is $100,000 or 200 sales in the state.
A Quick Example
Let’s give an example, for clarity’s sake. Business A has its headquarters in Atlanta, Georgia, but serves surrounding states as well as Georgia. In good ol’ GA, they pay whatever the legal requirement of sales taxes are on the goods and services they sell. Currently, they do not pay Alabama sales taxes, despite over $200,000 of sales coming from the Mobile area alone. Once Alabama implements laws like South Dakota’s, Business A will pay Georgia sales tax for Georgia sales and Alabama sales tax for Alabama sales.
Business B, though, also operates out of Atlanta but only has a few sales out of state– let’s say the owner also knows some folks in Nashville, but only sells about $50,000 in Tennessee. That will still be taxed according to Georgia sales tax rates.
Economic nexus is a new area states can use to determine whether or not to impose sales taxes on businesses. But there is good news! Not all states currently engage with this term, since the ruling came down only last month. However, it may only be a matter of time before most states consider what economic nexus exist and how they might levy taxes on businesses that sell there. South Dakota won the case, but it won’t be the first or only state to write laws on the subject. Multi-state businesses should start tracking and examining their sales across state lines as soon as possible. This goes double if they operate without a previously necessary physical presence.
Well, This Changes Everything.
You might consider expressing your views to local and state political officials. Most states will likely want in on this new source of revenue. Small business owners can understand and influence how much states collect, where that money goes, and when states implement taxes. All of this impacts growing, starting, and maintaining a strong business.
Feeling some anxiety about tracking and managing sales across states? Contact us at Friendly Systems and let us take a gander.