Attention, online retailers! We know online retailers are confused, unhappy, and, angry. Or they are totally unaware of the massive tax ramifications of the recent Wayfair decision by the Supreme Court. Gavrilov & Co reported on that decision on Jun 27th. And now we must reveal reactions and follow-up to that blog story.
Online Retailers Must Re-Check Their Sales-tax Policies
We wrote on June 27, “E-commerce has changed forever since the Supreme Court Decision of June 21st.” We predicted, “This news will change taxes and business on the Internet in the foreseeable future. The Supreme Court has Made a Landmark Ruling on the right of individual states to assess sales tax for e-commerce and online businesses.”
In a nutshell, our story explained that the Supreme Court ruled that the court repealed the Quill act. “What the Wayfair decision means is that online retailers will now be required to collect sales tax from customers in individual states, even if they do not have a physical presence in those states.”
Small online retailers with ecommerce websites will be hit the hardest by the new interpretation of the law. (That is, unless they have had the savvy to already have been collecting state sales taxes.)
Entrepreneur Magazine reported. “And while major retailers such as Amazon, Target and Walgreen’s may see little impact, it’s the small businesses that need to pay more attention to these changes.” Experts tell online retailers that “the new sales tax will affect thousands of entrepreneurs who sell online. This will include millions of consumers and retailers.”
Online Retailer Blues: What’s in Your Tax Burden?
Online businesses like small middle-market stores and new companies are expressing a myriad of worries. They foresee tax burdens, payroll problems and trouble monitoring the new rules for a number of differing jurisdictions and in 50 different states.
How Many Online Retailers are Worried?
Deloitte recently conducted a poll that indicated 75 percent of “respondents said they are very or somewhat concerned about what various states will do in response to the decision.”
- 32.4 percent of the respondents cited “Taxability decisions” as their biggest challenge.
- 24.7 percent stated worries about calculating and remitting sales tax
- On the one hand, 37.6 percent, over a third of the respondents surprisingly claimed their organization’s IT and tax departments stand ready to calculate, collect and remit sales tax.
- On the other hand, 17.8 percent said they are not at all prepared.
- 6.5 percent of the respondents were mystified about analyzing their financial statement positions.
A Leader’s Calming Statement to Online Retailers of All Sizes
Valerie Dickerson, Deloitte’s national multi-state tax leader stated, “We’re hopeful that states will be reasonable about companies getting up to speed on collecting…” But she added briskly, “States have to get ready. And some companies have to get ready if they’re not already collecting.”
5 Ways The Wayfair Decision Could Affect Online Retailers
With reference from the celebrated accounting journal, Accounting Today, here’s how we list the top five impacts of this Supreme Court decision
One: Crossing State Lines
States will must individually approve taxes across state lines. (Check into why by referring to our previous article on this topic.) In short, the court decision now permits states to tax internet sales and many mail orders—that’s crossing state lines. On the possibly advantageous side, this process will improve state revenues. In fact, it might cause a windfall for some states.
“Sales taxes account for an average of 46 percent of state revenue, according to the National Association of State Legislatures. South Dakota contended it has lost $48 million and $58 million annually to untaxed internet sales. The ramifications nationally are big. In 2017 e-commerce accounted for 13 percent of total retail sales and 49 percent of the growth.”
Two: Online Retailers Must Improve their Bookkeeping.
The point is that online retailers will need to closely track sales levels and tax law changes in every state where they conduct business. As a side-note, we must comment that this is an amazing endorsement professional accounting. Even small businesses will need significant tax research and assurance for online sales that cross state borders.
Take heart if you are worried. Not all states have yet implemented this online sales tax. Still, online retailers must watch closely for new developments in tax laws.
Supreme Court Ruling
“For example, the Supreme Court ruling said that an online retailer has to pay South Dakota sales tax if it reaches 200 taxable sales in a calendar year, or $100,000 in gross income from customers in that state. Many states are already adopting the South Dakota benchmark model.”
Three: Online Retailers and the Creation of New Tax Systems
Your online business must create or adapt a system for collecting these new collect sales taxes. This could mean new software, new staff or monthly payment reports. “For example, if an online retailer in Phoenix has a customer buy from Atlanta, this Arizona retailer may then be required to send a sales tax check to Georgia that month. And if it’s a big retailer, it will need to set up systems to send 50 sales tax checks out every month.”
Four: Time to Re-Evaluate Your Bottom-Line
Online retailers will have to re-evaluate their bottom line. We know there are many small businesses, like eBay stores, and stores on Amazon and Etsy. These little businesses might see their profits sink. Thus we recommend you analyze your profit and loss statements and adjust accordingly.
Five: Evening Up the Playing Field Again
Undoubtedly, the Brick-and-Mortar stores will reap the best benefits from the Wayfair decision. Retailers with a physical store will find it easier to compete in an arena where online retailers are newly taxed.
And shoppers will no long run away to nearby states on internet stores, just to avoid paying tax.
As we noted in our previous article on this topic, we saw the Internet change the way the world shopped. And it will continue to do so. That makes the Wayfair decision especially significant to history and to your wallet. “According to research firm eMarketer, for U.S.” Then, statistics revealed, “in 2017, e-Commerce sales grew 15.8 percent, to $452.8 billion. And research firm Statista projects that eCommerce will comprise 15.5 percent of all global retail sales by 2021.”
Prepped and Ready For Tax Time
As we approach tax preparation season in the near future, we believe this story will have even wider ramifications. Thus, Gavrilov & Co will continue to watch the Wayfair decision and the effects it will have on retail habits, the holiday season, and your online retail business.
As always we thank you for reading the Gavrilov Blog, as we continue our journey to bring you the hottest issues in the financial worlds of accounting and taxation.