Business Taxes

How Will the 'Wayfair' Supreme Court Decision Affect Retailers? 5 Ways.

While major retailers like Amazon, Target and Walgreens may see little impact, it's small businesses that need to pay more attention to these changes.
How Will the 'Wayfair' Supreme Court Decision Affect Retailers? 5 Ways.
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Guest Writer
CPA, Author and Founder and CEO of WealthAbility
4 min read
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The recent Supreme Court decision in the South Dakota v. Wayfair, Inc. case announced on June 21, which supported imposing online sales tax across state lines, will have significant impacts on entrepreneurs, small business and consumers.

Related: The Supreme Court's Decision on Online Sales Taxes Will Reshape Retail -- Again

To prepare for this major change, entrepreneurs need to evaluate the five ways this ruling may change their budgets, systems and staffing.

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.And while major retailers such as Amazon, Target and Walgreens may see little impact, it’s the small businesses that need to pay more attention to these changes.

In fact, the new sales tax will affect thousands of entrepreneurs who sell online, along with millions of consumers and retailers. Here’s how small businesses can break down the five major impacts of this Supreme Court decision:

1. States must individually approve taxes across state lines.

What the decision means is that states can now choose to tax most internet sales and most mail orders. And, while all states are not currently taxing across state lines, it’s only a matter of time before all 50 states apply this new tax because it will increase state revenues.

Related: Supreme Court Gives States OK to Collect Sales Taxes on Online Sales

2. Online retailers must track sales levels and tax law changes in all states where they do business.

This online sales tax has not been implemented in all states, so it will be important for online retailers to track these changes. And these retailers will want to pay attention to the transaction levels (dollars and sales volume) that require small business to pay state tax across state lines.

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.

3. Retailers must set up systems to collect sales tax wherever they do business.

While there is new software to help online retailers pay state sales tax, there will be new costs and extra manpower expenses for small business to consider. Retailers may be required to send monthly payments and reports to states for sales tax based on where their customers live.

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.

4. Online retailers need to re-evaluate their bottom line.

Small businesses that sell products on Amazon, eBay, and Etsy may see their profits drop dramatically, or even see no profit, as states start charging this sales tax. As a result, these online retailers will need to review their profit and loss numbers closely and may need to make some tough decisions.

5. Brick-and-mortar retailers will benefit.

 Alternatively, the Wayfair decision is a huge win for brick-and-mortar retailers with a physical store who have found it hard to compete with online retailers. Consumers will no longer have a choice whereby they can avoid state tax by buying online in some states; so they may start going back to physical stores.

Related: Your Ecommerce Business Might Owe a Ton of Taxes You Don't Know About

The reason this decision is so important is that the internet has changed everything for retail, and expanded sales opportunities for small business across state lines. According to research firm eMarketer, for U.S. ecommerce in 2017, 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.

If you’re a big online retailer such as Nordstrom, Nike or CVS, chances are tyou'll see little to no impact to your bottom line. It’s the small businesses that will have to make more changes, and watch those impacts affecting their overall bottom line. 

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