How the South Dakota v’s Wayfair case will affect online traders

This week the US Supreme Court ruled in the case of South Dakota v Wayfair Inc, that the state Governments are able to impose local sales taxes on online sales.

Previously, businesses only had to charge and pay sales taxes on internet sales if they had a physical presence (eg a warehouse) in a state.

As many states in the US depend on sales taxes as their primary tax base, the losses from online sales to local Government are significant and increasing. South Dakota for example, which has no Income Tax, estimates losses at over $50m per annum.

The success in court for South Dakota will enable them to tax retailers making more than 200 sales or a minimum of $100,000, to collect and remit a 4.5% sales tax. Other states will invariably follow but, this will take some time and there will be much confusion as local sales taxes across the 51 states vary enormously.

The ruling, which has been coined a ‘victory for bricks and mortar businesses’ will affect large online retailers immediately and indeed, share prices dropped when the ruling was announced.

Arguably it is the smaller online businesses, without the multinational infrastructures of the likes of Wayfair and Amazon who will take the hit as there is speculation that they might not only be required to collect taxes from customers across the US, but also fill in tax forms in different states, each of which has very different tax rules.

We will cover the changes as they are announced in order to provide advice to our clients.

Shaw Gibbs are able to with US tax compliance and advice, see more information here.