The Supreme Court of the United States recently issued a ruling that has led to massive headaches for small online retailers who do business across state lines. The decision, which marked a sharp change from precedent, allows states to collect sales taxes from online business who do business within those states, creating a system in which small online retailers have to keep track of the different tax laws in each state across the country. Read below for an explanation of the ruling and its effect, and contact a dedicated Texas business tax attorney with any questions or for help with an IRS tax problem in Dallas or Tyler, Texas.
Supreme Court veers from precedent, makes life difficult for small business owners
For years, the Supreme Court emphasized a doctrine known as the “dormant Commerce Clause” that prevented states from enacting policies that inhibited the free flow of commerce across state lines. The federal government is meant to control interstate commerce, and the state legislatures are meant to control business within their state. In 1992 the Supreme Court ruled that North Dakota could not collect sales tax from a catalog-based office retailer that sold products to other businesses in the state but which did not have a physical location within the state. This case became the shield for online retailers who sell goods across the country without operating physical locations within each state.
Last year the Supreme Court upended this precedent in South Dakota v. Wayfair, upholding a South Dakota law which demands sales tax from any business, regardless of physical presence within the state, that has made at least 200 transactions or $100,000 in sales in South Dakota in a given year. The majority opinion said the 1992 decision was wrongly decided, and that it had become a “judicially-created tax shelter” for businesses with a limited physical presence, common now for online retailers.
The effects of the ruling have been unfortunately vague. While South Dakota’s law might exempt smaller retailers, the Supreme Court’s opinion leaves entirely unclear the low-end threshold for when a company has done enough business within a state to justify being charged a sales tax. Moreover, 200 sales may seem like a lot if you are selling large manufacturing equipment, but if you are selling novelty t-shirts, 200 sales in a given area is extremely likely. Many states have since either issued new tax laws or reinterpreted existing law to require sales tax from online retailers at various thresholds, many of which are below South Dakota’s. Many counties and cities across the country also have sales taxes, and wading through city-by-city tax laws can become an insurmountable burden for many smaller online businesses. An experienced tax attorney can help you determine both whether you owe taxes in a locale and, if so, what you owe.
If you’re facing a complicated tax issue involving state or local tax law, or payroll or other business taxes, get skilled legal help with your case from the Texas tax lawyers at the Scammahorn Law Firm, PC at 903-595-1000, with offices in Dallas and Tyler.