The Supreme Court just passed down a ruling allowing states to require online retailers from out-of-state to collect sales taxes on purchases. Previously, states could only ask online sellers to collect sales taxes if that seller was located in the state.
According to The Washington Post, states were losing out on an estimated $8 billion to as much as $33 billion each year in taxes. This will be a huge windfall for states. It may also level the playing field for brick-and-mortar businesses that have always paid local and state taxes.
Big online retailers may see little effect
Online giants like Amazon and Target already often charge state taxes, but even the big players do not generally collect local taxes. However, big retailers have a lot more resources to react to such changes. For retailers like Target that also have many physical locations, this could prove to be an overall boost to business.
Online small businesses may face big issues
Small online businesses may not be so lucky. Each state has different tax laws. Some charge sales tax on certain goods and not others. New Jersey, Pennsylvania, Minnesota, and Vermont do not charge sales tax on clothing purchases. Then there are local taxes that change from city to city, which adds up to some 10,000 plus tax jurisdictions across the country. It will also be up the individual states to decide when sales tax will be collected from online sellers. Some states may choose to collect taxes if sales reach a certain number, or collection could be guided by the number of sales transactions each year.
For small businesses with a staff of just a handful of people or less, wading through all these different codes is a potential nightmare. Some companies offer services to calculate taxes, but these services would, of course, cut into the seller’s profits. It is not only the issue of collecting taxes from consumers. Retailers will also have to report and pay these taxes to the revenue department in each state.
Online marketplace Etsy stated over 75 percent of its sellers are one-person businesses. Etsy believes that in order to make the law fair for such small businesses, the federal government will need to step in and create a simple solution.