The Sales Tax Shoe Has Finally Dropped: States to Require Remote Sellers to Collect Sales Tax
It finally happened. On June 21, 2018, the US Supreme Court ruled that online sellers who aren’t based in Minnesota, but who sell goods in Minnesota, must collect sales tax. This US Supreme Court ruling is not for just for Minnesota, but applies to all states. Before June, mail-order, online, and other remote sellers were required to collect sales tax in the states where they had a physical presence (like an office building or warehouse) but not other states where they sold their goods. Let’s take a look at the ruling and the effect it may have on your business.
South Dakota v. Wayfair
In South Dakota v. Wayfair, the Supreme Court ruled that states could require remote sellers to collect sales tax. Remote sellers, for example, are businesses that do not have a physical presence in Minnesota but sell goods and services in Minnesota.
This will become the biggest, and most expensive, administrative burden for many small businesses. For example, a small home-based business that sells products from their website and ships them to customers in 30 states may now need to collect, track, and remit sales tax to 30 different states!! This burden gets worse for the following reasons:
- The sales tax rules will be different in each state. For example, the way clothing is exempt from sales tax in Minnesota, but not all states.
- Each state will have its own tax ID number and login credentials.
- The sales tax reporting and payments will be handled differently by each state. Some states will require annual reports, while others will be quarterly or possibly even monthly.
- There could also be county, city, or local sales tax to collect and remit.
This ruling will require businesses that sell across state lines to research the sales tax implications for each state.
There is Some Good News
Like most states, Minnesota Revenue recently announced some exceptions for small sellers. A remote seller may be exempt from Minnesota sales tax law if they ship fewer than 100 sales to Minnesota over a 12-month period or fewer than 10 sales of more than $100,000 over a 12-month period. Each state will announce their own the small sellers exceptions. Hopefully, these small seller exceptions will help reduce your sales tax burden.
Why the New Sales Tax Rule Matters
Minnesota, like all other states, stands to generate millions more in sales tax revenue from the Supreme Court ruling. It requires businesses across the country and around the world to charge sales tax. But if you’re a Minnesota-based business selling in Minnesota, you’re already collecting sales tax. So why care about the rule change?
First, it evens the playing field for you and your remote seller competitors. Consumers can no longer avoid paying sales tax by buying from an online retailer rather than you.
Sound intimidating? It is, which is why it pays to have a great CPA such as Kaiser Tax in your corner. We stay on top of changes to state and federal tax laws so you don’t have to. To learn more about what the new sales tax law means for you and your business, contact Kaiser Tax today.