This will be one of the more practical posts on the More Than a Mrs. Blog and the first in a series of posting about launching and successfully establishing your own business. In a ruling that is sure to be confusing for many milspouse entrepreneurs, especially those who operate primarily online, the Supreme Court recently weighed in on a pivotal online sales tax case, South Dakota v. Wayfair, effectively widening the reach of sales tax to e-commerce. This is crucial if you operate a business that conducts online transactions. Here’s why.
The nitty gritty: Quill Corp. v. North Dakota and National Bellas Hess Inc. v. Department of Revenue of Illinois — two cases which held a state cannot require an out-of-state seller, with no physical presence in the state, to collect and pay sales taxes on goods the seller ships to consumers in the state — are overruled. In laymen’s terms, if you (an online retailer) lived in State A and a customer in State B bought a product from you online, you used to be able to use a loophole (in some states) to avoid charging sales tax on the item and to avoid remitting/owing sales tax yourself to State B for the sale, because you lacked a brick-and-mortar presence in State B.
What does the most recent ruling mean for you?* It basically curtails an Internet tax loophole that many business owners were taking advantage of, and puts Internet-based business owners on equal footing with owners who own businesses with physical locations.
Therefore, if you are an online retailer with a presence in State A, selling to customers in States B, C, D, where your only presence is digital, you may now be required to collect and pay sales tax to those other states. Of course, 31 states already have laws taxing online transactions (Is a State Where You Do Business Among Them?). We’ll have to wait and see which of the remaining states move to adopt similar laws (and watch local court rulings).
The paperwork required to accurately collect and remit taxes in such cases is likely daunting for the military entrepreneur who previously gained from the loophole, but there’s some good news. Congress has the opportunity to simplify the process. Overstock.com, a company with operations that can be likened to Wayfair, has already emerged as a proponent of Congressional action. “Unless Congress responds, the Court’s ruling may remove key entrepreneurial opportunities before they even get out of the heads of the inventors,” Overstock.com executive and board member Jonathan Johnson told Marketwatch.
You can credit the change in the court’s stance to the boom of the digital age and the failure of consumers to comply with the “use tax” they are supposed to pay when the online retailer doesn’t collect sales tax (How you can comply with something you don’t know about, thought? I would say #questionsthatneedanswers but, unfortunately, ignorance isn’t a good defense in a court of law).
How do you think the Supreme Court ruling with affect you? What concerns do you have? We want to hear from you.
The founder of More Than a Mrs. is a military spouse and attorney working for a state agency, in addition to being a former business owner and entrepreneur. This is the first post in a series about owning your own business. Make sure to subscribe here for updates.
*Disclaimer: None of the content or information on this Website shall be construed as legal advice. Please consult with an attorney or tax advisor for advice and information that may be unique to your individual situation.