On June 21, 2018, the Supreme Court made a landmark decision, ruling that states have the authority to require businesses to collect online sales tax on purchases even if the business does not have a physical presence in the state. This decision has major implications for businesses of all sizes, particularly small- to mid-sized businesses that must adapt to remain compliant.
Impact on Small Businesses
Previously, businesses were only required to collect sales tax in states where they operate physically. However, the Supreme Court’s recent ruling has changed this, creating a significant incremental compliance obligation for small businesses with an e-commerce presence.
According to Mike Trabold, the Director of Compliance Risk for Paychex, Inc., this ruling is not all bad news for business owners. Smaller brick-and-mortar operations who have always been required to collect sales tax are hailing the decision as providing long-overdue competitive equity.
Tools for Tax Preparation
Preparing taxes can be a complex and overwhelming activity, but there are many tools and resources available to help make the process smoother. Some of these options include:
– Online preparation services through professional offices
– Software programs that guide you through the process
– Private offices that offer the services of CPAs or tax attorneys
– Franchise tax preparers that use proven systems to handle your taxes
While these options all have their benefits, it’s important to choose the option that best suits your individual needs. For example, if your taxes are straightforward, a simple software program may be enough. However, if your taxes are more complicated, you may need the help of a professional CPA or tax attorney.
Impact on Online Retailers
While online retailers have some time to adapt to the new ruling, they will need to be prepared to collect online sales tax in states where they do not have a physical presence. However, some states already have, or will likely enact, thresholds above which the tax will be triggered. Thus, if your activity in a particular locale is below an ordained dollar or transaction level, you may be exempt.
The Streamlined Sales Tax Agreement, which 24 states currently participate in, also provides for free sales tax compliance software for retailers under certain circumstances.
Next Steps for Business Owners
While some effects of this ruling are unknown at this time, business owners can take steps to prepare. First, assess the impact, evaluating where your main out-of-state sales come from. This will give you a sense of where you may want to focus your compliance attention.
Next, find tools and resources to help ease the transition. Look for an established software solutions provider that provides a comprehensive, easy to use, reasonably priced product and which has the resources needed to stay abreast of the wide, complex, fluid array of state and local sales tax requirements. Your CPA will also be able to provide guidance aligned with your specific situation.
The recent Supreme Court ruling on online sales tax has major implications for small- to mid-sized businesses and online retailers. However, with the right tools and resources, it is possible to prepare and adapt to these changes. Business owners should assess the impact, find tools and resources, and seek guidance from professionals to ensure compliance and success in the future.