Many clients have been wondering how the U.S. Supreme Court ruling this past June may affect the need to collect sales tax on online sales to out-of-state buyers. The ruling in South Dakota v. Wayfair overturned a precedent that prohibited states from imposing sales tax on retailers that lack an in-state physical presence.
Currently, most online sellers who do not have a physical presence in the state of the online customer, have not had to worry about collecting and remitting tax to that state. A few states (including New York since 2008) have enacted “click-through nexus” legislation that requires sellers with affiliates (linking sites for sales) in the customer’s state to collect sales tax for the customer’s state. Currently, about 20 states have this type of legislation and most states have economic thresholds associated with the law; typical rules exempt sellers with under $10,000 in annual sales to that state from collecting their sales tax.
It remains unclear how individual states will react to the new U. S. Supreme Court ruling. New York State is again expected to lead the way and take up discussions in January 2019 regarding possible state statutory changes. Some tax law experts are predicting New York will adopt economic nexus standards. South Dakota’s model imposes sales tax collection at 200 separate transactions or $100,000 in in-state sales and many states are following this model.
What do all the changes mean for our clients, the small businesses of New York State? Nothing immediately, however, it is expected that our brick and mortar base will eventually enjoy a more level playing field as larger, online sellers located outside of New York will be forced to collect the state tax. For small online sellers located in New York and selling out-of-state, they may continue to avoid collection of sales tax for remote states if they stay under economic thresholds. Stay tuned to evolving individual state rules and use reliable software and e-commerce platforms to implement the appropriate tax collection rules.