Since Amazon’s launch in 1994, eCommerce has reinvented the global marketplace. By allowing businesses, both large and small, to sell their products across state and national borders, eCommerce has enhanced the customer experience and allowed companies to extend their geographic reach.
On June 21, 2018, however, the U.S. Supreme Court’s decision to overturn Quill Corp. v. North Dakota set in motion a new judicial policy that will impact remote sellers, eCommerce web design, and online shoppers around the country. The 5-4 decision can now require businesses that sell retail via eCommerce to collect use tax on all online purchases across state lines, regardless of physical presence.
“The Wayfair ruling represents a landmark decision in sales tax policy within the United States,” says Eric R. Bettendorf, CPA at CBIZ MHM, LLC. “This is going to affect companies of every size and industry, from giant corporations to start-up ventures.”
A Brief History on Quill Corp. v. North Dakota:
In 1992, the state government of North Dakota sued Quill Corp. for failing to collect state sales tax on mail-order purchases made by its local residents. The U.S. Supreme Court ruled in favor of Quill, stating that the company did not have brick and mortar (i.e. physical presence) in the state; therefore, they were not required to collect use tax.
Now, more than two decades later, the Wayfair decision has eradicated the physical presence requirement, and remote sellers may now be required to collect use tax.
How This May Affect Your eCommerce Business
As one would anticipate, there are numerous questions surrounding the recent Wayfair decision, including:
- Can states enforce compliance to the new policy prospectively or retroactively?
- How can small, startup eCommerce websites manage the multitude of different state sales tax collection responsibilities?
Time will eventually tell just how big of an impact the Wayfair decision will have on remote sellers. One thing is for certain; however, internet retailers will need to reevaluate their current eCommerce web design and development to ensure they are reporting and filing sales tax according to each state’s requirements. To comply, online retailers will likely need to invest in better sales tax automation and management software, as well as work with an experienced CPA firm to assess the impact the change will have on their businesses.
Bettendorf states, “As always, we find the best results come from being proactive rather than reactive. I strongly encourage all business owners and tax departments to obtain an understanding of how the Wayfair decision will impact your company. Make it a priority.”