Yesterday, the U.S. Supreme Court ruled that states have the authority to require online retailers to collect and send them sales taxes.
The catalyst behind this court ruling is a lawsuit the state of South Dakota filed against three large online retailers, a case that ultimately made its way to the Supreme Court.
So, what might this ruling mean for the affiliate industry and for you as an online retailer?
The following are our observations on these changes and the potential impact. However, please note we are not lawyers or accountants and this is not meant to be taken as advice.
1.While the details will still be up to the states, physical presence won't be required for a state to require an online seller to charge sales tax on taxable sales to its customers. One thing this is likely to mean is the ending of the complicated, nuanced and disparate laws around how companies doing business in a state must collect and pay tax on sales in that state (Nexus).
2. It can be expected that most—if not all—states will start implementing taxes at some point for out of state purchases. There will probably be minimum levels established so that taxes on smaller business bringing limited sales into a state won't be too burdensome.
3. Once states begin requiring out-of-state retailers to pay sales tax, retailers not wanting to lose revenue from selling to that state will collect sales tax in that state. When this happens, affiliate programs who have blocked or excluded affiliates from certain states out of fear of triggering Nexus will open their programs to these affiliates again.
This will simplify life for affiliate program managers and could mean a significant boost to publishers in states where being excluded from programs had hurt their revenue in the past few years.
This helpful CFO.com article does a good job laying out what some of those challenges are for remote retailers, marketplace providers, international sellers and many others, and provides steps to follow should this very outcome occur.
4. While companies like Amazon (which as of April 1, 2018, collects sales taxes on its own direct sales in every state which has them) won't be directly affected by the Supreme Court's ruling, it is likely that smaller retailers that sell their goods through Amazon could face a significant impact, since a portion their sales haven't been taxed (to date).
5. Consumers will soon likely be paying more in taxes for online purchases, thus leveling the playing field with brick and mortar retail.
Here are a few other things to note.
- Purchasers have technically been required to pay sales tax to their home state, even where the seller does not charge a sales tax. In reality, however, very few do this.
- This Supreme Court ruling is limited to the states' ability to impose a sales tax collection responsibility on an out-of-state seller.
With that in mind, the main takeaways are:
As an online seller, you will need to understand the rules in each state related to the taxability of your products. States have varying rules around items such as software and clothing. So what is taxable in each state may be different.
Determining what impact this new Supreme Court ruling may have on your company and online retail activities is likely to be different from company to company and state to state. As such, we recommend that you consult with a qualified attorney or accountant before making any decisions related to your affiliate marketing program.
Disclaimer: This information is not tax or legal advice. Acceleration Partners has provided this information as a courtesy for your convenience. AP shall not be responsible for the accuracy of such information, especially considering a portion of the information may be provided by third parties. We therefore disclaim all liability and responsibility arising from any reliance placed on such information.