South Dakota V. Wayfair Inc.

South Dakota V. Wayfair is a monumental Supreme court ruling that has changed how sales tax is recognized and collected.

In 2017, this Supreme Court ruling ordered online sellers to remit sales taxes to states where the buyer is located, if the state chooses to require it. This is referred to as destination based sales tax, meaning that the taxes are determined by the destination of the sale. Sellers are now required to maintain compliance with the local taxing authorities by ensuring they have the proper licensing (if the local taxing authority requires it) and remitting the sales tax to the appropriate state and/or city where the purchase was made.

Put more simply, destination based sales taxes are sales taxes due to the region where the purchase was made. For example, if you own a business in Colorado and you ship your product to customers in the state of California, you might be required to collect and report California sales taxes!

Until this Supreme Court decision, states like South Dakota were losing out on sales tax revenue because of eCommerce. Businesses would only owe sales taxes to the state where they were physically located. Since customers could get away without paying sales tax, they were incentivized to buy online instead of from local retailers. The State of South Dakota viewed this as a long-term loss for the local government and businesses, and for their local economy. The state’s tax revenue was greatly diminished, and it appeared that it would only keep decreasing as time went on.

How does the Wayfair case affect me?

Even though the case was only between South Dakota and a number of online retailers, the Supreme Court decision had ramifications across the entire country. Individual states across the country have been redefining their relationships with online retailers. Even without a physical presence in the state, a business can be required to remit sales tax to the state once they reach a certain threshold of sales. South Dakota determined that once a business makes 200 sales or $100,000 in sales annually to South Dakota based customers, the business is required to remit sales tax to the state. Many states have implemented a similar standard of requiring out-of-state sellers to collect and remit sales tax in their states. A seller must be sure to check with each individual taxing authority to get the most accurate information. Here are some of the states that require a destination-based sales tax:

• Alabama

• Arkansas

• Colorado

• Connecticut

• District of Columbia

• Florida

• Georgia

• Hawaii

• Idaho

• Indiana

• Iowa

• Kansas

• Kentucky

• Louisiana

• Maine

• Maryland

• Massachusetts

• Michigan

• Minnesota

• Nebraska

• Nevada

• New Jersey

• New York

• North Carolina

• North Dakota

• Oklahoma

• Rhode Island

• South Carolina

• South Dakota

• Vermont

• Washington

• West Virginia

• Wisconsin

• Wyoming

(Source: https://blog.taxjar.com/charging-sales-tax-rates/)

Your business may owe sales tax to any of these states. It's imperative to stay abreast of these requirements to make sure that you are compliant.

What can I do about it?

As a business owner, you need to know where a tax obligation exists because each destination mandates a different rate. This can be very difficult without the assistance of an application such as Taxjar® to keep track of sales tax obligations automatically. With the integration of Taxjar® into your selling platform, you can rest assured that your sales taxes are taken care of.

If the sales tax is not collected from the customer, then the obligation to pay the taxes settles on the seller. The liability is ultimately held by the seller and it is their responsibility to ensure the sales tax is collected and remitted to the proper taxing authority.

The best way to make sure that your company always maintains compliance is to have a professional like Sonder Accounting watching your back. According to the IRS Tax Crimes handbook (page 2, PDF page 19) anyone that attempts to evade taxes of any kind will be guilty of a felony and may be fined up to $100,000 for individuals or $500,000 for corporations. The individual or corporation may also face 5 years in prison. Don’t let this happen to you or your business.

Your hemp and CBD business can be kept out of harm's way with our thorough sales tax management services. The new laws regarding sales and use taxes can come at a hefty price if they are not done properly. With Sonder Accounting, you and your business can have peace of mind about destination-based sales tax.

Related Article: Superior Sales Tax Management