Recently, a U.S. Supreme Court ruling upholding a 2016 South Dakota law that requires online merchants to collect state sales tax if, annually, they do more than $100,000 in sales or complete 200 transactions with state residents has the independent gourmet housewares market clamoring for more information on how this may affect their businesses.
While some in the independent market don’t do enough e-commerce volume to react to the ruling, it will still require an ample amount of education and preparation from the industry.
“The recent Supreme Court ruling allowing states is very confusing, especially for small business owners, there are not many clear rules,” said Josh Stack, vp/purchasing for Lafayette, IN-based J.L. Hufford.
According to the ruling, states are allowed to collect sales tax made on purchases even if a retailer does not have a physical location in the state. While some retailers applaud the ruling for giving local stores an even playing field with online giants, others have noted the nuances may be more taxing than originally thought.
Amongst the 40-plus states that are entitled to collect the sales tax, there are more than 10,000 tax jurisdictions that retailers will need to take into consideration, said Darren Barker, owner of Chef’s Corner Store in Centennial, CO. This, he said, is an issue for small retailers. Because there are so many tax jurisdictions and rates, keeping track of sales tax owed is an impediment to businesses.
“Collecting and remitting these taxes isn’t going to be easy. This can be an argument for Congress to create a standard sales tax because now, online retailers are going to have to pay a service to track these for me and remit them; hire a new staff member to do it; or take an existing staff member and teach them how to do it,” he said. “This isn’t a part-time job. You will need to bring someone — or a team — in full time.”
Another complexity to collection and remittance is category of goods sold. Stack explained items are taxed differently and retailers will have to do their research, especially those that sell food products online.
“While the majority of what we sell are hard goods, when it comes to food goods, in his opinion Chief Justice John Roberts mentioned some things don’t need to be taxed in some states. Retailers will need to be more aware of those tax rates on the food,” he said.
While a home court advantage and a boost in revenue may spur states to implement the ruling, it may put small, local retailers looking to grow their business with an e-commerce site at a disadvantage. Stack suggested that the ruling could prevent retailers from adding an online shop, essentially holding them back from expanding their business.
“The new ruling can certainly be a hindrance for retailers looking to launch a new e-commerce site and squashes the possibility for some. Anyone not established online yet but wishes to will have to re-evaluate their plans because it will cost them more,” he said.
Barker also explained as an e-commerce entity, the decision to register to pay taxes can be tricky as it depends on dollars and transactions in some states. Smaller retailers and makers that come in slightly under the threshold may begin refusing sales from a certain state, which takes money out of their pockets. In addition, registering based on sales or transactions can also subject retailers to an audit if the actual volume exceeds the projected volume and, therefore, pushes retailers over the threshold.
(Senior editor Lauren De Bellis contributed to this story.)