Sales Tax for E-Commerce: What Small Businesses Need to Know
Running a successful business requires an adequate understanding of pricing. Your business needs to sell its goods and services for a price that customers are willing to pay and that satisfies your business's financial needs.
When it comes to setting prices, retail sellers need to factor in sales tax. Thanks to new legislation, this is especially important for e-commerce businesses. According to the Small Business Administration (SBA), "as a small business owner, you are required to assess sales tax, collect it and pass it on to the appropriate authorities within the prescribed time." Except for wholesale items, raw materials, and sales made to nonprofits, U.S. retail businesses are required to collect sales tax on the goods they sell.
While the concept of sales tax seems simple enough, the recent Supreme Court ruling in South Dakota v. Wayfair Inc.adds complications to e-commerce companies doing business nationally. The decision enables states to charge sales tax to out-of-state sellers, which means you don't need a physical presence in a state to pay sales tax. In South Dakota, the state can now charge sales tax to any business that delivers more than $100,000 of goods or services or totals 200 transactions on an annual basis. [Interested in online tax software? Check out our best picks.]
"This is a major change in the sales tax world," said Judah Fish, CEO of Saltwater Tax Group. "Many state laws will likely change in the coming months as states will obligate online sellers to collect sales tax and restore one of their largest revenue streams."
Fish expects other states to set similar parameters to South Dakota in terms of the minimum dollar sales amount and transactions needed to enforce the tax. Other experts have shared similar sentiments. If your small business mails three $15 items across the country, it's unlikely that any state will create a law where purchases that small result in paying a sales tax, but those selling larger amounts need to take note.
With the ruling coming down in late June, there's still a lot left to play out. In the meantime, find out how to prepare your business for what's to come. Follow these general tips for managing sales tax.
How can I prepare?
"Along with the obvious changes that are going to need to be implemented from an accounting perspective, a huge portion of the impact of this decision is going to be technological," said Christian Gainsbrugh, the founder of LearningCart. "Many people take sales tax calculations for granted, but managing and calculating those rates behind the scenes is no small feat."