Is Internet Sales Tax Good or Bad for Small Business?

Working through a large docket backlog, this week the Supreme Court ruled on one case with potential implications for small business owners. Titled South Dakota vs. Wayfair (as in the state vs. the online home goods retailer), the case looked at whether states had the ability to impose sales taxes on online purchases. In a 5-4 decision, the highest court in the land ruled that they did, reversing previous precedent that suggested retailers had to have a physical presence in the state for taxes to be imposed on them. So what does this new ruling mean for small businesses?

For brick-and-mortar “mom and pop shops,” the updated rules could be beneficial as they essentially level the playing field by removing what some had called an unfair advantage that e-retailers had. However the effect might not be as strong as some might hope. According to Jeff Spross of The Week, 19 of the top 20 online retailers were already collecting sales tax — including the infamous Amazon. As a result, while added taxes might lead some consumers to skip online and return to physical retailers, whether this ruling will be a mall and Main Street savior remains to be seen.

On the other side of things, there are those who argue that the court’s ruling could put a massive burden on small business who operate online. In his piece assessing the matter, Spross notes that these outlets could soon be forced to employ expensive systems in order to keep up with all of the tax obligations they’ll need to abide by. During the court proceedings, testimony was given pegging the cost to implement such systems as high as $200,000. While that figure would almost certainly prove too high for most small businesses, with many relying on third-party platforms such as eBay and Etsy or e-commerce tools like Square of Shopify, one has to wonder how many entrepreneurs will face those costs alone. Additionally Spross reports that 24 states have said they will offer free software to businesses to help them meet their sales tax obligations.

Like many Supreme Court decisions before it, the outcome of South Dakota vs. Wayfair is a bit of a mixed bag — especially when it comes to small business. For online retailers, the new rules could be frustrating at best and costly at worst. Meanwhile physical retailers may finally feel like their getting a fair shake when it comes to their tax burden, but are their hopes artificially high? Of course, with the decision still relatively hot off the press, it could be a few months before any effects from the ruling are felt. Perhaps after the holiday season we’ll have a better idea of how the new rules are really impacting small businesses across the country.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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