The recent South Dakota verses Wayfair ruling, which will allow US States to collect sales and use taxes from ‘remote sellers’, could have wide-reaching implications for international retailers.
This is according to eCommerce specialist Tryzens, which has warned that UK retailers must study the rapidly evolving US tax regime carefully and ensure that their eCommerce platforms are flexible enough to accommodate State by State variability, to avoid getting burnt by the ruling.
On June 21, 2018, the Supreme Court of the United States issued its widely anticipated decision in South Dakota verses Wayfair, et al. No. 17-494. The Court ruled that the physical presence rule for State tax jurisdiction is incorrect and not a requirement under the Commerce Clause of the US Constitution.
This in effect means that individual States will be able to collect sales taxes from out-of-State sellers, overturning a decades-old Supreme Court decision which said sellers only had to collect State sales taxes if they had a warehouse or office in the State.
Although it remains to be seen how the ruling will be applied from State-to-State and internationally, individual States may attempt to assert taxing rights over foreign-based companies that lack a physical presence in that particular State.
“Faced with a market that is increasingly mature, many UK retailers are looking to break into new territories, like the US, and the beauty of eCommerce is that they can do so with little to no physical infrastructure, albeit with other technical and fulfilment challenges. But the Wayfair ruling is a real paradigm shift and creates a precedent that is likely to run on. Retailers will need to do more thorough due diligence on how to accommodate these changes relating to ‘remote sellers’ as the picture evolves over time, State by State, in order to be able to comply with the new tests, which are known as ‘economic nexus standards’. Whilst there is still a lot of ambiguity about how this will work in practice, UK retailers that sell in to the US would do well to start preparing for the changes ahead. 45 States in the US collect sales taxes, and, to make things more complicated still, sales tax rates differ from State-to-State. UK retailers will need to ensure that these differences are accommodated for in their eCommerce platforms and CRM systems, as well as considering pricing implications due to the variability of the rates by State to stay on the right side of the IRS!”
– Andy Burton, CEO, Tryzens