Supreme Court Ruling On Internet Sales Tax Could Become Major Headache For Smaller E-Commerce Websites

The recent ruling by the United States Supreme Court that will now require online retailers to collect sales tax on all applicable transactions is expected to cause more than just a few headaches for many smaller e-commerce websites.  The decision by the court reverses a longstanding policy of not requiring companies to collect sales tax on sales to customers residing in a state in which the company maintains no physical presence. 

This ruling is expected to be quite problematic for small business owners that before only needed to collect sales tax on sales made within their home state but will now be responsible for collecting the tax on behalf of over 10,000 state and local jurisdictions throughout the country. 

This development is expected to have less impact on online giants such as Amazon that possess the resources to maintain their own internal tax compliance division.  Smaller retailers, however, will most likely have to turn to software and third-party services which will cause an increase in operating expenses. 

The full impact of the Supreme Court decision to smaller e-commerce business owners will not be known for some time as there are still many unknowns to how various parts of the process will be applied.  One particular issue is that each state is able to set their own minimum thresholds for sales to its residents before it becomes mandatory for sales tax to be collected.  A threshold substantially different than South Dakota's $100,000 or 200 transactions in a 12-month period would likely be challenged in the courts.  It is unclear whether Congress intends to establish a uniform threshold by which all states will be required to abide.