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One of the convenient things about living in a state like Oregon is not having to hassle with sales tax. Or at least, it used to be – because the Wayfair sales tax case has now made
sales tax an issue for businesses across the country, even in states without sales tax.
What exactly is the Wayfair tax policy, anyway?
The “Wayfair sales tax nexus” refers to a recent Supreme Court case that is changing sales tax regulations across the country. The case is complex, but I’ll give you the TL;DR version: Prior to the this ruling, a business would only be liable to pay sales tax in a state if it had established a “Nexus”, IE an economic presence in that state. This used to refer to very concrete and easy to establish criteria, like running a chain retail store with brick-and-mortar locations in a variety of states. In these instances, a business is already operating and paying tax within each of its individual states of operation, so the sales tax rate and collection for each state was already being handled within this framework. However, the age of the Internet has raised new ways of doing business, since a store can now be based in one state and sell products nationwide. The South Dakota v. Wayfair argued that online businesses should also be liable to pay sales tax in other states; the Supreme Court ruling on this established the so-called “Wayfair nexus”, meaning that sales alone establish a nexus in a state, even without a brick-and-mortar location.
Good idea – bad execution
This sales tax act seems reasonable, until you get into the actual implementation. A case like this should be a golden opportunity to make sure that large corporations don’t avoid paying sales tax by creating virtual tax shelters, but it has quickly turned into a chaotic nightmare for small business owners. Because each state has its own sales tax regulations, the interpretations of this ruling vary wildly from state to state. In some states, you have to hit a specific financial threshold of sales within that state to qualify – for example, your business would have to make $250,000 in sales in Alabama before you hit their threshold to collect sales tax, so a small business would not have to worry about sales tax filing in that state. But other states are taking a much less reasonable approach: As reported in the Wall Street Journal, Kansas has decided that a sale of any amount in their state must collect sales tax, including a person selling an old book on eBay.
What does this mean for you?
Many of you reading this are small business owners, selling crafts on Etsy or similar sites. So, what now? The first thing to tell yourself is: Don’t panic. Not to sound too cynical, but too often the goal of draconian regulations is to scare off mom & pop businesses from even trying to operate in the first place out of fear. Your accountant will help you determine if and how this might impact you, and can discuss any applicable sales tax software or tools that may be needed. You can also read up more on the Wayfair sales tax exemption on TaxConnex.com.