2018 may turn out to be the downfall of many ecommerce businesses... particularly for Amazon sellers and for the ones who choose to ignore US sales tax trends.
It's been interesting watching the progression of this issue among ecommerce sellers. When we took on our first ecommerce seller in January 2012, virtually nobody was collecting sales tax on online sales. It really wasn't on anybody's radar. TaxJar and Taxify didn't yet exist (or were in baby stages). Many shopping carts didn't even have the ability to collect sales tax (although, to be fair, many still don't).
Back then, it was easy to run under the radar because even the state governments themselves weren't really paying attention. It seems the only people who knew the reality of sales tax - the fact that if you have nexus in a state meant that you were technically required to register in that state to collect and remit sales tax - were State and Local Tax (SALT) experts.
If you flash forward to 2018, the environment has done a complete 180. As brick and mortar businesses continue to topple on a daily basis, and as Amazon proceeds to take over the world, US states are seeing their dwindling tax revenue. And state governments don't like it.
Source: CNBC (https://www.cnbc.com/2017/07/07/amazon-is-eating-the-retail-world.html), MKM Partners
It should be no surprise to anyone that US states are looking for a way to replenish the sales tax revenue they're losing from these failed stores, and they're doing whatever they can.
In 2017, Colorado enacted burdensome legislation that affects not only Colorado-based sellers but rather any business of any real size who happens to have sales in Colorado. Proponents believe that this "levels the playing field" between online sellers and mom and pop stores. But, people who are against it recognize that if one state successfully enacts new legislation such as this... soon all states will enact this type of legislation, and the administrative burden of registering, collecting, and filing in all 45 states who have a sales tax is too much for most small online sellers to handle. Yet, the legislation stands.
So then comes the big question, "Are they really going to care/find a small business like me?"
Welcome to 2018...
Now enter South Dakota and the US Supreme Court. The US Supreme Court has agreed to revisit the Quill v. North Dakota case to determine the fate of collecting internet sales tax. Ecommerce sellers are sitting on the edge of their seat to see whether this new era of ecommerce will require sellers to file everywhere, nowhere, or somewhere in between. Given that states have lost billions of dollars in tax revenue, I have my bet on everywhere. And we should all find out the ruling by mid-summer.
Shortly on the heels of that announcement was unsettling information out of Massachusetts. Since it's largely Amazon who has cannibalized the retail market, and since it's also sellers' products sitting in Amazon warehouses which are creating nexus for so many small sellers, states are now turning to Amazon to demand they share their lists of (largely non-compliant) third-party sellers. For the first time, Amazon has agreed to turn over third-party seller data to tax officials in Massachusetts. If you have nexus in Massachusetts but aren't yet filing sales tax returns, you may want to rethink your plan.
And here's the worst news. Unpaid sales tax liability usually follows you. It may not go away even if you file bankruptcy or sell or close your business. Right now ecommerce sellers are flocking to State and Local Tax experts to help assess their risk and minimize the damage. If you haven't addressed it before now, now is the time to sit up and pay attention. (You'll want to talk to your own attorney and/or SALT expert to discuss your personal situation.)
If you'd like more information about sales tax, including how to register, tools on how to manage the process, and more - please register for our free webinar, Sales Tax Reality for Amazon Sellers, on Thursday, February 22, 2018 at 10 am MST.