US Supreme Court Tax Ruling Means Authors Have to Collect Sales Tax on Direct Sales
Whip out the Advil, because a recent ruling by the US Supreme Court is going to cause a lot of headaches for authors and other small operators who sell online.
The Court issued a ruling today in South Dakota v. Wayfair which overturned decades of precedent and created a thorny tax problem for sellers.
State governments may require online retailers to collect sales taxes even in states where the retailers have no physical presence, the US Supreme Court ruled in a decision issued today.
The 5-4 ruling could clear the way for more states to require collection of sales taxes on products ordered online from out-of-state retailers.
The case, South Dakota v. Wayfair, Inc., Et Al., involved a South Dakota state law "requiring out-of-state sellers to collect and remit sales tax 'as if the seller had a physical presence in the State,'" the decision noted. Online retailers argued that the law was unconstitutional, and the State Supreme Court agreed, but the US Supreme Court overturned the state court ruling. South Dakota expects to collect another $48 million to $58 million in taxes a year because of this ruling.
The South Dakota Supreme Court based its ruling on a 1992 US Supreme Court case, Quill Corp. v. North Dakota, which held that out-of-state companies don’t have to collect state sales taxes in states where they don’t have a physical presence.
Today’s Supreme Court ruling said the Quill decision was flawed:
Quill imposes the sort of arbitrary, formalistic distinction that the Court’s modern Commerce Clause precedents disavow in favor of "a sensitive, case-by-case analysis of purposes and effects." It treats economically identical actors differently for arbitrary reasons. For example, a business that maintains a few items of inventory in a small warehouse in a State is required to collect and remit a tax on all of its sales in the State, while a seller with a pervasive Internet presence cannot be subject to the same tax for the sales of the same items.
"Forty-one States, two Territories, and the District of Columbia have asked the Court to reject Quill’s test," today’s ruling, written by Justice Anthony Kennedy, also said. "Helping respondents' customers evade a lawful tax unfairly shifts an increased share of the taxes to those consumers who buy from competitors with a physical presence in the State. It is essential to public confidence in the tax system that the Court avoid creating inequitable exceptions."
The thing about this ruling is that it applies to all sellers, including authors who sell ebooks, print books, and other products on their websites.
If you sell direct (and reside in the USA) then you will need to find a way to collect sales tax for every state in the US. I expect that payment processors like Stripe and Paypal will have to step up and start collecting taxes on the seller’s behalf; it is frankly beyond the abilities of most small sellers.
I don’t have the answer right now how you would collect taxes, but I plan to look into it and devote a newsletter to it.
image by Oneras